Economic Outlook and the Farm Bill – What Now? Craig Infanger Agricultural Economics Economic Subject Matter Training 1/18/12

Economic Outlook and the Farm Bill – What Now?

Craig InfangerAgricultural Economics

Economic Subject Matter Training

1/18/12

Any discussion of 2012 & the Farm Bill must begin with the…

Only one member from an Ag Committee

Yes, they kicked the can down the road. But why is this important to understanding the 2012 Farm Bill?

Yes, they kicked the can down the road. But why is this important to understanding the 2012 Farm Bill?

Had the process ‘worked’, we would have had a Farm Bill last Christmas!

A ‘mini’ farm bill, completed in secret with no chance for amendments or changes.

What now?• The Budget Control Act process failed,

automatic budget cuts begin in 2013 “sequestration”.



● Spending reductions calculated for each year, divided equally between defense and nondefense spending;● Several federal budget items ‘exempt’: Social Security, Veteran’s programs, interest on debt, Medicaid, Federal retirement & a host of “other programs”. ● Food stamps, most nutrition programs, CRP contracts(?) will be exempt



Sequestration = $15-$16 Billion reduction in USDA budget = ~7.8% across-the board cuts

beginning January 2013

Sequestration and the Farm Safety NetFarm Safety Net remains in tact ball tossed back

to the Ag Committees to write a Farm Bill under severe budget pressure.

As we consider the 2012 Farm Bill, let’s remind ourselves…

• What is a ‘Farm Bill’?• What is the Farm Bill ‘process’ now?• What can we reasonably expect from the

emerging situation?

O.K., what is a ‘farm bill’?


• “…is a collection of new laws and amendments to longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service)



Meaning what?



• Permanent law: Ag Adjustment Act of 1938 (PL 75-430); the Agricultural Act of 1949 (PL 81-439); the CCC Charter Act of 1948 (PL 80-806).

All farm bills are amendments to ‘permanent law’ + new laws

Farm bills are omnibus collections of provisions…

Title I – CommoditiesTitle II – ConservationTitle III – Trade & Food AidTitle IV – NutritionTitle V – Farm CreditTitle VI – Rural DevelopmentTitle VII – Research & ExtensionTitle VIII – ForestryTitle IX – BioenergyTitle X – Hort & Organic AgrTitle XI – LivestockTitle XII – Crop InsuranceTitle XIII – CFTCTitle XIV – MiscellaneousTitle XV – Trade & Disaster Asst.

So let’s remind ourselves…

• What is a ‘Farm Bill’?• What is the Farm Bill ‘process’ now?• What can we reasonably expect from the

emerging situation?

The Farm Bill Process

• “It’s a slow curve ball.”3-4 years, minimum

2012Farm Bill?

The Farm Bill Process1938/1948/1949

19541956196519701973197719811985199620022008

Supercommittee process was a ‘quick pitch’

2012Farm Bill?

The Budget Control Act of 2011


• Remember: Farm bills need political coalitions3-4 years, minimum

2012Farm Bill?

Farm bills are omnibus collections of provisions…

Title IV – Nutrition ($38B)Title I – Commodities ($8.3B)Title II – Conservation ($4.8B)Title XII – Crop Insurance ($4.4B)Title XIV – Miscellaneous ($1.3B)Title XV – Trade & Disaster ($1.0B)Title III – Trade & Food AidTitle V – Farm CreditTitle VI – Rural DevelopmentTitle VII – Research & ExtensionTitle VIII – ForestryTitle IX – BioenergyTitle X – Hort & Organic AgrTitle XI – LivestockTitle XIII – CFTC

Annual Average Cost: $57B

Rounding error?

USDA Total Outlays for FY12: $145Billion

Every farm bill passed with coalition votes…

Poverty groupsNutrition organizationsFarm organizationsAll the major commodity organizationsAgribusiness interestsHorticulture & organic ag groupsTrade and export groupsEnvironmental and conservation groupsScience, research and education groups

Every farm bill passed with coalition votes…Poverty groupsNutrition organizationsFarm organizationsAll the major commodity organizationsAgribusiness interestsHorticulture & organic ag groupsTrade and export groupsEnvironmental and conservation groupsScience, research and education groups

Ask yourself: How many members of Congress have significant agriculture in their District v. how many have significant numbers of families on food stamps and subsidized or free school lunch?

Every farm bill passed with coalition votes…Poverty groupsNutrition organizationsFarm organizationsAll the major commodity organizationsAgribusiness interestsHorticulture & organic ag groupsTrade and export groupsEnvironmental and conservation groupsScience, research and education groups

Remember a few key numbers: 2,200,000 farms (85,000) 46,000,000 on food stamps (805,000)

31,000,000 children get free/subsidized school lunches 51,000,000 = rural population 257,000,000 = urban population


• The process is driven by consequences of reversion to permanent law.

3-4 years, minimum

2012Farm Bill?

O.K., what is a ‘farm bill’?• “…is a collection of new laws and amendments to

longstanding laws that sets the overall direction of federal food and farm policy for a specified number of years.” (Congressional Research Service)

• Permanent law: Ag Adjustment Act of 1938 (PL 75-430); the Agricultural Act of 1949 (PL 81-439); the CCC Charter Act of 1948 (PL 80-806).

All farm bills are amendments to ‘permanent law’ + new laws

Parity Prices and Minimum Support Provisions of Permanent Legislation

Commodity USDA Parity Price* Support ProvisionsWheat $15.60 Acreage allotments; loans at 75% of parityCorn 9.88 Loans at 50% of parityMilk 46.80 Purchases of milk/butterfat at 75-90% paritySoybeans 24.40 No provision.Burley Tobacco 5.54 No provision.

*As of January, 2011 (NASS, Ag Prices)

Clear moral to the story: Congress cannot allow reversion to Permanent Law. Something will get done in 2012 or 2013.

The Farm Bill Process• Let’s all remember that ALL farm bills are a

product of the times.3-4 years, minimum

2012Farm Bill?

It was the best of times,it was the worst of times,it was the age of wisdom,

it was the age of foolishness…Charles Dickens, A Tale of Two Cities

U.S. Agricultural TradeExports boom to record-high levels

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11p

'12f-150

-100

-50

0

50

100

150

Exports Imports Trade Balance

Billion $

Source: USDA, ERS; fiscal year ending 9/30; f=forecast; * = record

115137*

96109

132

U.S. Net Farm IncomeNet Farm Income rebounds strongly from 2009 drop

0

20

40

60

80

100Billion Dollars

Net Farm Income Govt Payments

Source: USDA, ERS

10-year average: $67 B

$104B +65%

Are we in a land price bubble?

Owensboro, KY 12/17/11

But the general economic environment that will a key motivating force for the

Administration and the Congress in 2012.

Wall Street Journal, 11/23/11

I don’t think anyone fully understands yet how much damage was done to the U.S. economy by the events of September 2008.Daniel Henninger

WSJ 9-10-09

Bailout + Credit Programs + Stimulus = $10T!

Bailout + Credit Programs + Stimulus = $10T!

$15,181,000,000,000

Slow economic growth -- ~2.5% GDP growth 2012Jobless recovery – official unemployment rate 8.5%, effective = 14%Change in Payroll Employment needs to remain >200K/moSign of improving consumer confidence, business confidenceWall Street worries about Euro Zone – Greece/Italy/France

So…Debt + Slow Recovery + Election Year =

Environment Framing the 2012 Farm Bill

So let’s remind ourselves…

• What is a ‘Farm Bill’?• What is the Farm Bill process ‘now’?• What can we reasonably expect from the

emerging situation?

Supercommittee process provides a rich list of clues about what may be in a 2012 Farm Bill

2012Farm Bill?

The Budget Control Act of 2011

Title I – Production agricultureTitle II – ConservationTitle III – TradeTitle IV – NutritionTitle V – CreditTitle VI – Rural developmentTitle VII – ResearchTitle VIII – ForestryTitle IX – EnergyTitle X – Specialty cropsTitle XI – Production agriculture

Top 10 Features in the 2012 Farm Bill?

1. Direct payments likely gone.

“ Can you look people in the eye when you’re selling $7 corn and say, ‘We need direct payments.’ ?

Wayne Wood, Michigan Farm Bureau


1. Direct payments likely gone. 2. Crop insurance will be expanded.

--new crops, changes to APH--stand alone revenue protection program for

cotton producers

“It’s become very, very clear to me that crop insurance really is the new safety net. And it’s a system that is working. Farmers pay premiums…So they have skin in the game. The federal government provides support…And probably most importantly, crop insurance is actually tied to a loss. You don’t get a payment just because you farm.”

Senator Mike Johanns, NB


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Ag Risk Coverage – new risk

management/revenue protection program-- marketing loans maintained--target prices raised for program crops


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Ag Risk Coverage – new risk

management/revenue protection program-- marketing loans maintained--target prices raised for program crops--expanded revenue protection based on yield or price loss (shallow loss program?)--commodity divided programs: cotton v. corn/beans/wheat v. rice/peanuts/sorghum-- “We are not rowing in the same direction…”

Chairman Lucas

American Farm Bureau v. commodity groups


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program to replace the dairy price

support program, the milk income loss contract, and dairy export incentive.


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.

--no millionaires?--$105,000 limit under Ag Risk Coverage


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.6. Conservation Reserve Program capped at 25

million (?) acres, return to targeting highly erodible, sensitive acres.


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.6. Conservation Reserve Program = new cap.7. EQIP and CSP continued but constrained.

-- greater focus on wildlife habitat-- funding under new budget constraints?


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.6. Conservation Reserve Program = new cap.7. EQIP and CSP continued but constrained.8. Expiring, unfunded programs?

-- 37 expiring programs, not included in the baseline spending. What happens?

37 Programs Expiring, FY12($10 billion)

Wetlands Reserve ProgramGrasslands Reserve Program CRP-Transition Incentives ProgramValue-Added Producer GrantsRural Micro-Enterprise AssistanceOrganic Data InitiativeNational Organic Certification Cost ShareFarmers Market Promotion ProgramOrganic Agriculture Research and Extension ProgramSpecialty Crop Research InitiativeOutreach and Assistance for Minority FarmersBeginning Farmer and Rancher Development ProgramRural Energy for America ProgramBiomass Crop Assistance ProgramPlus a bunch of other line-item programs….


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.6. Conservation Reserve Program = new cap.7. EQIP and CSP continued but constrained.8. Expiring, unfunded programs?9. Structure similar to 2008 Farm Bill even with big

budget pressure?

Title I – Production agricultureTitle II – ConservationTitle III – TradeTitle IV – NutritionTitle V – CreditTitle VI – Rural developmentTitle VII – ResearchTitle VIII – ForestryTitle IX – EnergyTitle X – Specialty cropsTitle XI – Production agriculture


1. Direct payments likely gone. 2. Crop insurance will be expanded.3. Some kind of new risk management program.4. New dairy program.5. Change to payment limits.6. Conservation Reserve Program = new cap.7. EQIP and CSP continued but constrained.8. Expiring, unfunded programs?9. Structure similar to 2008 Farm Bill?10. Lottery winners will not get food stamps!

The coming months will be very interesting for all of us….

2012Farm Bill?

Senate Ag Committee hearings


President’s budget; Budget Committee process



Five month window of opportunity for a farm bill?



Campaign!!

Five month window of opportunity for a farm bill?

Election Day

Lame Duck Pres./Congress?Sequestration on Jan. 1, 2013


3-4 years, minimum

2012Farm Bill?

2013?

Documents

Economic Outlook and the Farm Bill – What Now? Craig Infanger Agricultural Economics Economic Subject Matter Training 1/18/12