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The Farm Bill and Agricultural

Trade Disputes
PAT WEST HOF F ( W EST HO F F P@ MISSO U RI.ED U)
N AT IONA L P R ESS FOUN DAT ION, KAN SAS CI T Y
S E PTEMBER 2 6 , 2 0 1 8
Agenda
• A brief history of farm programs and some context
• The farm bill
• What’s in the current legislation?
• The 2018 (or 2019 or ??) farm bill debate
• Trade disputes
• Effects on trade and U.S. agriculture
• Administration’s trade mitigation package

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 2


What’s FAPRI?
Food and Agricultural Policy Research Institute at the University of Missouri
Mission: Provide objective analysis of agricultural markets and policies
Signature product: 10-year outlook for the farm economy each March
Baseline outlook becomes point of reference for policy and market scenarios
Funding from USDA’s Office of the Chief Economist, other agencies & MU
Currently 11 full-time staff at MU
Collaborators around the world
We’re at www.fapri.missouri.edu and @FAPRI_MU on Twitter

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 3


Some good background readings
History:
◦ The 20th Century Transformation of U.S. Agriculture and Farm Policy by Carolyn Dimitri, Anne
Effland and Neilson Conklin (USDA Economic Research Service)
◦ Available at: https://www.ers.usda.gov/publications/pub-details/?pubid=44198

2014 farm bill:


◦ What Is the Farm Bill? by Renée Johnson and Jim Monke (Congressional Research Service)
◦ Available at: https://fas.org/sgp/crs/misc/RS22131.pdf.
Farm bill origins in the 1930s
Great Depression
◦ 21.5% of U.S. work force in production agriculture in 1930 (about 2% today)
◦ Farm commodity prices and farm income were extremely low

Policy response: 1933 Agricultural Adjustment Act and other New Deal
legislation
◦ Set policy goal of what became known as parity pricing: prices of 1909-14, adjusted for
inflation
◦ Means included voluntary acreage reduction and government purchases
◦ Targeted 7 “basic commodities”: wheat, corn, cotton, tobacco, rice, hogs and milk
◦ Vestiges of this legislation still exist today, such as 9-month commodity loan program

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 5


Million acres
100
120

0
20
60
80

40
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902

Corn
1906
1910
1914
1918
1922

Wheat
1926
1930
1934
1938
1942
Cotton

1946
1950
1954
1958
1962
1966
1970
Soybeans

1974
1978
1982
U.S. area harvested, 1866-2014

1986
1990
1994
1998
2002
2006
2010
2014
Two key recent farm bills
1996 farm bill
◦ New Republican Congress sought deregulation, lower federal spending
◦ Farm bill eliminated annual acreage set asides and many other planting restrictions
◦ Farmers received a fixed payment each year, tied to what was grown previously, but
not to what they planted this year or to commodity prices
◦ Was to last for 1996-2002, with disagreement about what would follow
2014 farm bill
◦ Eliminated the fixed payments created in 1996
◦ Replaced with new programs that make payments only when prices or revenues are
below trigger levels (more later on these programs)
◦ But like 1996 bill, ties payments to historical “base” acreage, not this year’s plantings

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 7


Some context
Roughly 2 million farms by USDA’s definition Share of Share of value
($1,000 or more in sales in typical year) Farm classification farms of production
From “America’s Diverse Family Farms” a USDA Small family 89.9% 22.6%
ERS publication (<$350,000 in gross
(https://www.ers.usda.gov/webdocs/publicati cash farm income)
ons/86198/eib-185.pdf?v=0) Medium family 6.0% 22.7%
($350,000-$1 mil.)
Vast majority are “family farms” (owned by
operator or member of the family) Large family (over 2.9% 45.2%
$1 mil.)
“Non-family” 1.2% 9.6%

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 8


U.S. food expenditures, farm product sales and
subsidies, 2017
1800
1,616
1600
Data: USDA ERS estimates of consumer food expenditures and
1400 farm product sales in 2017; USDA Food and Nutrition Service FY
2017 outlays; USDA estimates of direct government payments to
1200 farmers in 2017 plus crop insurance premium subsidies
Billion dollars

associated with the 2017 crop.


1000
800
600
374
400
200 99
18
0
Consumer food Sales of farm Nutrition Farm-related
expenditures products subsidies subsidies
CBO-projected spending if 2014 farm bill
is extended

Source: CBO
estimates,
June 29, 2017
SNAP participation and average benefits
(fiscal years)
Average participation Average benefit levels
60 160

140
50

Dollars per month per person


120
Source: USDA FNS
40 reports
100
Million people

(https://www.fns.usd
30 80 a.gov/pd/supplement
al-nutrition-
assistance-program-
60
20 snap)
40
10
20

0 0
2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017
A few crop insurance basics
Purely private insurance against hail and other specific risks has long been
available
Federally subsidized “multi-peril crop insurance” (MPCI)
◦ Good against wide range of natural disasters
◦ Covers many crops—not just corn and soybeans, but apples, tomatoes, walnuts…
◦ Offered through private insurers
◦ Government pays large part (~63%) of premium
◦ Crop insurance companies get a subsidy to deliver the product
◦ They can also make underwriting gains, which I can explain if you need a nap
Main types of crop insurance
Until 1990s, crop insurance only covered yield losses
◦ Payments occurred if actual yields were sufficiently below a normal yield for a farm
◦ For example, 75% policy would pay if yields dropped at least 25% from normal level

Revenue-based insurance is now the most common


◦ Several types, but most common is Revenue Protection (RP)
◦ RP Payments triggered by yield reduction OR by reduction in revenues (price times yield)
◦ Not designed to protect against a long-run price decline
Crop insurance: U.S. data
20
Cumulative net
18
indemnities from 2010
16 to 2017: $37 billion Source: RMA
($4.8 billion per year) Summary of
14
Business
Billion dollars

12 (http://www.rma.usd
a.gov/data/sob.html)
10 data as of 9/3/18.

8 Net indemnity
6 payments =
indemnity payments
4 for losses minus
producer-paid
2 premiums.
0
2010 2011 2012 2013 2014 2015 2016 2017

Producer-paid premiums Indemnity payments Net indemnities


ARC and PLC
2014 farm bill created two new commodity (not crop insurance) programs
◦ Price loss coverage (PLC) makes payments when national marketing-year average
prices fall below a fixed reference price
◦ Agriculture risk coverage (ARC) makes payments when county-level revenues for a
crop fall below a trigger tied to past national prices and county yields
◦ For each crop on their farm, producers had to make a one-time choice of ARC or PLC
for the 2014-18 life of the farm bill
◦ More than 90% of corn and soybean base and a little over half of wheat base is in ARC
◦ Most other crop base is in PLC
◦ Under both ARC & PLC, payments are tied to fixed base acreage, not plantings

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 15


Potential PLC payments: Wheat
Wheat PLC payments Wheat prices
◦ Occur if national season-average prices are 9
less than the $5.50/bu. reference price
8
Payments occur every year from 2015-18 7
◦ Huge payment ($1.61/bu.) in 2016/17

Dollars per bushel


6
Most wheat base is enrolled in ARC FAPRI
5
◦ 2014-2018 PLC payments will exceed ARC farm
for most producers 4 Reference
◦ Of major crops, only example where most 3
producers did not choose option that
maximized actual payments 2 Sources:
Agricultural Act of
2014, FAPRI-MU
1 Aug. 2018
baseline update
0
2012 2014 2016 2018
Agricultural Risk Coverage (ARC)
Makes payments when revenues fall below a trigger
◦ Benchmark is 5-year Olympic average of national marketing year prices times 5-year Olympic
average of yields (county or farm)
◦ Makes payments when current revenues fall below 86% of the benchmark
◦ Payments on 85% of base (not planted) acreage if choose county version (ARC-CO); 65% if
choose farm version (ARC-IC)
◦ Maximum payment is 10% of benchmark
◦ Idea: ARC is for “shallow” losses; crop insurance for deeper losses
2016 non-irrigated corn
ARC-CO payments per base acre
Atchison Nodaway Worth Harrison Mercer Putnam Schuyler Scotland Clark

Gentry Sullivan
Adair Knox
Lewis
Holt Grundy

Andrew Daviess
DeKalb Linn Macon
Shelby Marion
Livingston

Clinton
Caldwell
Chariton
Randolph
Monroe
Ralls Source: Map by FAPRI-MU analyst Peter Zimmel,
Buchanan Carroll Pike
Platte
Clay
Ray

Audrain
based on FSA-reported data, Oct. 2017
Saline Howard
Boone Lincoln
Lafayette Montgomery
Jackson
Callaway
Cooper
Johnson Pettis Warren St. Charles
Cass St. Louis

Moniteau Cole Osage


Franklin
Henry Morgan
Benton Jefferson
Bates Miller

Maries Gasconade

St. Clair Camden Crawford Washington


Ste.
Hickory Phelps Genevieve
Vernon Pulaski

Dallas Laclede Perry


Cedar
Polk Dent St. Francois
Iron
Madison
Cape
Barton Texas Reynolds Girardeau

$0
Dade
Webster Wright
Greene Shannon
Jasper Wayne
Scott

$1 - $20
Lawrence Bollinger

Stoddard
Christian Douglas Howell Carter
Newton
Mississippi

$21 - $40
Stone Butler
Barry Oregon
Ripley
Taney Ozark
McDonald

$41 - $60
New Madrid
Dunklin

Pemiscot

$61 - $80
Insufficient data
Other commodity programs
Dairy: insurance-like program that makes payments when the margin between
milk and feed prices is small
Sugar: Price supports, import restrictions (U.S. price is above world market)
Note that except for dairy, commodity programs are for major field crops—no
basic commodity program for cattle, hogs, chickens, nor for fruits and vegetables
Those “other commodities” do qualify for some other programs
◦ Crop insurance covers many (not all) fruits and vegetables
◦ Disaster programs are available for livestock producers
◦ Marketing support and research programs available for many commodities

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 19


Putting these programs in context:
U.S. average returns to corn producers
2013 (old bill) 2014 2015 2016 2017
Value of crop sales (price $705 $633 $608 $587 $571
times yield), per acre
Direct payments/base acre $24 n.a. n.a. n.a. n.a.
ARC/base acre for ARC
participants n.a. $41 $48 $37 $9
PLC/base acre for PLC
participants n.a. $0 $9 $33 $30
Marketing loan $0 $0 $0 $0 $0
benefits/acre
Crop insurance net
indemnities/acre $42 $26 $3 -$4 $0
Source: FAPRI-MU estimates, August 2018. Figures for 2013-2016 are based on
USDA data; 2017 is a FAPRI-MU estimate and is not final.
Farm bill politics
Historically, farm bill politics was often more regional than partisan
◦ Final vote on 2014 farm bill had more D’s and R’s on both sides than is normal today
House is tied to demographics
◦ Most rural House districts have Republican representatives
◦ But most districts are not rural districts—relatively few House members have
significant number of farmers in their districts
The Senate is different
◦ Almost all states have some farming, so almost all senators have some interest in the
“farm” part of the farm bill, and two senators each for ND and CA
◦ Filibuster rules effectively mean bipartisan support needed for most legislation

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 21


Current farm bill debate
Both House and Senate have passed their versions of the farm bill
In many respects bills are similar to each other and current law
◦ Neither would change spending in total or by title very much vs. 2014 farm bill
◦ Both keep ARC and PLC, crop insurance, and most conservation programs with only
minor changes
That’s one reason there hasn’t been much discussion of the farm bill in rural
America this year
◦ Perception that not much will change means it’s not like 2014
◦ Trade disputes have garnered a lot more attention

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 22


Major farm bill issues
Biggest issue appears to be SNAP
◦ Senate bill makes relatively few changes, and bill passed with strong bipartisan
support
◦ House bill institutes stricter work requirements on more recipients, and bill passed
with only Republican votes
◦ President says he wants more work requirements
Other issues
◦ Payment limitation issues for farm programs
◦ House bill eliminates CSP and puts more money in other conservation programs
◦ Wide variety of (generally minor) differences across many titles

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 23


Farm bill schedule and final observation
Some farm bill programs begin to expire on Sep. 30
◦ For example, no authorization for farmers market programs, organic research, or
foreign market development
◦ But most major programs continue through the end of the year
“Dairy cliff” on January 1
◦ If no new legislation, would revert to 1949 farm law for dairy on Jan. 1 and for many
crop programs next spring
◦ No one wants this; it’s intended to be a “hammer” to force a bill to get done
Why is this so hard?
◦ All the reasons why getting any legislation done is hard in the current environment
◦ We have not agreed as a society what the purpose(s) of the farm bill is (are)

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 24


Switching gears to discuss trade:
China’s agricultural imports from the U.S.
30
Between 2010 and 2017, China’s imported an
annual average of: 25

• $21.6 billion of U.S. agricultural products 20

Billion dollars
• $12.6 billion of U.S. soybeans (58% of total) 15

10
• $3.2 billion of U.S. cotton, sorghum, corn,
wheat, rice, and other program crops (15%)
5

• $5.8 billon of other U.S. agricultural 0


products, including pork, dairy products, 2010 2011 2012 2013 2014 2015 2016 2017
distillers grains and much more (27%)
Soybeans Other program crops All other

Source: USDA FAS GATS, accessed Aug. 1, 2018

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 25


Major agricultural trade issues
Steel and aluminum tariff retaliation included tariffs on U.S. farm products
NAFTA renegotiation includes dispute over Canadian dairy policy
But the biggest dispute is with China
◦ Starting in July, U.S. put in place tariffs on $50 billion of Chinese products in response to
China’s intellectual property practices and other policies
◦ China retaliated with 25% tariffs on U.S. soybeans and other products valued at $50 billion
◦ Beginning September 24: New tariffs on $200 billion of Chinese goods entering U.S. and $60
billion of U.S. goods headed to China, with further escalation threatened

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 26


Implications of China’s soybean tariff
New 25% tariff on imports of U.S. soybeans…
◦ Pushes up prices of U.S. soybeans delivered to final users in China
◦ Pushes down prices of soybeans in the U.S.

These changes in U.S. and Chinese soybean domestic soybean prices…


◦ Discourage sales of U.S. soybeans to China
◦ Encourage sales to China of soybeans from Brazil, Argentina and other exporters

Soybean prices in other exporting countries…


◦ Probably will increase because of higher prices in China, their major market
◦ Which will discourage competitor sales to the EU and other importers
◦ And encourage U.S. exports to those same destinations

Thus, much of the effect will be to rearrange global soybean trade patterns

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 27


Swapping who trades soybeans with whom
(May 2018 FAPRI-MU estimates for 2018/19, million metric tons)
Baseline Imports Imports Total 25% tariff Imports Imports Total
exports by: by China by others exports exports by: by China by others exports
U.S. 38.9 23.1 62.0 U.S. 21.9 37.6 59.5
Brazil/Paraguay 56.4 18.2 74.6 Brazil/Paraguay 68.3 6.7 75.0
Argentina 6.0 0.6 6.6 Argentina 7.6 0.0 7.6

Total 101.3 41.9 143.2 Total 97.8 44.3 142.1

Note that these estimates were prepared in May based on information available at that time.
In September, USDA projected total Chinese imports of 94 million tons, total U.S. exports of 60 million
tons, total Brazilian and Paraguayan exports of 81 million tons, and total Argentine exports of 8 million
tons. This suggests larger imports by the rest of the world than shown here.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 28


Some additional issues related to China’s
soybean tariffs
Logistical issues
◦ Fewer U.S. sales to China mean fewer exports through the Pacific Northwest and more
through the Gulf of Mexico
◦ That probably means lower prices in places like the Dakotas, where product that used to go
by train to the west now needs to go south instead
◦ It’s too late to totally rearrange global trade this year

Spillover effects on other markets


◦ Lower soybean prices tend to cause lower corn prices, as U.S. farmers shift plantings

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 29


Trade mitigation program overview
On August 27, the Administration announced additional details of 3 programs to offset the impacts of
“unjustified trade retaliation by foreign nations”
1) Market facilitation program
◦ FSA will make payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs
◦ Payments will be based on actual 2018 production, with first round estimated at $4.7 billion
2) Food Purchase and Distribution Program
◦ AMS will purchase pork, dairy products, apples and other commodities to support prices
◦ First round of purchases to total about $1.2 billion
3) Trade Promotion Program
◦ FAS will administer program “to assist American agricultural exporters in identifying and accessing new
markets,” with a proposed budget of $200 million
Source: https://www.usda.gov/media/press-releases/2018/09/04/usda-launches-trade-mitigation-programs

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 30


Market Facilitation Program payment
rates
Initial payment is on 50% of production—so Initial payment USDA estimate
soybean rate is equivalent to $0.825 per rate on 50% of of initial
bushel produced in 2018 production payment
Program is subject to payment limitation rules Soybeans $1.65/bu. $3.63 bil.
◦ No more than $125,000 per person or legal Hogs $8.00/head $0.29 bil.
entity Cotton $0.06/lb. $0.28 bil.
◦ Average AGI for 2014-2016 of less than $900,000
Sorghum $0.86/bu. $0.16 bil.
No guarantee that there will be a second Dairy $0.12/cwt $0.13 bil.
payment or how large it might be
Wheat $0.14/bu. $0.12 bil.
Secretary Perdue has said this program will not Corn $0.01/bu. $0.10 bil.
be repeated in 2019
Total $4.70 bil.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 31


Where did these MFP payment rates
come from?
USDA emphasized that MFP rates do not reflect the expected price impacts of
trade restrictions
Instead, they represent an estimate of lost sales to markets imposing new tariffs,
with the payment rate calculated by dividing that estimate by 2017 production
These estimates do not take into account
◦ Impacts on sales to other markets (does not consider increased soybean exports to Europe,
etc.)
◦ Impacts on other commodities (spillover effects of lower soybean prices on corn are ignored)
◦ Impacts on basis (no regional variation to reflect lower prices in the Dakotas as logistics
change)

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 32


More things to note about MFP
The first round of payments is on 50% of production
There may or may not be a second round of payments—USDA says an announcement might be
made in December
If there is another round of payments, the payment rates and rules could change—there is no
guarantee it would simply be the “other half” implied by the initial payments

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 33


U.S. farm payment, income projections
(Based on August 2018 FAPRI-MU update)
Direct government payments Net farm income
16 140
14 120
12
100
Billion dollars

Billion dollars
10
80
8
60
6
40
4
2 20

0 0
2010 2012 2014 2016 2018 2020 2022 2010 2012 2014 2016 2018 2020 2022
Total payments Nominal 2017 dollars
Source: USDA and FAPRI baseline update, Aug./Sep. 2018. Note: stochastic estimates would show higher mean
payments, as there is a chance prices could fall low enough to trigger large PLC payments, for example.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 34


It’s not the 1980s, but…
During the 1980s farm financial crisis, the farm
Debt/asset ratio and prime rate
debt/asset ratio peaked at 22%
25%
It declined to half that level in 2012, but has
been increasing since then 20%

Besides lower levels of debts relative to assets, 15%


interest rates are far lower now than in the
1980s 10%

But it is concerning that the debt/asset ratio 5%


continues to increase, even as interest rates
are rising 0%
1980 1986 1992 1998 2004 2010 2016 2022
Debt/asset ratio Prime rate
Sources: Debt/asset ratio from USDA and FAPRI-MU, Sept.
2018; Prime rate from FRED and IHS Markit, July 2018

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 35


A few summary points
Farm bill debate is important to many farmers and the country
◦ But it currently appears that if a bill is done soon, it will not make major changes in
current law
◦ And it’s important to remember that the farm bill only plays a modest role in the
outlook for most of rural America
Trade disputes have garnered a lot of attention
◦ Justified, especially for soybeans and other strongly affected commodities
Outlook, as always, is uncertain, but there are continued challenges ahead for
farm finances

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 36


Thanks!
FAPRI-MU website: www.fapri.missouri.edu

Follow us on Twitter: @FAPRI_MU

To contact Pat Westhoff:


◦ 1-573-882-4647
◦ westhoffp@missouri.edu
◦ @WesthoffPat on Twitter

FAPRI-MU team:
◦ Julian Binfield
◦ Sera Chiuchiarelli
◦ Deepayan Debnath
◦ Scott Gerlt
◦ Hoa Hoang
◦ Lauren Jackson
◦ Willi Meyers
◦ Byung Min Soon
◦ Wyatt Thompson
◦ Jarrett Whistance This material is based upon work supported by the U.S. Department of Agriculture, Office of the Chief
◦ Peter Zimmel Economist, under Agreement #58-0111-17-015, and the USDA National Institute of Food and Agriculture, Hatch
project number MO-HASS0024.
Any opinion, findings, conclusions, or recommendations expressed in this publication are those of the authors
and do not necessarily reflect the view of the U.S. Department of Agriculture nor the University of Missouri.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 37


U.S. cash receipts
2010-2017 annual average, billion dollars
Corn 55

Soybeans 39

Other grains, oilseeds, cotton & hay 34

Fruits, nuts, vegetables & other crops 75

Cattle & calves 67

Poultry & eggs 41


Source: USDA Economic Research
Service, November 2017. Total Dairy 38
average cash receipts: $377 billion
Hogs & other livestock 28

0 10 20 30 40 50 60 70 80
Main types of crop insurance
Until 1990s, crop insurance only covered yield losses
◦ Payments occurred if actual yields were sufficiently below a normal yield for a farm

Revenue-based insurance is now the most common


◦ Many options, each with own rules, but all are based on both prices and yields—pay if
revenues declined below a trigger
◦ Revenue Protection (the most popular) pays if yields drop OR if revenues (harvest revenue
(harvest time national price times farm level yield) is less than a trigger
◦ Trigger is the higher of planting- or harvest time national price, multiplied by an average of
past yields on the farm, multiplied by the percentage cover (e.g., 80%)
◦ Farmers pay a share (on average, about 37%) of the premium; the rest is subsidized
PLC payment formula
PLC payment formula:
◦ Max(0 or the reference price minus max(national season average price or the loan rate))
◦ Multiplied by base acreage for the commodity on the farm
◦ Multiplied by PLC yield for the commodity on the farm
◦ Multiplied by 0.85

Things to note
◦ Reference price and loan rate are set by law
◦ National season average price is based on sales between Sep. 1 and Aug. 31 for corn and
soybeans
◦ Base acreage and PLC yield are fixed for 2014-2018 crops
Potential PLC payments: Soybeans
Soybean PLC payments Soybean prices
◦ Occur if national season-average prices are 16
less than the $8.40/bu. reference price
14
At FAPRI projected prices:
◦ No payments occur (but 2018/19 is close 12

Dollars per bushel


call)
10
◦ Few soybean acres are enrolled in PLC FAPRI
8 farm
Reference
6

4 Sources:
Agricultural Act of
2 2014, FAPRI-MU
Aug. 2018
baseline update
0
2012 2014 2016 2018
2017 ARC-CO calculation example
Boone Co., MO corn
Max of (national County yield Revenue
avg. farm price,
reference price) Final figures for
2017/18 are not
2012/13 $6.89 83
available, but
2013/14 $4.46 129 likely to be
2014/15 $3.70 188 around
$3.40/bu.
2015/16 $3.70 ($3.61) 123
national price
2016/17 $3.70 ($3.36) 172 and 170 bu./a.
Olympic average $3.95 141 county yield, so
no payments
2016/17 benchmark revenue $557
will occur in
86% of benchmark $479 Boone Co.
1st option triggering payments $3.40 <141 <$479
2nd option triggering payments <$2.82 170 <$479
Conservation programs in the farm bill
Conservation reserve program pays farmers to idle land for 10-years or more
◦ About 23 million acres in the CRP today, avg. rental rate of $77/acre
◦ Farm I grew up on is currently in the CRP, used for hunting
Environmental Quality Incentive Program pays for environmental improvements
◦ Shares costs with producers for approved practices
Conservation Stewardship Program rewards environmental stewardship
◦ Payments for complying with conservation plan
Agricultural Conservation Easements cover variety of purposes
◦ Wetland and farmland easements to stop development
Total costs of farm bill conservation programs: around $6 billion/year

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 43


Some USDA conservation programs
FY 2016 outlays FY 2019 projection
Conservation Reserve Program $1.78 bil. $1.82 bil.
(CRP)
Environmental Quality Incentive $1.20 bil. $1.55 bil.
Program (EQIP)
Conservation Stewardship $1.10 bil. $1.83 bil.
Program (CSP)
Ag. Conservation Easement (ACE) $0.20 bil. $0.31 bil.
All other mandatory programs $0.31 bil. $0.49 bil.
Total USDA mandatory $4.59 bil. $6.00 bil.
conservation programs
Source: Congressional Budget Office, June 2017. Projections for FY 2019 assume full
implementation and continuation of 2014 farm bill provisions.
Steel, aluminum and NAFTA
Steel and aluminum
◦ U.S. put in place tariffs on steel and aluminum imports citing national security concerns
◦ Trading partners from Europe to Mexico to China responded with tariffs on U.S. goods, including pork,
cheese, and other agricultural products

NAFTA renegotiation
◦ Discussions with Mexico have reached tentative conclusion
◦ Canada talks continue, with dairy a major sticking point
◦ Supply management and import restrictions keep Canadian milk prices well above U.S. prices (dairy is
rare exception to rule of no tariffs among NAFTA partners)
◦ U.S. is especially unhappy with Canada’s “Class 7” milk pricing, which reduced U.S. exports to Canada of
some products not previously restricted

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 45


U.S. agricultural trade with Canada and
Mexico in 2017
U.S. exports, $ bil. U.S. imports, $ bil.
To Mexico $18.6 From Mexico $24.6
(of which, corn) $2.7 (of which, vegetables) $5.5

To Canada $20.6 From Canada $22.3


(of which, dairy) $0.6 (of which dairy) $0.2

To NAFTA partners $39.2 From NAFTA partners $46.9

Source: USDA Foreign Agricultural Service, GATS data base, accessed Sep. 18, 2018.
Other major U.S. exports to Mexico include soybeans, pork and dairy products
Important trade with Canada includes U.S. exports of vegetables & fruit and imports of snack foods

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 46


How big are the impacts of Chinese
tariffs on U.S. soybean prices?
Source Price impact* Notes
Taheripour and Tyner -4% to -5% Uses GTAP, a CGE model; sensitivity analysis done on
Armington trade elasticities
Zheng, Wood, Wang and Jones -3.9% Uses GSIM, a CGE model
Unpublished FAPRI analysis -7.0% Uses a model that combines features of spatial
(based in part on Davids 2017) (-$0.62/bu.) equilibrium and Armington approaches

Sources: Taheripour and Tyner and Zheng, et al. articles were both published in Choices
(http://www.choicesmagazine.org/). The FAPRI-MU analysis was provided to policy makers, but not
previously discussed in public. The approach is based in part on the dissertation work of Tracy Davids.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 47


MFP payments in context
(Crop value and payments in billion dollars)
2-crop 2-crop
U.S. Soybeans Corn total Missouri Soybeans Corn total
2017 crop value 41.1 49.7 90.7 2017 crop value 2.71 1.88 4.59

2018 crop value 40.4 51.9 92.3 2018 crop value 2.32 1.57 3.89
2018 initial MFP 3.7 0.1 3.7 2018 initial MFP 0.21 0.00 0.21
payment payment
2018 crop value 44.1 52.0 96.0 2018 crop value 2.53 1.57 4.10
+ initial MFP + initial MFP

Source: Author estimates. Crop values based on Sept. 2018 USDA estimates of crop production and
marketing year average prices. MFP payment estimates are based on this formula:
Initial MFP payment = Payment rate * Production * 0.5 * 0.95. The 0.5 reflects the plan to make initial
payments on 50% of production; the 95% is a rough adjustment for payment limitations.

FOOD AND AGRICUTLURAL POLICY RESEARCH INSTITUTE, UNIVERSITY OF MISSOURI 48