Exciting Times? The Outlook for U.S. Agriculture during a World Food Crisis

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Exciting Times? The Outlook for U.S. Agriculture
during a World Food Crisis

• Dr. Vincent Smith
• Professor of Agricultural Economics
• Department of Agricultural Economics
• Great Falls May 6, 2008
• Billings May 8, 2008

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Is There A World Food Crisis

• What is the Evidence?
• Prices for staple foods are high throughout the
  world
• Food/Rice Riots have occurred in some poor and
  relatively poor countries
• Even low income families in wealthy countries are
  feeling the pinch.

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Why Are Food Prices So High

• Is it
• World production of wheat and other
  staples in 2007?
• Answer is Yes (in part), at least for wheat.

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Why Are Food Prices So High

• Why are prices for major food commodities so
  high, relative to average prices over the past
  thirty years? Is it
• Low world stocks
• Answer is Yes (in part)

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Why Are Food Prices So High

• Is it
• A Weak Dollar?
• Answer is Yes (in part)

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Why Are Food Prices So High

• Is it
• Rising Energy Prices?
• Answer is Yes (perhaps)

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Why Are Food Prices So High

• Is it
• U.S. Energy Policy (ethanol use mandates and
  ethanol production subsidies)
• Answer is Yes (in part)

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Will Food Prices Remain High

• It depends on the commodity and farm policies
• Wheat prices are likely to moderate (lots of
  supply response)
• Rice prices are likely to moderate as exporting
  countries remove export taxes and hoarding
  decreases in third world countries
• Soybean prices may moderate because of supply
  response in the U.S. and policy changes in
  exporting countries like Argentina
• Corn prices are likely to remain relatively
  strong for a while (planted acres in the U.S. are
  down and ethanol plants remain major users of the
  U.S. corn crop).

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Implications for the 2008 (?) Farm Bill

• High prices raise intriguing issues
• Some argue that price support levels (i.e., loan
  rates) need to be higher
• Others argue that many farm subsidies should be
  discontinued because U.S. farmers have entered a
  new golden age.
• Several environmental groups are advocating more
  funding for environmental programs and the
  removal of subsidies for ethanol production

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The 2008 Farm Bill The Details

• We are all waiting, as of May 3, for Congress and
  the White House to come to an agreement.
  Hopefully, we will know more by next week!!!!!!!!
• Here are some things we do know from last weeks
  Senate/House conference committee discussions

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The 2008 Farm Bill Conference Committee
Agreements

• Loan Rates and Target Prices will be changed a
  little details are not yet available but the
  House and Senate Bills, passed in July 2007 and
  January 2008, differ a little.

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Proposed Changes to Selected Loan Rates Proposed Changes to Selected Loan Rates Proposed Changes to Selected Loan Rates Proposed Changes to Selected Loan Rates
Crop Old (2002) New (2007 Senate) New (2007 House)
Wheat (bu) 2.75 2.94 2.94
Corn (bu) 1.95 1.95 1.95
Barley (bu) 1.85 1.95 1.90
Soybeans (cwt) 5.00 5.00 5.00
Other Oilseeds (cwt) 9.30 10.09 10.70
Oats (bu) 1.33 1.39 1.46
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The 2008 Farm Bill Conference Committee
Agreements

• 2. Funding for direct payments will be cut by
  about 2 for three years (a reduction of about
  100 million a year among all crops receiving
  direct payments). The direct payment for wheat
  is currently 52 cents per eligible bushel. For
  corn it is 28 cents and for barley it is 24
  cents. The proposed change would result in about
  a 1 cent reduction in that amount.

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The 2008 Farm Bill Conference Committee
Agreements

• 3. Some changes will be made in target prices,
  with implications for counter-cyclical payments.
  Increases for wheat, soybeans, oats and minor
  oilseeds, but not for corn or barley.

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Proposed Changes to Selected Target Prices Proposed Changes to Selected Target Prices Proposed Changes to Selected Target Prices Proposed Changes to Selected Target Prices
Crop Old (2002) New (2007 Senate) New (2007 House)
Wheat (bu) 3.92 4.20 4.15
Corn (bu) 2.63 2.63 2.63
Barley (bu) 2.24 2.24 2.74
Soybeans (cwt) 5.80 6.00 6.10
Other Oilseeds (cwt) 10.10 12.74 11.50
Oats (bu) 1.44 1.83 1.50
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The 2008 Farm Bill Conference Committee
Agreements

• The Bill creates a new, optional Average Crop
  Revenue commodity program, available in 2010,
  that, if selected by a producer, would make them
  ineligible for direct payments, countercyclical
  payments, and participation in the loan rate
  program
• The alternative Average Crop Revenue program
  provides a fixed per acre payment plus an
  additional payment when the average crop revenue
  for the crop of interest in a state (or
  nationally) falls below a certain percentage (90
  percent in the senate bill) of its long run
  average.

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The 2008 Farm Bill Conference Committee
Agreements

• New payment limitations will be introduced
• No direct payments or stewardship payments
  for non-farmers with Adjusted Gross Incomes in
  excess of 500,000.
• Reduced payments to farmers and ranchers with
  AGIs in excess of 950,000.

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The 2008 Farm Bill Conference Committee
Agreements

• 6. A Standing Disaster Relief Program will be
  established for crops (called the Supplemental
  Revenue Assistance of SURE program in the Senate
  Bill). Funding is at approximately 1 billion
  per year.
• The conference committee has also added in a
  Livestock Forage Program, funded at 75 million
  per year. Payments will be triggered by a
  drought index for each county

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The SURE Program

• The new standing disaster program is called the
  Supplemental Revenue Assistance Program (SURE)
• It is a whole farm revenue guarantee program.
• Payments will be made only to counties that are
  declared to be disaster counties by the Secretary
  and other counties that are adjacent to them.
• At the farm level, average revenue is estimated
  for each crop or forage and the revenue guarantee
  no more than 90 of that whole farm average
  revenue.
• Farms receiving disaster payments that also
  receive crop insurance indemnities will have
  those indemnities reduced by the amount of the
  disaster payments
• Farms must have crop insurance or NAP for all
  crops and forages covered by those programs.
• The goal is to end ad hoc disaster payments.

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The 2008 Farm Bill Conference Committee
Agreements

• 7. The Federal Crop Insurance program will remain
  largely unchanged, at least from the perspective
  of agricultural producer.
• Funding is being cut by approximately 570
  million per year, mainly through reductions in
  reimbursement payments to insurance companies for
  their administration and operations expenses.

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The 2008 Farm Bill Conference Committee
Agreements

• 8. Conservation programs continue including
• Conservation Reserve Program (with total acres
  reduced to 32 million acres, but with annual
  funding at 2.5 billion)
• b. Conservation Security (now Stewardship)
  Program (with additional funding of about 250
  million per year).

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The 2008 Farm Bill Conference Committee
Agreements

• 9. Energy Policy
• A reduction in the feedstock subsidy from 51
  cents to 45 cents per gallon (but the key issue
  is total funding for the program)
• b. Funding for new subsidies for the construction
  of cellulosic based (switchgrass, corn stalks,
  etc.) ethanol plants.

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The 2008 Farm Bill Conference Committee
Agreements

• 10. Organic and Specialty Crops
• 78 million over four years for organic crop
  research and extension education
• b. 230 million over four years for specialty
  crop research (including genetics, plant
  breeding, mechanization, food safety and pests
  and diseases).

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Some Take Away Messages

• 1. The Senate and the House still want to
  subsidize farmers and ranchers and there is
  little change in the total level of direct
  subsidies.
• Payment limits are becoming tighter but are not
  yet Draconian
• Conservation is still a focus of the Farm Bill
• The White House would like to see deeper cuts in
  subsidies, especially to higher income producers
• Research funding for world crisis food crops is
  not yet a major priority