AgDM newsletter article, December 1999
Do the 1999 government farm payments offset reduced prices
By Don
Hofstrand, extension farm management specialist, 641/423-0844, dhof@iastate.edu
Emergency and disaster assistance legislation was recently passed by Congress and signed by the President. This package of over $8 billion is designed to provide direct assistance to farmers. The details of the package are shown below.
The Market Loss Assistance portion pays farmers an addition 36.3 cents per bushel in addition to the 36.3 cent AMTA payment they have already received for a total of 72.6 cents.
The Oilseeds Assistance portion pays oilseed producers (soybeans, sunflowers, canola, etc.) $475,000,000. This will be distributed by using complex formulas to determine a payment rate per bushels. The payment rate for soybeans is tentatively estimated to be 15 cents per bushel.
| 1999 Government farm assistance | |
|
Market Loss Assistance |
$5,544,453,000 |
|
Oilseeds Assistance |
475,000,000 |
|
Crop Loss Assistance |
1,200,000,000 |
|
Livestock and Dairy |
325,000,000 |
|
Specialty Crops |
328,000,000 |
|
Subsidize Crop Insurance |
400,000,000 |
|
Total |
$8,272,453,000 |
Income
shortfall for 1999
The two programs discussed above were designed to offset the low corn and soybean price levels currently facing farmers. Do these payments compensate for low prices? To answer this question I have computed the average gross income per acre for corn and soybeans for each of the last five years. I used the season average prices for these commodities and the state average yields. Because the comparison is based on gross income rather than net income, changes in production costs are not taken into account.
Shortfall with no government involvement
The shortfall, not including any government assistance, is shown in Table 1. By using actual prices and yields, the five-year average gross crop income for corn was $337 per acre and $281 for soybeans.
Using the actual Iowa yield for 1999 and projected 1999 season average prices, the gross crop income shortfall for 1999 is $84 for corn and $74 for soybeans compared to the five-year average.
Table 1. Crop Income Shortfall, 1999 vs. 1994-1998, No Government Assistance
|
|
|
Prices
|
|
Yields
|
|
Crop Income | |||
|
Year |
Corn |
Soybeans |
Corn |
Soybeans |
Corn |
Soybeans |
|||
|
1994 |
$2.22 |
$5.43 |
152 |
50.5 |
$337 |
$274 |
|||
|
1995 |
3.20 |
6.65 |
123 |
43.0 |
394 |
286 |
|||
|
1996 |
2.60 |
7.36 |
138 |
44.0 |
359 |
324 |
|||
|
1997 |
2.33 |
6.33 |
138 |
46.0 |
322 |
291 |
|||
|
1998 |
1.87 |
4.79 |
145 |
48.0 |
271 |
230 |
|||
Avg. |
$2.44 |
$6.11 |
139 |
46.3 |
$337 |
$281 |
|||
|
|
|
|
|
|
|
|
|||
|
1999 |
$1.70 |
$4.60 |
149 |
45.0 |
$253 |
$207 |
|||
|
|
|
|
|
|
|
|
|||
|
Shortfall |
$.74 |
$1.51 |
-10 |
1.3 |
$84 |
$74 |
|||
Effect of loan program on shortfall
In general, marketing loans and loan deficiency payments set a “floor” or minimum price for corn and soybean prices. Loan rates vary from county to county. The average loan rates are $1.78 and $5.16 for corn and soybeans respectively.
Because the minimums are higher than the projected prices for the coming year, these programs reduce the expected shortfall for 1999. As shown in Table 2, with the protection of the marketing loan program, the shortfall is reduced to $72 and $54, respectively, for corn and soybeans.
Table 2. Crop Income Shortfall, 1999 vs. 1994-1998, Loan Protection, No Direct Payments
|
|
Loan Rates |
|
Yields |
|
Crop
Income
|
||
|
|
Corn |
Soybeans |
Corn |
Soybeans |
Corn |
Soybeans |
|
|
94-98 Avg. |
$2.44 |
$6.19 * |
139 |
46.3 |
$337 |
$286 * |
|
|
1999 |
$1.78 |
$5.16 |
149 |
45.0 |
$265 |
$232 |
|
|
Shortfall |
$.66 |
$1.03 |
-10 |
1.3 |
$72 |
$54 |
|
* Five year average is higher than in Table 1 because of loan rate protection in 1998.
Effect of loan program and direct payments on shortfall
Under the “Freedom-to-Farm” legislation, farmers also receive direct government payments. These payments are computed using the historic corn base (now called contract acres) and the government corn yield established for the farm. The payment rates by year are shown in Table 3. In the example, the payment rate per acre is computed by assuming that contract acres (corn base) constitute 60 percent of the total corn and soybean acres. The payment is then computed on a “per acre” basis over all corn and soybean acres. The payments for 1994 and 1995 are computed under previous legislation where a “deficiency payment” was paid.
After these programs are included, the income shortfall for 1999 is reduced to $47 for corn and $21 for soybeans compared to the 1994-98 average. Although a shortfall still exists under these programs, it is much smaller than the shortfall would be without government involvement.
Table 3. Crop Income Shortfall, 1999 vs. 1994-1998, Loan Protection and Direct Payments
|
|
|
Direct
Gov’t. Payments 60% Base * |
|
Crop Income + Payments |
|
|
|
|
|
|
|
Year |
Per Bu. |
Per Acre |
Corn |
Soybeans |
|
1994 |
$.49 |
$31 |
$369 |
$305 |
|
1995 |
.00 |
0 |
394 |
286 |
|
1996 |
.25 |
16 |
375 |
340 |
|
1997 |
.48 |
31 |
352 |
322 |
|
1998 |
.57 |
36 |
307 |
284 |
Avg. |
$.36 |
$23 |
$359 |
$307 |
|
|
|
|
|
|
|
1999 |
$.73 |
$47 |
$312 |
$279 |
|
Soybean Pymt. |
.15 |
|
0 |
7 |
|
Total |
|
|
$312 |
$286 |
|
|
|
|
|
|
Shortfall |
|
$47 |
$21 |
* Contract acres (corn base) equal to 60 percent of the total corn and soybean acreage. Payment is spread over all acres (corn and soybeans). Computation (per acre): Payment rate (per bu.) x 125 bu. x .85 x .6.
Summary
Although the income shortfall resulting from lower corn and soybean prices is not totally offset by government involvement, the shortfall is much smaller than it would be otherwise. This should make a significant impact on farmer’s income and cash-flow statements. However, it may not be enough to relieve the financial stress experienced by a portion of our farmers.