Aggregate Farm Level Impacts of the Farm Bill on the South

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Aggregate Farm Level Impacts of the Farm Bill on
the South
2002 Southern Region Agricultural Outlook
Conference Tunica, Mississippi September 24, 2002
Joe L. Outlaw Associate Professor and Extension
Economist Agricultural and Food Policy
Center Texas AM University www.afpc.tamu.edu
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Assumptions for 2002 2007 Analysis of Farm Bill
Impacts

• Continuation of 2002 Farm Bill through 2007
• No more Market Loss Assistance payments after
  2001
• Farmers update base and yields to maximize
  government
• payments
• Farms structured so payment limits are not
  binding
• FAPRI July 2002 Baseline provides
• Average annual prices
• Inflation rates for purchased inputs
• Interest rates
• Inflation rates for land
• Historical yield and price risks used to
  incorporate risk.

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Initial Debt Levels on Farms

• Representative farms borrow all of their
  operating capital.
• Real estate debt on January 1, 2001 assumed to
  be
• 20 Feed grains
• 20 Wheat
• 20 Cotton
• 20 Rice
• 30 Dairy
• 1 Beef cattle
• 35 Hogs
• Machinery and livestock debt is 20 for all farms.

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Representative Farms and Ranches Used for the
Analysis of the 2002 Farm Bill
Dairy
Wheat
Dairy
Wheat
Cattle
Dairy
Cattle
Dairy
Dairy
Dairy
Dairy
Dairy
Feed Grain
Hog
Cattle
Rice
Hog
Feed Grain
Hog
Cattle
Feed Grain
Wheat
Wheat
Feed Grain
Cotton
Cattle
Dairy
Cattle
Wheat
Rice
Cotton
Dairy
Feed Grain
Hog
Cattle
Feed Grain
Rice
Cotton
Feed Grain
Rice
Cotton
Rice
Dairy
Dairy
Cotton
Dairy
Cotton
Cotton
Dairy
Dairy
Cotton
Rice
Cotton
Dairy
Feed Grain
Dairy
Cotton
Rice
Rice
Cattle
Cotton
Dairy
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Definition of Output Variables

• Probability of Cash Flow Deficits chance that
  net cash farm income is less than family
  living, taxes, principal payments, and
  machinery replacement costs.
• Probability of Losing Real Net Worth chance
  that net worth, adjusted for inflation, is
  less than net worth at the end of 2001.

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Definition of Overall Financial Position

• Good Less than 25 chance of cash flow
  deficits and losing real net worth.
• Marginal A 25 - 50 chance of cash flow
  deficits and losing real net worth.
• Poor Greater than 50 chance of cash flow
  deficits and losing real net worth.

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REPRESENTATIVE FARMS PRODUCING FEED GRAINS
IA
NE
MON
MOC
TN
TXNP
SC
TXB
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Economic Viability of Representative Feed Grain
Farms Under Continuation of the 1996 Farm Bill
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Economic Viability of Representative Feed Grain
Farms Under Continuation of the 2002 Farm Bill
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REPRESENTATIVE FARMS PRODUCING COTTON
CA
NC
TN
AL
AR
TXSP
LA
TXRP
GA
TXB
TXCB
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Economic Viability of Representative Cotton Farms
Under Continuation of the 1996 Farm Bill
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Economic Viability of Representative Cotton Farms
Under Continuation of the 2002 Farm Bill
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REPRESENTATIVE FARMS PRODUCING RICE
CA
MO
ARH
ARM
MS
LAN
TX
LAS
TXE
TXB
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Economic Viability of Representative Rice Farms
Under Continuation of the 1996 Farm Bill
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Economic Viability of Representative Rice Farms
Under Continuation of the 2002 Farm Bill
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REPRESENTATIVE FARMS PRODUCING MILK
WA
VT
NYC
MIC
NYW
ID
WI
MIE
CA
MO
TXN
GAN
TXE
NM
GAS
TXC
FLN
FLS
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Economic Viability of Representative Dairy Farms
Under Continuation of the 1996 Farm Bill
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Economic Viability of Representative Dairy Farms
Under Continuation of the 2002 Farm Bill
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REPRESENTATIVE FARMS PRODUCING HOGS
IA
IL
IN
NC
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Economic Viability of Representative Hog Farms
Under Continuation of the 1996 Farm Bill
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Economic Viability of Representative Hog Farms
Under Continuation of the 2002 Farm Bill
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Comparison of 1996 Farm Bill to 2002 Bill for
Southern Crop Farms
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Comparison of 1996 Farm Bill to 2002 Bill for
Southern Livestock Farms
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Conclusions

• Relative to December 2001 Baseline
• Significant improvement in economic viability
  across all crop farms
• Still considerable cash flow pressure
• Very little pressure on equity as land values
  stem the slide
• Improvement in economic viability of dairy
  operations
• Considerable cash flow pressure
• Some equity pressure
• Hog operations marginally worse
• Considerable cash flow pressure