Looking Out for the 2012 Farm Bill

Transcription

1 Looking Out for the 2012 Farm Bill Troy Dumler Kansas State University 2011 Insurance Workshop RISK MANAGEMENT ISSUES IN A VOLATILE ECONOMY November 3, 2011 Ramada Salina, Kansas

2 TROY DUMLER Extension Agricultural Economist and Policy Specialist Southwest Area (Garden City) Kansas State University Phone: Troy Dumler is a K-State Extension Agricultural Economist in southwest Kansas. A native of Kansas with B.S. and M.S. degrees in agricultural economics from Kansas State University, Troy has developed an Extension program centered on farm management and agricultural policy. In addition to continued work in cropping systems profitability, since the passage of the 2008 Farm Bill, he has focused much of his attention on analyzing how new commodity programs in the bill will impact farmers and ranchers.

3 Driving Factors for Next Farm Bill Looking Out for the 2012 Farm Bill Troy Dumler Extension Agricultural Economist Kansas State University g Federal Budget Economic Conditions WTO Commitments Politics Federal Budget USDA Outlays, FY2012 Source: CBO Total Outlays FY2012 = $145 billion

4 Deficit Reduction Agreement Joint Select Committee on Deficit Reduction Identify $1.2 to $1.5 trillion in deficit reduction over next 10 years Submit deficit plan to Congress by November 23 Each Chamber can pass plan by simple majorty with no amendments allowed Congressional Committees had until October 14 to submit proposals p to Joint Committee regarding g programs under their jurisdiction Joint Committee does not have to follow recommendations Joint Select Committee on Deficit Reduction (The Super Committee ) Democrats Republicans Senate Patty Murray*, WA Jon Kyl, AZ Max Baucus, MT Pat Toomey, PA John Kerry, MA Rob Portman, OH House Jim Clyburn, SC Jeb Hensarling*,TX Xavier Becerra, CA Dave Camp, MI Chris Van Hollen, MD Fred Upton, MI * Co-Chair Budget Proposals Budget Baseline House and Senate Ag Committee Recommendation Cut $23 billion from commodity programs, conservation, and nutrition REFRESH Act Cut $40 billion from commodity programs, conservation, and nutrition Administration Deficit Reduction Recommendation Cut $33 billion from commodity programs, crop insurance, and conservation Super Committee Failure Sequester $15 billion from Farm Bill 37 current programs have no budget baseline beyond of 15 Farm Bill titles have programs with no baseline after 2012 Through 2017 the value of these programs is estimated at $9-$10 $10 billion Largest baseline reductions come in ag disaster assistance, conservation, and energy titles SRA reduces baseline by $6 billion over 10 years Source: CRS, Previewing the Next Farm Bill: Unfunded and Early-Expiring Provisions

5 Projected Outlays for Commodity Programs, Crop Insurance, and Disaster Programs FY2011-FY2020 FY2020 Conservation Programs Crop Insurance, $82.8 Total: $149.4 Billion Direct Payments, $48.8 Other, $2.8 NAP, $0.9 Dairy, $1.0 SURE, etc., $2.1 CCP, ACRE, $8.7 Marketing Loan, $2.2 Source: Congressional Research Service FY2012 Budget = $6.7 billion Farm Bill Proposals Farm Bill Proposals Program Sponsor Replaces ARRM Sen. Brown, Thune, Durbin DP, CCP, ACRE, SURE and Lugar ADAP NCGA DP, CCP, ACRE, SURE RMAF ASA DP, CCP, ACRE, SURE CRGP Sen. Conrad 50 % DP, CCP, ACRE, SURE STAX National Cotton Council DP, CCP, ACRE, SURE, Modified Marketing Loan CROP Rep. Neugebauer FFSN Insurance Company DP, CCP, SURE, Marketing Loan SRRP Farm Bureau DP, CCP, ACRE, SURE Program Type Program Level Benchmark Yield ARRM Revenue CRD CRD yield; farm loss ADAP Revenue CRD CRD yield; farm loss RMAF Revenue Farm MAX [APH, plugs) CRGP Revenue Whole Farm MAX [APH, 5-yr OAvg] STAX Insurance County Expected county yield Price Insurance harvest Insurance harvest 5-yr OMYA, 1 st 4 mo. US MAX [2010 Target, 5-yr OMYA] y g] g y Insurance, target Range of Loss Payment Factor 10 to 25% 100% 5 to 15% 85% 5 to 25% 85% > 10% with max pmt per acre Producer elects 60% 100% CROP Insurance County 7-yr OAvg Insurance > 10% 100% FFSN Insurance Farm APH w/ exceptions Insurance, min price > 10% 100% SRRP Revenue County GRIP Yields 5-yr OMYA > 20%? 100%

6 Proposal Summary Kansas Direct Payments Per Acre By County All proposals assume budget savings (i.e., less money will be spent on commodity programs and/or crop insurance ARRM, ADAP, RMAF maintain crop insurance in its current form CROP and FFRM enhance crop insurance CRGP and SRRP will have direct or indirect impact on crop insurance What happens to farm income with reduced government payments? Rawlins Republic Brown Cheyenne Decatur Norton Phillips Smith Jewell Washington Marshall Nemaha Doniphan Atchison Cloud Jackson Sherman Thomas Sheridan Graham Rooks Mitchell Osborne Clay Pottawatomie Riley Leavenworth Jefferson Ottawa Wyandotte Lincoln Shawnee Geary Wabaunsee Wallace Logan Gove Trego Ellis Russell Douglas Johnson Dickinson Saline Ellsworth Morris Osage Franklin Miami Rush Greeley Wichita Scott Lane Ness Barton Lyon Mcpherson Rice Marion Chase Coffey Anderson Linn Pawnee Finney Hodgeman Stafford Harvey Hamilton Kearny Reno Edwards Greenwood Woodson Allen Bourbon Gray Butler Ford Sedgwick Pratt Stantont Grant Wilson Haskell Kiowa Kingman Neosho Crawford Elk Meade Clark Barber Sumner Cowley Morton Stevens Seward Comanche Harper Montgomery Labette Chautauqua Cherokee <$12 $12-$14 $14-$16 $16-$18 $18-$20 >$20 Average Direct Payments and Market Value of Program Crops in Kansas Year Market Value Direct Payment Direct Payment % of ($/acre) ($/acre) Market Value FAPRI Direct Payment Elimination Study Eliminating direct payments would: Save between $18.9 to $41.7 billion between fiscal years (FY) 2012 and 2021 Lower farm income by an average of $1.9 to $3.2 billion per year Lower land values by an average of 1.8 to 2.7% Have minimal effects on crop prices, acres planted, and consumer food expenditures

7 KFMA Net Farm Income Government Payments and Crop Insurance Percent of Farm Income* $/farm NFI Govt Pmts GP % of NFI Percent * Gross Farm Income KFMA Farm Comparison by Size ( ) Variable Units Small Medium Large Very Large Total Govt. Pmts. $ 6,900 15,055 26,250 45,179 Govt. Pmts./Acre $ % of GFI from Govt. % Gross Farm Inc. (GFI) $ 68, , , ,406 Net Farm Inc. (NFI) $ 1,789 30,324 77, ,319 Total Exp. Ratio % RRCM % Total Assets $ 467, ,801 1,051,805 2,163,648 Debt/Asset Ratio % Statistical Model Summary In Kansas, government payments are not statistically significant in determining profitability Farm size, in terms of gross income, and expense management have a larger impact on profitability than government payments However, reducing or eliminating government payments will likely have consequences outside of simply reducing net tincome

8 Reduction in Government Payments KFMA Farm Income with Reductions in Government Payments ( ) Complete elimination of payments Land values decreased by 15% ( ) and 5% ( ) Assumes government payments are 50% capitalized into land values Cash rents were not reduced along with land values Measure Units Small Medium Large Very Large NFI $ 1,789 30,324 77, ,319 NFI w/o Govt. Pmts $ -5,111 15,269 51, ,140 ROA % ROA w/o Govt. Pmts. % ROE % ROE w/o Govt. Pmts. % Impact of Payments in Impact of Payments

9 Impact of Payments in Rate of Return on Assets without Government Payments Farm Program Comparison Summary Year Crop Insurance DP NFI w/o Crop Ins. NFI w/o DP Actual NFI 2002 $12,519 $13,942 $16,118 $14,695 $28, $9,691 $14,169 $49,971 $45,493 $59, $7,274 $14,289 $68,482 $61,467 $75, $4,479 $14,637 $58,076 $47,918 $62, $9,902 $14,948 $40,410 $35,364 $50, $30,669 $14,938 $77,176 $92,907 $107, $15, $15, $109,346 $108,961 $124, $13,815 $15,517 $91,480 $89,778 $105, $8,112 $15,740 $130,883 $123,255 $138,995 Average $12,407 $14,863 $71,327 $68,871 $83,733 Farm Bill process is fluid and developing quickly It is likely a revenue program will replace multiple programs including direct payments Eliminating/reducing government payments would have an impact on farm income, but impact would likely be small Farms are best positioned to absorb cuts as any time in recent history