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Farm income and crop net revenues
Pat Westhoff ([email protected]) Food and Agricultural Policy Research Institute
University of Missouriwww.fapri.missouri.edu
Crop Insurance and the 2014 Farm Bill: Reports and Analyses from the FieldAAEA Symposium, LouisvilleOctober 6, 2015
U.S. net farm income
200220032004200520062007200820092010201120122013201420150
20
40
60
80
100
120
140
60
124
58
Bill
ion
do
llars
Source: USDA Economic Research Service, August 2015
U.S. cropland rental rates and farm real estate values
2007
2009
2011
2013
2015
0
50
100
150
200
250
300
Cropland rental rates
U.S. Iowa
Dolla
rs p
er
acr
e
2007
2009
2011
2013
2015
01,0002,0003,0004,0005,0006,0007,0008,0009,000
Farm real estate values
U.S. Iowa
Dolla
rs p
er
acr
e
Source: USDA NASS, August 2015 Source: USDA NASS, August 2015
Historical and projected benefitsFAPRI-MU, June 2015 using actual election data
0
2
4
6
8
10
12
14
16
18
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Billi
on d
olla
rs
DCP+ACRE+Cotton trans. ARC PLC Marketing loan Crop ins. net indem.
2004-13 avg: $11.3 bil.
2014-18 avg.: $11.2 bil.
Source: FAPRI-MU report #2-15: http://www.fapri.missouri.edu/wp-content/uploads/2015/06/FAPRI_MU_Report_02-15.pdf
Agenda
Overview of FAPRI-MU crop market outlook
Producer net revenues Projected market receipts and variable
expenses Payments under the new farm bill Crop insurance net indemnities
Some stochastic results
Where these numbers come from
FAPRI-MU 10 year baseline, released in March 2015 Incorporates new farm bill provisions 500 stochastic solutions
FAPRI-MU baseline update, released in August 2015 More current But no stochastic results
U.S. corn supply and useAugust 2015 FAPRI-MU baseline update
2015/16 2016/17 2017/18 2018/19
Area planted (mil. a.)
88.9 90.5 89.2 90.1
Area harvested (mil. a.)
81.1 82.6 81.3 82.1
Yield (bu./a.) 168.8 166.8 168.6 170.1
Supply & use (mil. bu.)
Production 13,686 13,772 13,710 13,964
Feed & residual use
5,269 5,319 5,270 5,276
Ethanol & coproducts
5,253 5,240 5,283 5,321
Other domestic use
1,361 1,357 1,362 1,372
Exports 1,886 1,872 1,947 2,063
Ending stocks 1,720 1,734 1,612 1,574
Price per bushel $3.68 $3.71 $3.96 $4.09
Corn: farm and futures prices
05/
06
06/
07
07/
08
08/
09
09/
10
10/
11
11/
12
12/
13
13/
14
14/
15
15/
16
16/
17
17/
18
18/
190
1
2
3
4
5
6
7
8
Farm price--Aug. Farm price--Mar. Dec. futures
Do
llars
pe
r b
ush
el
Sources: FAPRI-MU baselines, Mar. and Aug. 2015; CME December futures contracts, Oct. 2, 2015
U.S. farm prices for corn
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
1
2
3
4
5
6
7
8
Actual/average90th percentile10th percentileReference
Dolla
rs p
er
bush
el
Source: FAPRI-MU stochastic baseline, March 2015
U.S. corn costs and returns
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
100
200
300
400
500
600
700
800
900
1,000
Market revenues, variable costs
Market revenuesVariable costs
Dolla
rs p
er
acr
e
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
100
200
300
400
500
600
700Market net returns
Market net returns
Dolla
rs p
er
acr
e
Source: FAPRI-MU baseline update, August 2015
U.S. corn costs and returnsMarch 2015 FAPRI-MU stochastic baseline mean values
2015/16 2016/17 2017/18 2018/19
Market price ($/bu.) 3.89 3.90 4.01 4.12
Market revenue ($/a.) 635 644 669 693
Variable expenses ($/a.)
350 347 350 357
Net market return ($/a.)
285 298 319 337
ARC payments ($/base a.)
39 29 14 10
PLC payments ($/base a.)
24 25 22 19
Crop insurance net indemnities ($/a.)
23 24 25 27
U.S. soybean supply and useAugust 2015 FAPRI-MU baseline update
2015/16 2016/17 2017/18 2018/19
Area planted (mil. a.)
84.3 82.4 83.5 83.7
Area harvested (mil. a.)
83.5 81.6 82.7 82.9
Yield (bu./a.) 46.9 44.9 45.4 45.8
Supply & use (mil. bu.)
Production 3,916 3,665 3,754 3,796
Crush 1,867 1,867 1,867 1,868
Other domestic use
145 143 145 143
Exports 1,773 1,785 1,796 1,824
Ending stocks 401 301 280 273
Price per bushel $9.12 $9.15 $9.98 $10.31
Soybeans: farm and futures prices
05/
06
06/
07
07/
08
08/
09
09/
10
10/
11
11/
12
12/
13
13/
14
14/
15
15/
16
16/
17
17/
18
18/
190
2
4
6
8
10
12
14
16
Farm price--Aug. Farm price--Mar. Nov. futures
Do
llars
pe
r b
ush
el
Sources: FAPRI-MU baseline update, Aug. 2015; CME November futures contracts, Oct. 2, 2015
U.S. farm prices for soybeans
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
2
4
6
8
10
12
14
16
Actual/average90th percentile10th percentileReference
Dolla
rs p
er
bush
el
Source: FAPRI-MU stochastic baseline, March 2015
U.S. soybean costs and returns
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
100
200
300
400
500
600
700
Market revenues, variable costs
Market revenuesVariable costs
Dolla
rs p
er
acr
e
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
50
100
150
200
250
300
350
400
450Market net returns
Market net returns
Dolla
rs p
er
acr
e
Source: FAPRI-MU baseline update, August 2015
U.S. soybean costs and returnsMarch 2015 FAPRI-MU stochastic baseline mean values
2015/16 2016/17 2017/18 2018/19
Market price ($/bu.) 9.29 9.44 9.79 10.26
Market revenue ($/a.) 409 421 441 465
Variable expenses ($/a.)
181 182 185 189
Net market return ($/a.)
228 238 255 276
ARC payments ($/base a.)
27 23 16 10
PLC payments ($/base a.)
15 14 10 8
Crop insurance net indemnities ($/a.)
15 14 15 16
U.S. wheat supply and useAugust 2015 FAPRI-MU baseline update
2015/16 2016/17 2017/18 2018/19
Area planted (mil. a.)
56.1 53.9 54.2 54.0
Area harvested (mil. a.)
48.5 45.5 45.7 45.5
Yield (bu./a.) 44.1 45.9 46.3 46.6
Supply & use (mil. bu.)
Production 2,136 2,088 2,113 2,120
Feed use 213 220 223 211
Food use 969 975 982 988
Exports 923 938 970 1,000
Ending stocks 837 844 835 811
Price per bushel $5.10 $5.05 $5.24 $5.55
Wheat: farm and futures prices
05/
06
06/
07
07/
08
08/
09
09/
10
10/
11
11/
12
12/
13
13/
14
14/
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15/
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16/
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17/
18
18/
190
1
2
3
4
5
6
7
8
9
Farm price--Aug. Farm price--Mar. Jul. futures
Do
llars
pe
r b
ush
el
Sources: FAPRI-MU baseline update, Aug. 2015; CME July futures contracts, Oct. 2, 2015
U.S. farm prices for wheat
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
1
2
3
4
5
6
7
8
9
Actual/average90th percentile10th percentileReference
Dolla
rs p
er
bush
el
Source: FAPRI-MU stochastic baseline, March 2015
U.S. wheat costs and returns
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
50
100
150
200
250
300
350
400
Market revenues, variable costs
Market revenuesVariable costs
Dolla
rs p
er
acr
e
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
18/19
0
50
100
150
200
250Market net returns
Market net returns
Dolla
rs p
er
acr
e
Source: FAPRI-MU baseline update, August 2015
U.S. wheat costs and returnsMarch 2015 FAPRI-MU stochastic baseline mean values
2015/16 2016/17 2017/18 2018/19
Market price ($/bu.) 5.17 5.28 5.48 5.66
Market revenue ($/a.) 234 241 253 263
Variable expenses ($/a.)
125 126 128 132
Net market return ($/a.)
109 115 125 131
ARC payments ($/base a.)
15 14 10 7
PLC payments ($/base a.)
19 20 15 14
Crop insurance net indemnities ($/a.)
18 11 12 13
So are these projections any good?Mean absolute percentage errors, 18 past baselines for CORN prices
Projection for USDA FAPRI-MU Futures
Next year 12.5% 15.0% 19.0%
2 years ahead 17.7% 20.4% 25.1%
3 years ahead 22.9% 22.3% 23.6%
4 years ahead 26.2% 26.1% 24.2%
5 years ahead 29.7% 28.9% 26.9%
Average of above
21.8% 22.5% 23.8%
Sources: USDA and Futures estimates by Scott Irwin and Darrell Good in a FarmDoc piece posted Feb. 4 (http://farmdocdaily.illinois.edu/2015/02/long-term-forecasts-and-farm-bill-program-choice.html). FAPRI-MU estimates compiled by FAPRI-MU and reported in a FarmDoc piece by Pat Westhoff on Feb. 12 (http://farmdocdaily.illinois.edu/2015/02/price-projections-and-farm-bill-program-choices.html).
Expected payments and program elections
Projected payments Program election(2014-18, $/acre) (share of base area)ARC PLC ARC PLC
Corn $27 $20 93% 7%Soybeans $17 $10 97% 3%Wheat $11 $14 58% 42%Sorghum $11 $21 34% 66%Barley $10 $22 25% 75%Oats $2 $1 68% 32%All rice $4 $66 5% 95%Peanuts $45 $138 0% 100%
Sources: FAPRI-MU stochastic baseline, March 2015; calculations based on USDA election data, June 2015.
Notes: Projected payments are average annual payments across 500 stochastic outcomes. Rice figures are for all rice; nearly 100% of long grain rice base area elected PLC.
Source: Table 1 from Choices article by Westhoff, Gerlt and Glauber, http://www.choicesmagazine.org/choices-magazine/submitted-articles/farm-program-elections-budget-costs-and-the-wto
Projected payments under the new farm bill
14/15 15/16 16/17 17/18 18/190
1000
2000
3000
4000
5000
6000
7000
8000
9000
ARC payments
90th percentile Mean10th percentile
Bill
ion d
olla
rs
14/15 15/16 16/17 17/18 18/190
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
PLC payments
90th percentile Mean10th percentile
Bill
ion d
olla
rs
Source: Figures 2 and 3 from Choices article by Westhoff, Gerlt and Glauber, http://www.choicesmagazine.org/choices-magazine/submitted-articles/farm-program-elections-budget-costs-and-the-wto
Summary and final comments Under normal conditions, expect crop prices and net
returns to remain well below 2010-12 peak values
Mean projected ARC and PLC payments and crop insurance net indemnities are important, but are still a modest share of total receipts for major crops
Programs protect against different types of risk, with different future profiles PLC—price risk only; mean value inversely related to projected
prices ARC—county revenue risk; mean value declines over time for
major crops as projected moving average of prices declines Crop insurance—farm level yield/revenue risk; subsidies
positively correlated with projected mean prices
Thanks!
FAPRI-MU website: www.fapri.missouri.edu
To contact Pat Westhoff: 573-882-4647 [email protected]
FAPRI-MU team: Julian Binfield Sera Chiuchiarelli Deepayan Debnath Scott Gerlt Hoa Hoang Lauren Jackson Willi Meyers Kateryna Schroeder Wyatt Thompson Jarrett Whistance Peter Zimmel
This material is based upon work supported by the U.S. Department of Agriculture, Office of the Chief Economist, under Agreement No. 58‐0111‐14‐001 with the Curators of the University of Missouri. 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.