AgDM newsletter article, December 1999

Do the 1999 government farm payments offset reduced prices

Don HofstrandDon Hofstrand, retired extension value added agriculture specialist, agdm@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.

 

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