The 2018 Farm Bill: Context and Policies

Details and descriptions of farm policy and programs in 2018 Farm Bill (Agriculture Improvement Act); special focus on commodity and dairy, conservation, crop insurance.

1. Brad Jordahl Redlin March 28, 2019 Context and Policies

2. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies

3. Crop prices have s een dramatic change...

4. …and not just crops….

5. …but those prices don’t have a profound effect on food prices

6. Price and profitability. Every farm is different, but USDA has regional survey data and estimates to summarize costs and returns. Corn production costs and returns per planted acre , excluding Government payments, Heartland, 2010-2016 Item 2010 2011 2012 2013 2014 2015 2016                 dollars per planted acre Gross value of production Primary product: Corn grain 723.11 883.50 811.58 757.35 628.29 633.36 610.08 Secondary product: Corn silage 0.24 0.42 0.33 0.35 0.29 0.30 0.24 Total, gross value of production 723.35 883.92 811.91 757.70 628.58 633.66 610.32 Operating costs: Seed 87.72 90.78 98.83 104.96 108.41 109.17 106.49 Fertilizer 2/ 118.09 155.18 164.77 161.58 156.78 144.54 122.22 Chemicals 26.95 26.95 28.31 29.40 29.94 28.66 29.60 Custom operations 3/ 15.25 15.53 15.84 16.47 16.93 17.66 17.96 Fuel, lube, and electricity 22.18 27.76 25.98 27.62 28.20 18.14 16.17 Repairs 21.77 22.45 23.12 23.34 23.79 23.75 23.79 Purchased irrigation water 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Interest on operating capital 0.29 0.17 0.24 0.16 0.12 0.29 0.73 Total, operating costs 292.25 338.82 357.09 363.53 364.17 342.21 316.96 Allocated overhead: Hired labor 2.61 2.64 2.73 2.81 2.86 2.97 3.07 Opportunity cost of unpaid labor 20.21 20.42 21.15 21.76 22.17 22.97 23.80 Capital recovery of machinery and equipment 81.22 86.16 90.47 93.06 96.50 98.74 99.43 Opportunity cost of land 150.49 163.77 184.42 200.65 208.03 212.46 192.39 Taxes and insurance 7.77 8.18 8.26 8.42 8.58 10.10 10.04 General farm overhead 17.37 17.91 18.45 18.63 18.98 18.95 18.98 Total, allocated overhead 279.67 299.08 325.48 345.33 357.12 366.19 347.71 Total, costs listed 571.92 637.90 682.57 708.86 721.29 708.40 664.67 Value of production less total costs listed 151.43 246.02 129.34 48.84 -92.71 -74.74 -54.35 Value of production less operating costs 431.10 545.10 454.82 394.17 264.41 291.45 293.36 Supporting information: Price (dollars per bushel at harvest) 4.33 5.70 6.82 4.59 3.51 3.64 3.28 2/ Cost of commercial fertilizers, soil conditioners, and manure. 3/ Cost of custom operations, technical services, and commercial drying. Source:  Compiled by ERS using Agricultural Resource Management Survey data and other sources.

7. Number of U.S. farms for 2017 estimated at 2.05 million, down 12,000 farms from 2016. Total land in farms, 910 million acres, decreased 1 million from 2016. Average farm size for 2017 is 444 acres, up 2 acres from the previous year.

8. 51 percent of total U.S. land is in agricultural use (61 percent of lower 48 states). Urban land use is 2.7 percent.

9. Long history of legislative engagement with agriculture. In general terms there have been 19 Farm Bills, beginning with the Agricultural Adjustment Act of 1933.

10. Farm Bill reauthorized every 5 years--or will revert to 1949 “Permanent Law.” TITLE I—COMMODITIES TITLE II—CONSERVATION TITLE III—TRADE TITLE IV—NUTRITION TITLE V—CREDIT TITLE VI—RURAL DEVELOPMENT TITLE VII—RESEARCH, EXTENSION, AND RELATED MATTERS TITLE VIII—FORESTRY TITLE IX—ENERGY TITLE X—HORTICULTURE TITLE XI—CROP INSURANCE TITLE XII—MISCELLANEOUS

11. There are 3 primary means $ delivered to agriculture via Farm Bill. Commodity Payments, Conservation Programs, Crop Insurance.

12. Nutrition programs major aspect of USDA operations. Farm Bill: SNAP (food stamps ). Non-Farm Bill : National School Lunch Program; Women, Infants and Children; Child&Adult Care Food Program; School Breakfast Program.

13. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies

14. Price Loss Coverage  (PLC) 85% base SCO Wheat $5.50 per bushel Corn $3.70 per bushel Grain sorghum $3.95 per bushel Barley $4.95 per bushel Oats $2.40 per bushel Long-grain rice $14.00 per hundredweight Medium-grain rice $14.00 per hundredweight Soybeans $8.40 per bushel Other oilseeds $20.15 per hundredweight Loan Rate   actual production Wheat $3.38/ bu Corn $2.20/ bu Grain sorghum $2.20/ bu Barley $2.50/ bu Oats $2.00/ bu Long-grain rice $7.00/cwt Medium-grain rice $7.00/cwt Soybeans $6.20/ bu Other oilseeds $10.09/cwt Upland cotton $0.45/ lb to $0.52/ lb Dry Peas $6.15/cwt Peanuts $355/ton MAL increased in 2018; PLC and ARC new in 2014; choose between PLC/ARC annually Agricultural Risk Coverage (ARC)   Pymts no greater than 10 percent of benchmark revenue ARC-county (85% base) avg county yield times national farm price drops below 86% of county benchmark revenue (5-year Olympic avg county yield times > 5-year Olympic avg national or reference price each year) ARC-individual (65% base) difference between 86% individual farm guarantee (the 5-year Olympic avg individual yield times > 5-year Olympic avg of national or reference price each year) and actual individual farm revenue summed across all commodities (sum all covered commodities avg revenue weighted by plantings)

15. Commodity program payments made on “base acres.” historical planted acreage registered for each farm. may plant any crop*; payments based on “ base” and historical yield . Soybeans 35 acres Corn 50 acres Wheat 15 acres 2018 Farm Bill uses base acres in effect for the 2018 crop year 2018 Farm Bill permits one-time PLC yield update (90% 2013-2017 avg. yield) base stays with land. XYZ Farm 100 acres

16. Price Loss Coverage and Agriculture Risk Coverage - planting provisions - PLC and ARC enrollment permits fruit, vegetables, and wild rice on up to 15% of registered farm base acres Above 15% receives acre-to-acre payment reduction. non-base acres base acres no penalty < 15% base acres: no penalty   >15% base acres: payment acres reduction acre-for-acre exceding15% (NOTE: 35% individual ARC)

17. PLC explained …maybe . Base Acres & Yield Calculate difference between ERP and EP; Payment made when ERP > EP 85% of base acres $2,295 PLC payment * *

18. ARC explained …maybe . $4.50 x 180 = $810 x 0.86 = $696.60/acre $3.20 x 180 = $ 576/acre $696.60 - $576 = $120.60 x 50 acres = $6,030 x 0.85 = $ 5,125.50 or $102.51/acre ($810 x 0.10 = $81/acre) $81 x 50 = $4,050 x 0.85= $3442.50 ARC payment *NOTE : 10 acre minimum

19. e.g. $6 coverage, 60% production: milk - feed = $4.50 $6 - $4.50 = $1.50 $1.50 x (production history x .60) = DMC payment NOTE: allows both DMC and Dairy RP insurance; provides portion of net MMP premiums paid 2014-2017 to pay future DMC premiums (75%), or be refunded (50%). Reworks Margin Protection Program as Dairy Margin Coverage program. Adds coverage levels (table), expands production coverage from between 5%-95%. Coverage is selected margin between U.S. all-milk price and national avg. feed cost (as calculated by a statutory formula ); choose each year or lock-in for 5 yrs for 25% discount. M ilk production base (production history) is equal to the highest annual quantity of milk marketed by the operation during the period from 2011-13.

20. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies

21. Conservation Programs expanded with ‘85 Farm Bill and generally grew consistently in subsequent Farm Bills (‘90, ‘96 , ’02, ’08). Conservation Title contains a suite of programs . Programs meet different goals and utilize different methods . Some contraction in programs with 2014 Farm Act. Wetlands Reserve Program, Farmland Protection Program , and Grassland Reserve Program (easement) consolidated into: Agricultural Conservation Easement Program (ACEP ) Agricultural Water Enhancement Program, Chesapeake Bay Watershed Program, Cooperative Conservation Partnership Initiative , Great Lakes Basin Program are consolidated into: Regional Conservation Partnership Program (RCPP) Wildlife Habitat Incentive Program merged into: Environmental Quality Incentives Program (5% dedicated wildlife)   Grassland Reserve Program (rental) moved to: Conservation Reserve Program (grassland up to 2 million acres)

22. ‘Working lands’ programs are dominant.

23. Farm Bills set mandatory spending levels; appropriators nonetheless do otherwise. Conservation CHIMPS cut $1.6 billion since 2014 Farm Bill.

24. Conservation Compliance Highly Erodible Land (HEL) Compliance, Sodbuster, Wetland Conservation ( Swampbuster ) Public provides financial support via USDA payments. Recipients protect soil and wetlands for the public. Penalties are reduction or loss of farm program payments for draining existing wetlands or not maintaining soil protections. Ducks Unlimited photo NRCS photo NRCS photo NRCS photo

25. 1. Federal Farm Policy in Context 2. Production Policy 3. Conservation Policy 4. Risk Management Policy Context and Policies

26. Federal Crop Insurance subsidized for producers and insurance companies. National average 62 % of premium paid by subsidy. From written Testimony of William Cole, Chairman, Crop Insurance Professionals Association- Committee on Agriculture, Nutrition, and Forestry, July 25, 2017.

27. Participation in Crop Insurance is high across major commodities. Premium subsidies, Revenue policies have been growing rapidly. NOTE: Crop Insurance exempted from compliance in 1996 Farm Bill. Reinstated in 2014.

28. Fundamental crop insurance formula: ((Yield * Coverage) * price) * acres = Insured Revenue Yield – Actual Production History (APH) minimum 4 yrs , maximum 10 yrs Coverage – percentage of yield/APH insured like a deductible, select from sequence 50% - 85% Price – generally, higher of spring/harvest price average futures prices Feb or Oct Acres – acres planted to insured crop optional “units,” e.g. basic, enterprise, etc. ((185 * 80%) * $4.62) * 500 = $341,880 insured revenue (185 * $3.49) * 500 = $322,825 actual revenue $19,055 indemnity

29. Extended low-price cycle is challenge to revenue insurance. Climate change is challenge to APH (provisions enacted to minimize ‘bad’ years).

30. Brad Jordahl Redlin [email protected] 651.270.0564 Context and Policies Questions? a nd thank you

31. Permanent Law “floor price”: Wheat $13.20 Corn $6.50 Cotton $1.30 Milk $39.08 Soybeans…soybeans…?