The Farm Bill: Context and Policies

University of Minnesota, Colloquium in Sustainable Agriculture:
presentation on federal Farm Bill policy. Commodity, conservation, and risk management programs--including CFAP and MFP--in context of current conditions affecting agriculture.

1. Brad Jordahl Redlin October 1, 2020 Context and Policies Colloquium in Sustainable Agriculture

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

3. 51 percent of total U.S. land is in agricultural use (61 percent of lower 48 states). Urban land use is 2.7 percent.

4. Number of U.S. farms for 2019 is estimated at 2.02 million -- down 31,940 farms from 2016 -- with size of farms steadily increasing.

5. Crop prices are mired in a long, low cycle...

6. …and in other sectors…. …while in Brazil….

7. But farm prices don’t have a pronounced effect on food prices.

8. Long history of legislative engagement with agriculture. In general terms there have been 18 Farm Bills, beginning with the Agricultural Adjustment Act of 1933.

9. 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

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

11. 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.

12. Trade War COVID-19 Shadow Casters.

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 Marketing Asst. Loan  (MAL) 2018 Farm Bill change Wheat $2.94 + $3.38/ bu Corn $1.95 + $2.20/ bu Grain sorghum $1.95 + $2.20/ bu Barley $1.95 + $2.50/ bu Oats $1.39 + $2.00/ bu Long-grain rice $6.50 + $7.00/cwt Medium-grain rice $6.50 + $7.00/cwt Soybeans $5.00 + $6.20/ bu Other oilseeds $10.09 = $10.09/cwt Upland cotton $0.42/ lb + $.045 to $0.52/ lb ELS cotton $0.7977 + $0.95/ lb Peanuts $355 = $355/ton MAL / Loan Deficiency Payment: difference below Loan Rate of crop price selected 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. 1. Commodity program payments made on “base acres.” historical acreage & yields registered for each farm (may plant different crop). Soybeans 35 acres 45 bu. Corn 50 acres 175 bu. Wheat 15 acres 50 bu. XYZ Farm 100 acres 2. Program payments limits. no limits on MAL / LDP. $900,000 adjusted gross income eligibility limit. 3. Eligibility: Actively Engaged family including grandparents, cousins, nieces, nephews… provide labor or management

16. Trade War COVID-19 Shadow Casters.

17. Direct payments not in the Farm Bill. Market Facilitation Payments (MFP) 2018/19 = $23 billion Coronavirus Food Assistance Program (CFAP1&2) = $23 billion Entire 5-year Title 1 Farm Bill = $31 billion Coppess , J., J. Janzen, G. Schnitkey , N. Paulson, K. Swanson and C. Zulauf . " Coronavirus Food Assistance Program, Part 2 ."  farmdoc daily  (10):169, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, September 21, 2020.

18. Direct payments not in the Farm Bill. 1933 AAA established the CCC - Commodity Credit Corporation CCC $ received through Farm Bill, annual approps , other; $30B borrowing authority. The CCC funds farm payments and supports incl. commodity, conservation programs. Payments outside of and in addition to 2018 Farm Bill budget (e.g. CFAP1&2) risked exceeding funding authority of CCC in recent weeks.

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

20. 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)

21. ‘Working lands’ programs are dominant. Increased investment in ‘production’ conservation can build resiliency.

22. 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

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

24. Federal Crop Insurance is subsidized for producers and insurance companies. National average is 63% of premium is paid by subsidy, often even higher ($6.3 billion dollars ea. of last three years). Crop Insurance exempted from compliance in 1996 Farm Bill. Reinstated in 2014. Revenue policies dominate.

25. 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. all acres of one crop in county ((185 * 80%) * $3.88 ) * 500 = $287,120 insured revenue ( 185 * $3.35) * 500 = $309,875 actual revenue $0 indemnity

26. Approved Projected Price: $5.65 Approved Harvest Price: $4.39 A crop insurance assertion had been, with accessible markets to sell into, supply and demand would react rationally to abundant or restricted production.

27. Crop Insurance became the central Farm Bill policy for farmers during the ‘08 and ‘14 Farm Bills. Stagnant low-price cycle undermines revenue insurance benefit. Increasingly volatile weather events, while triggering indemnities, reduce APH & increase risk (PP). Farm profitability: One third of forecasted U.S farm income from federal payments in 2020. Conservation, in Farm Bill policy and on the ground, builds resiliency in policy and production. Context and Policies

28. Brad Jordahl Redlin [email protected] 651.270.0564 Context and Policies Thank you…questions?

29. Context and Policies Appendix slides: Sample payment mechanisms.

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

31. ARC $4.10 x 180 = $738 x 0.86 = $634.68/acre $3.20 x 180 = $ 576/acre $634.68 - $576 = $58.68 x 50 acres = $2,934 x 0.85 = $2,493.90 or $49.88/acre ($738 x 0.10 = $73.80/acre) $49.88 x 50 = $2,494 ARC payment

32. e.g. $6 coverage, 60% production: milk - feed = $4.50 $6 - $4.50 = $1.50 $1.50 x (production history x .60) = DMC payment 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. Milk production base (production history) is equal to the highest annual quantity of milk marketed by the operation during the period from 2011-13. Dairy Margin Coverage program