The 1985 Food Security Act has provided tremendous income support for U.S. farmers. This support has helped pull agriculture out of its worst depression in over 50 years. The financial incentives of the Food Security Act has assured substantial farmer participation. Data from a long-term rotation-fertility study conducted by Iowa State University was used to analyze the impact of the feedgrain program in the Food Security Act. The impacts analyzed were the rewards offered by the program as they relate to crop rotations and nitrogen fertilizer use. Average yields and costs from six alternative rotations and four nitrogen use levels were analyzed. Returns without a land charge were calculated with and without the government program

Chase, Craig

Duffy, Michael

English

The 1985 Food Security Act has provided tremendous income support for U.S. farmers. This support has helped pull agriculture out of its worst depression in over 50 years. The financial incentives of the Food Security Act has assured substantial farmer participation. Data from a long-term rotation-fertility study conducted by Iowa State University was used to analyze the impact of the feedgrain program in the Food Security Act. The impacts analyzed were the rewards offered by the program as they relate to crop rotations and nitrogen fertilizer use. Average yields and costs from six alternative rotations and four nitrogen use levels were analyzed. Returns without a land charge were calculated with and without the government program.</p

Digital Repository @ Iowa State University (ISU)

Staff Paper 213IMPACTS OF THE 1985 FOOD SECURITY ACTON CROP ROTATIONS AND FERTILIZER USEbyMichael Duffy and Craig ChaseDepartment of EconomicsIowa State UniversityAmes, Iowa 50011The data analysis for this manuscript was supported, in part by the IowaDepartment of Natural Resources, through the Big Spring Basin DemonstrationProject. Funds were provided through the Iowa Groundwater"Protection Act andPetroleum Violation Escrow Accounts, and other sponsoring agencies: U.S.Department of Agriculture Soil Conservation Service and the U.S. EnvironmentalProtection Agency, Region VII, Kansas City. Any opinions, findings, conclusions, or recommendations expressed herein are those of the authors and do notnecessarily reflect the view of the U.S. Department of Energy.ABSTRACTThe 1985 Food Security Act has provided tremendous income support forU.S. farmers. This support has helped pull agriculture out of its worstdepression in over 50 years. The financial incentives of the Food SecurityAct has assured substantial farmer participation.Data from a long-term rotation-fertility study conducted by Iowa StateUniversity was used to analyze the impact of the feedgrain program in the FoodSecurity Act. The impacts analyzed were the rewards offered by the program asthey relate to crop rotations and nitrogen fertilizer use. Average yields andcosts from six alternative rotations and four nitrogen use levels wereanalyzed. Returns without a land charge were calculated with and without thegovernment program.Without the government program a corn-soybean rotation produced thehighest returns. The continuous corn rotation had the lowest return withoutthe program. When returns were calculated with the government programs thecorn-soybean rotation still had the highest return. With the program thecontinuous corn rotation had the second highest return.Hie rewards contained in the current feedgrain program accrue most tothose with the continuous corn rotation. Of the six rotations analyzed thisrotation used the most nitrogen, fertilizer.The features of the current feedgrain program contains someinconsistencies with other concerns. The program rewards the production ofcrop in excess supply and the heaviest fertilizer use.INTRODUCTIONThe 1985 Food Security Act (FSA) is providing tremendous income supportfor U.S. farmers. In 1987 almost 10 percent of the gross farm income in theU.S. was direct government payments. Just over one-third of net farm incomewas accounted for by government payments. In Corn Belt States, such as Iowaand Illinois, almost 20 percent of the 1987 gross farm income and over70 percent of the net farm income was government payments (USDA, 1987) .The impact of this level of support should not be underestimated. Norshould the level of influence exerted by the FSA be underestimated.This paper will examine the rewards and incentives provided by the feedgrain portion of the FSA. In particular the rewards as they impact fertilizeruse and crop rotations will be examined.The FSA Feedgrain Program provides some discretionary programs determinedby the U.S. Secretary of Agriculture. Although the basic program features donot change, the program has been slightly different each year.The basic feature of the Feedgrain Program is a set-aside requirement.To be eligible for program benefits producers must agree to not plant, or set-aside, a certain percentage of their base acres for the particular crop. Thebase acres are the average number of acres devoted to the crop or set-asideover the past five years. For example, in 1987 and 1988 corn producers wererequired to set aside at least 20 percent of their respective corn bases toreceive benefits from the corn program.* Economic Indicators of the Farm Sector, State Financial Summary, 1986, USDA,ERS, ECIFS 6-4.In exchange for setting aside land the farmer is guaranteed the targetprice for the bushels produced. The target price was set in the 1985 FoodSecurity Act.- For-corn, the target price was $3.03 per bushel in 1986 and1987, $2.93 in 1988, $2.84 in 1989 and is set to drop to $2.75 in 1990.The target price is guaranteed for participating farmers through adeficiency payment program.: The difference between the target price and theseason average market price is the deficiency payment rate. The totaldeficiency payment received is the rate times yield times planted acres. Theyield is the farm or county average yield. See Glaser for a description ofhow the averages, and proportions-are determined.The maximum deficiency payment is\determined by the loan- rate. The loanrate is the price per bushel the government will loan the producer. Thesenine month loans, through the Commodity Credit Corporation (CCC), arenonrecourse and use grain ,as collateral. Any time during the nine months thefarmer can repay the loan plus interest. At the end of nine months the farmercan pay off the loan or forfeit the grain to the government.,Ihe farmer could also enter another fanner grain reserve program throughthe (XC. There are more details to these program but these are'discussed inother places.** Suffice it to say that the deficiency payment program and theCCC loan program make up any differences between the target price and themarket price.** Lewrene K. Glaser, Provisions of the Food Security Act of 1985, USDA, ERS,Bulletin #498.There are many other features and regulations of the FSA which will notbe covered in this paper. Features such as federal multiple peril cropinsurance, haying and grazing on idled acres, cross-compliance, conservationreserve program, 0—92 and 50-92 programs, and drought assistance among othersare Coo voluminous to be included in this analysis.The overall thrust of this,paper is to estimate how the Feedgrain Programis influencing crop rotations and fertilizer use. National policy does nottarget benefits of the Feedgrain Program to any certain group of producers,instead all farmers who participate are given the same benefits based on theirproduction. In examining the impacts and returns under the Feedgrain Program,particular attention will be given to whether the program is producingundesirable effects due to the structure of the programs.DATA AND ASS13MFTI0NSIhis study uses a partial budgeting approach. All crops were, assumed tobe marketed. Average costs have been assumed throughout.Ihe basic data used here comes from the Iowa State University researchfarm at Kanawha, Iowa. (ISU, Exp. Sta. Report 0RC87-14, 22). This particularstudy examines the interaction of nitrogen fertilizer and crop rotations onyields. The six rotations examined are: continuous corn (CCCC), corn-corn-corn-oats (CCCO), corn-soybeans-corn-soybeans (CBCB), corn-soybeans-corn-oats(CBCO), corn—corn—oats—meadow (CCCM), and corn—oats-meadow—meadow (COMM).ifeadow is a legume-grass mixture that is treated like hay. There are fournitrogen levels used: 0, 80, 160, and 240 pounds per acre.Crop yields by rotation and nitrogen use level for 1984-1987 are shown inTable 1. Note that for corn following corn the highest yields were with theheaviest fertilization. Yields-for corn following another crop inmost casesare as high or higher with lower fertilization.Table 1. Average Crop Yields, 1984-1987Com Yields •in Bushels Per AcreN/LB/Acl/CCCCI/ ^cco CCCO CCCO CTCB^ CBCB MCO CBCO _CCOM- CCOM _C0MM0 55 . 117 60; i \70 108 "107 127 108 • 147 -^"76 15480 106 154 118 104 148 131 156 144 161 127 157160 134 .167 • 141 • 131 166 . 155 166 163 163 144 172240 146 165 150 1311 , •161 158t t , m,165 164 165 153 166 i.,. Oat Yields in Bushels Per Acre -N/LB/AC CCCC cccoÂCCCO CCCO .CBCB CBCB CBCO^ CBCO CCOM CCOM COMM0 .55 48 63 7980 62 60 72 76160 70 r 74 73 " 79240 79 76 76 80Soybean Yields in Bushels Per AcreN/LB/AC CCCC CCCO CCCO CCCO CBCB CBCB C^CO CBCO CCOM CCOM COMM0 42.5 45.6 . 46.780 '42.8 44.8 45.2160 42.0 45.1 43.8240 44.2 46.2 47.0N/LB/AC CCCC CCCO080160240Hay Yields in Tons Per AcreCCCO CCCO CBCB CBCB CBCO CBCO. . CCOM COMM COMM4.02 3.67 3.854.02 3.67 3.49_ 3.73 3.74 3,993.85 3.63 3.82Source: Iowa State Experiment Station at Kanawha, Iowa, Report 0RC86-14, 22,1987.—^Nitrogen applied to corn only,.2/—' C = corn, B = soybeans, 0 « pats, 0^^ = oats with a catch, crop, M« meadow.^ =-crop in the rotation being reported.Table 1 also shows the yields of the soybeans, oats, and hay. Nitrogenfertilizer is only applied to corn. The other crops are shown by nitrogen uselevel on corn in the rotation. Note that oats show improved yields withheavier fertilization rates indicating some carryover benefits. However,soybeans and hay show random effects from nitrogen use on corn in therotation.Total revenues are shown in Table 2. The prices used throughout thisstudy unless noted are: $2.10 per bushel for corn, $5.80 per bushel forsoybeans, $1,75 for oats, $60 per ton for hay and $40 per ton for straw.Straw yield data was not kept although straw is removed from the fields.Therefore, it was assumed that each acre of oats produced a ton of straw.Table 2. Total Revenue, by Rotation Using $2.10 Corn , $5.80 Soybeans,$1.75 Oats, $60, Hay, and^ $_40 Strawc *Dollars Per Four ,̂ re RotationN/LB/AC CCCC CCCC ' ciBCB CBCO CCOM COMM0 $ 462 $ 655 $ 963 $ 889 $ 859 $ 95280 894 937 1092 1038 1012 933160 1124 1085 1179 1113 1035 1003240 1226 1113 1194 1136 1074 975Total revenues are maximized with the heaviest nitrogen fertilizationlevel in all cases except one. The CCMM rotation shows maximum revenue with160 pounds of nitrogen. This rotation also has higher revenues with nofertilizer use than with using 80 pounds.Table 3 shows the effect of nitrogen cost on revenues. Three differentprice levels for nitrogen (N) are shown. With a price of $.10 per pound therelative revenues remain unchanged. However, with increasing nitrogen prices,revenues are maximized with lower fertilization levels. At $.20 a pound onlyCCCC maximizes revenues with the highest fertilization level.Table 3. Returns Per Rotation Net of Nitrogen Cbst OnlyN/LB/AC080160240N/LB/AC080160240CCCC$ 46286210601130CCCC$ 46284610281082Dollars Per Four Acre Rotation. Nitrogen At $.10CCCC$ 65591310371041CBCB$ 963•107611471146CBCO$ 889102210811088CCOM$ 85999610031026Dollars Per Four Acre RotationNitrogen at $.15CCCC CBCB CBCO$ 655 $ 963 $ 889901 1068 10141013 - 1131 10651005 1122 1064, • ^ 'c •Dollars Per Four Acre RotationNitrogen at $.20CCOM$ 8599889871002COMM$ 952925987951COMM$ 952921979939N/LB/AC CCCC ccco- ' CBCB 'CBCO CCOM COMM0 $ 462 $ 655 $ 963 $ 889 $ 859 $ 95280 830 -889 • 1060 1006 980 917160 996 989 1115 1049. 971 971240 1034 969 1098 1040- 978 927-Cost of production estimates are presented in Table 4. Variable costs donot include any charge for nitrogen. Nitrogen costs are subtracted inTable 5. An additional $24 charge has been,added to oat variable costs toreflect seed costs for the catch crop. The catch crop is simply disked induring the Fall, Labor is included as a fixed cost. Therefore, fixed costsinclude labor and machinery but no land charge.Table 4. Estimated Costs of ProductionDollars Per AcreCrop Variable Cost (excluding land)Continuous corn $142 $68Rotated corn 133 63Soybeans 102 48Oats 71 49Oats w/catch cro^ 95 49Meadow 1st year^^ 122 60Meadow 2nd year 78 58Fixed CostsSource: "Estimated Oasts of Crop Production - 1989", ISU, Ext. Pub., FM-1712,Dec. 1989.* Excluding nitrogen.** Meadow cost updated from ISU, Ext. Pub. AG-96, Feb. 1984.Table 5 shows the returns over variable costs by rotation and nitrogenlevel. The price assumptions are those used before. Nitrogen cost of $.10was used.Table 5. Returns Over Variable Costs*Dollars Per Four Acre RotationN/LB/AC CCCC CCCO CBCB CBCO CCOM COMM0 $(106) $143 $493 $426 $391 $54880 294 401 606 559 528 521160 492 525 677 618 535 583240 562 529 676 625 558 547*See text for description of variable costs included. Nitrogen cost is$.10 per pound.The highest returns over variable costs by rotation are shown in Table 6.The total pounds of nitrogen used are .also reported. Table 6 shows that theCBCB rotation has the highest return over variable cost.Table 6. Highest Returns Over Variable Cost to-Each Rotation and TotalNitrogen UsedPer Four Acre RotationRotation Return Total in Use (pounds)' CCCC $562 960 ^CCCO • 529 720CBCB 677 320CBCO 625 480CCCM 558 480COMM 583 160 * •the effects of the government Feedgrain Programs are shown in Table 7.The 1989 Feedgrain Program has a 10 percent set-aside requirement. Theworksheet used to evaluate the returns over variable costs using thegovernment programs is presented in Appendix A. The yield and costassumptions are the same as before.The returns over variable costs presented in Table 7 are on a per acrebasis and are only for the highest return for each rotation. In evaluatingthe government program it was assumed the average corn yield reported inTable 1 vas program.and actual.yield. The loan rate used was $1.58 and it wasassumed that there would be a $.10 storage charge to obtain the average marketprice. The variable production costs used are those in Table 4 with nitrogenadded at $.10 a pound. Finally, 100 acres were used as the base. This meansCCCC had a 100 acre? corn base, CCCO had a 75 acre corn base, CBCB, CBCO andCCOM had 50 acre and CCMM had a 25 acre corn base. Using the 100 acre basenone of the rotations exceeded the $50,000 payment limit.Table 7. Returns^Per Acre Over Variable Costs by Rotation and GovernmentProgramDollars Per AcreRotation No Program 10%**CCCC $140 $209CCCO 132 184CBSB 169 205CBCO 156 193CCOM 140 176COMM 146 165*See text for description of government program. Note these are returnsover variable costs only.**Basic 10 percent set-aside program.In Table 7, note that before the government program CBCB has the highestreturn over variable cost. Using the program CCCC shows the highest returnover variable costs. CBCB goes from highest to second as a result of thepayment features of the program.Table 8 shows the return for land and management by rotation and level ofgovernment program. This vrould be the per acre residual to cover all landcharges and a profit. The fixed costs used in Table 8 are reported Table 4.The relative order based on return does not change from Table 7 toTable 8. However, notice that the magnitude of the impacts of the governmentprograms are lessened when comparing rotations.10Table 8. Returns for Land and Management by Rotation and Government ProgramDollars Per AcreRotation No Program 10%CCCC ,$ 72 $1^CCCO 72 124CBCB 113 149CBCO 100' 137CCOM 80 ' 116COMM 87 106COHCLUSIONS AND OBSERVATIONSThis simple partial budget analysis has revealed several interestingaspects of the current government Feedgrain Program. Additionally the data .used here looks at one important component of chemical use in modernagriculture.As shown in Table 1, it is possible to produce corn without applicationof commercial nitrogen. With no nitrogen applied in the COMM rotation theaverage.corn yield was 154 bushels per acre. .Also notice in Table 1 that cornyields increase when corn follows,another crop, regardless of the nitrogenapplication level.This analysis shows the level of income support provided in the 1985 FoodSecurity Act. In Iowa cash rents for 1989.will average somewhere.between $90and $100 per acre. At this level only one or perhaps two of the rotationswould show a positive return to management without the government program.11This analysis also reveals as least three inconsistencies with thestructure of the current Feedgrain Program. The program is in place tosupport corn prices yet the program is devised such that the production- of thecrop that is already in excess supply is encouraged.Another inconsistency with respect to the program is the influence onfertilizer and chemical use. ."Hie rewards of the program go to those producingcontinuous corn, yet, as sho^ in Table 6, this rotation uses the highestlevel of nitrogen fertilizer. Additionally, a continuous com rotationrequires the use of a rootworm insecticide, something the other rotationswould not need every year. Currently the government is spending millions ofdollars to encourage adoption of alternative techniques to commercialfertilizers and chemicals yet the income support program is rewarding just theopposite.A final inconsistency revealed in this analysis regards soil erosion.The government at all levels is encouraging the adoption of soil savingpractices, including the use of longer rotations. As shown in Tables 7 and 8the COMM rotation, which would produce the least amount of environmentaldamage is third without the government program. However, with theintroduction of the program this rotation becomes the least attractive.The relative prices used in a partial budget analysis of this nature willhave a dramatic influence on the results. The prices used throughout thisanalysis are believed to be reflective of realistic planning prices in Iowafor the 1989 crop year. Using 5, 10 and 15 year average Iowa prices for thecommodities does not change the general conclusions drawn particularly withrespect to the inconsistencies in the current Feedgrain Program.IXAgriculture in the 1980s has experienced overproduction and resulting lowcommodity prices. In large part this overproduction-contributed to the majordownturn in the financial well-being of farmers. The major response to thefinancial problems has been the 1985 Food Security Act. Because of thetremendous financial incentives this Act provided, farmer participation hasbeen considerable, exceeding 90 percent in Corn Belt states such as Iowa.Given this level of participation it is important'-that-the impacts of theprogram be analyzed. As shown in this paper, the impacts of the program aremore than just the-financial rewards.- ^ - •The 1990 Farm Bill will be the next major piece-^of'farm legislation.Itopefully as this•legislation is being debated consideration will be given towhat 'incentives and rewards are given'in the program. The 1985 Food SecurityAct provides the greatest rewards to those who use the most chemicals andproduce in one of-the most environmentally damaging ways. If the governmentis serious about limiting the environmental impacts from agriculture, the 'method of incomersupport for agriculture must be examined.REFERENCES(1) Duffy, Mike. 1988. Estimated Costs of Crop Production in Iowa, 1989(FM-1712), Iowa State University, Ames, Iowa.(2) Duffy, Mike and Robert Wisner. 1989. The 1989 Feedgrain ProgramWorksheet (FM-1745), Iowa State University, Ames, Iowa.(3) Glaser, Lewrene K. 1986. Provisions of The Food Security Act of 1985(ERS Bulletin 498), USDA, Washington, D.C.(4) Iowa State University Experiment Station. 1987. Annual Progress Report,1986: Northern Research Center and Clarion-Webster Research Center(Report ORC 86-14, 22), Iowa State University Experiment Station, Ames,Iowa.(5) USDA. 1987. Economic Indicators of the Farm Sector: State FinancialSummary, 1986, USDA, Washington, D.C.

Impacts of the 1985 Food Security Act on Crop Rotations and Fertilizer Use

https://lib.dr.iastate.edu/cgi/viewcontent.cgi?article=1210&amp;context=econ_las_staffpapers

Impacts of the 1985 Food Security Act on Crop Rotations and Fertilizer Use

Abstract

Similar works

Full text

Available Versions

Digital Repository @ Iowa State University (ISU)