Economic Comparison of the Farm, Nutrition, and Bioenergy Act (H.R. 2419) to Fairness in Farm and Food Policy Amendment to H.R. 2419

The House Agriculture Committee unanimously passed their farm bill, “Farm, Nutrition and Bioenergy Act of 2007” (H.R. 2419). An amendment, “Fairness in Farm and Food Policy,” H.R. 2419 was announced by Ron Kind (D-WI). The purpose of this Briefing Report is to compare the likely economic impacts of H.R. 2419 and the FFFP Amendment on representative crop, dairy, and cattle farms.Agricultural and Food Policy,

Financial Impacts of Regional Differences in Dairies

The sensitivity of net cash farm income to changes in selected production variables, output prices, and input costs varies significantly across representative U.S. dairies. Different regions of the country were impacted differently by changes to production and prices.Agricultural Finance, Q12, Q14,

Regional and Structural Impacts of Alternative Dairy Policy Options

Milk and dairy product prices have fallen to their lowest levels in 3 years following the record highs of 2004 and 2005. The large government stockpiles of non-fat dry milk are gone, but threaten to build again as non-fat dry milk and cheese prices decline nearer the support price level. A new farm bill is scheduled to be written in 2007. The Milk Income Loss Contract (MILC) program included in the last farm bill was only authorized through September 2005. Subsequent legislation reinstated the MILC program through August 2007. WTO negotiations are on-going and could influence U.S. farm programs 1/. Dairy’s role in the U.S. amber box limit of $19.1 billion may necessitate some possible trade-offs with other commodities. Dairy counts about$4.2 billion toward the annual amber box limit, but actual spending only averages about $1 billion (Outlaw, et al). The pressure of low prices, WTO negotiations, MILC continuation, and a new farm bill has created the potential for a number of options and alternatives for dairy policy. This paper examines the regional and structural impacts of 3 dairy policy options: MILC continuation, a target price/deficiency payment program, and an increase in the support price. All three options are designed to spend$400 million in amber box payments per year. The analysis uses representative dairy farms in major milk producing regions of the country developed by the AFPC for policy analysis.Agribusiness, Agricultural and Food Policy, Livestock Production/Industries,

The Effectiveness of Dairy Risk Management at Managing Income, Revenue, and Margin Risk

With the 2009 milk prices still fresh on everyone’s mind, there has been increased interest in ways to limit milk price volatility. Using SERF, this paper determined some dairies are willing to pay for limited milk price volatility and found a value they are willing to pay using risk premiums.Dairy, Stochastic Simulation, price volatility, Agricultural and Food Policy, Farm Management,

Considerations in the Dairy Relocation Decision

Historically, U.S. dairymen have been thought to move to a new location to seek better economic opportunities or to leave an area that has become disadvantaged due to regulation or economics. Recently, there again have been major shifts in dairy production across the United States.Livestock Production/Industries,

What a Difference a Year Makes in the Dairy Industry

The projections for feed and milk prices have changed over the last year. This study looks at how the changes affect the dairy industry. The high feed prices have been trumped by higher milk prices and the economic viability of the dairy industry has improved across the board.Demand and Price Analysis, Industrial Organization,

Including Risk in Economic Feasibility Analyses: The Case of Ethanol Production in Texas

The widespread use of personal computers and spreadsheet models for feasibility studies makes risk-based Monte Carlo simulation analysis of proposed investments a relatively simple task. Add-in simulation packages for Microsoft® Excel can be used to make spreadsheet models stochastic. Rather than basing investment decisions on point estimates, investors can easily estimate the implied distributions of returns for uncertain investments and calculate the risk of an investment as well as the probability of success. The benefits of using Monte Carlo simulation to analyze a risky investment are demonstrated using an ethanol plant as an example.economic feasibility analysis, ethanol feasibility, risk management, stochastic simulation, Agribusiness, Research and Development/Tech Change/Emerging Technologies,

The Effects of Sex-Sorted Semen on Southern Dairy Farms

This paper examines the impact of sex-sorted semen adoption on dairy farm level economics. Representative dairies are used to simulate the financial impacts of moving to this new technology. Key economic, financial and herd dynamics will be compared among dairies to show how the uses of sex-sorted semen will affect dairy farms. All seven of the representative dairies that were analyzed sold surplus replacement heifers using sex-sorted semen. The increase use of sex-sorted semen can have very positive impacts on dairies throughout the Southern United States.Dairy production, sex sorted semen, production economics, scenario analysis, Agribusiness, Farm Management, Livestock Production/Industries, Production Economics,

Economic Outlook for Representative Dairies Given the August 2007 FAPRI/AFPC Baseline

While projected milk prices are a primary determinant of the financial viability of the representative dairies, the prices of feed crops and cattle prices can also have an impact. Most of the dairies produce hay, silage, and other crops and are often net buyers. Commodity prices have a major impact on dairy returns because feed represents the number one cost for dairies. With the recent increase in demand for corn, prices are projected to increase, potentially affecting rations and feed costs. Projected milk and livestock prices for FAPRI’s August 2007 Baseline are presented in Table 1. In general, milk prices are projected to decrease each year from 2007 though 2012 after the large increase in price from 2006 to 2007. Cattle prices are expected to decrease with the downturn in the cattle cycle. Specifically, prices for milk and cattle are projected to move as follows: • U.S. All Milk price is expected to decrease from $19.07/cwt in 2007 to$15.72/cwt in 2012. • The localized prices for each state move with the U.S. All Milk price. • Feeder cattle prices are projected to decrease from $117.53/cwt in 2007 to$102.03/cwt in 2012. • Cull cow prices start at $50.94/cwt in 2007, increase to$52.98/cwt in 2008 and then decrease to $47.14/cwt by 2012. Projected crop prices for FAPRI’s August 2007 Baseline are also summarized in Table 1. Individual crop prices are projected to move as follows: • The U.S. all hay prices are expected to fall from$123.20/ton in 2007 to $110.86/ton in 2009 and then rise to$111.52/ton in 2012. • Corn prices start at $3.10/bu in 2007 and increases in 2008 to$3.38/bu and then falls to $3.25/bu by 2012. • Soybean Meal is expected to fall from$207.88/ton in 2007 to $192.68/ton by 2012. Projected annual rates of change for variable cash expenses are summarized in Table 2. The rate of change in input prices comes from FAPRI’s August 2007 Baseline. Based on projections from Global Insight, annual interest rates paid for intermediate-term and long-term loans and interest rates earned on savings are also reported in Table 2. Assumed annual rates of change in land values over the 2007-2012 period are provided by the FAPRI Baseline and are projected to range between a 3.51% and 13.68% per year.

Economic Outlook for Representative Dairies Given the August 2006 FAPRI/AFPC Baseline

While projected milk prices are a primary determinant of the financial viability of the representative dairies, the prices of feed crops and cattle prices can also have an impact. Most of the dairies produce hay, silage, and other crops and are often net buyers. Commodity prices have a major impact on dairy returns because feed represents the number one cost for dairies. With the recent increase in demand for corn, prices are projected to increase, potentially affecting rations and feed costs.Agribusiness, Agricultural and Food Policy, Livestock Production/Industries,