Steven L. Klose

1
Economic Considerations Oilseed
Workshop Plainview, TX -- December 10,
2008 Wichita Falls, TX -- December 11, 2008

• Steven L. Klose
• Financial And Risk Management Assistance
• Department of Agricultural Economics
• Texas AgriLife Extension Service
• The Texas AM University System

2
Overview

• Oilseeds in the 2008 Farm Bill
• Direct Payments
• Loan Rates
• CCP
• ACRE
• SURE
• Payment Limits
• Crop Insurance Options
• APH / CAT
• RA
• NAP
• On-farm Biodiesel Production?

3
2008 Farm Bill

• Significant Changes
• ACRE
• SURE
• Payment Limits
• Similar to 2002 Farm Bill
• Direct Payments
• Loan Rate
• Counter-Cyclical Payments

4
Other or Minor Oilseeds

• Considered Covered Commodities
• Sunflower seed
• Rapeseed
• Canola
• Safflower
• Flaxseed
• Mustard seed
• Crambe
• Sesame seed
• Or any oilseed designated by the Secretary

5
Direct Payments
Crops 2002 Farm Bill 2008 Farm Bill
Corn (/bu) 0.28 0.28
Sorghum (/bu) 0.35 0.35
Wheat (/bu) 0.52 0.52
Upland Cotton (/lb) 0.0667 0.0667
Rice (/cwt) 2.35 2.35
Barley (/bu) 0.24 0.24
Oats (/bu) 0.024 0.024
Soybeans (/bu) 0.44 0.44
Minor Oilseeds (/cwt) 0.80 0.80
Peanuts (/ton) 36 36
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Direct Payments

• No Change in Payment Rates
• 0.80/ cwt for oilseeds
• Payment Fraction
• 0.85 for 2008 and 2012
• 0.833 for 2009-2011
• Payment Timing
• 22 advance available Dec. 1
• No advance on the 2012 crop
• Full Payment not before Oct. 1

7
Loan Rates
Crops 2002 Farm Bill 2008 Farm Bill 2008 Farm Bill 2008 Farm Bill
2007 2008 2009 2010-12
Corn (/bu) 1.95 1.95 1.95 1.95
Sorghum (/bu) 1.95 1.95 1.95 1.95
Wheat (/bu) 2.75 2.75 2.75 2.94
Upland Cotton (/lb) 0.52 0.52 0.52 0.52
Rice (/cwt) 6.50 6.50 6.50 6.50
Barley (/bu) 1.85 1.85 1.85 1.95
Oats (/bu) 1.33 1.33 1.33 1.39
Soybeans (/bu) 5.00 5.00 5.00 5.00
Other Oilseeds (/cwt) 9.30 9.30 9.30 10.09
Dry Peas (/cwt) 6.22 6.22 5.40 5.40
Lentils (/cwt) 11.72 11.72 11.28 11.28
Small Chickpeas (/cwt) 7.43 7.43 7.43 7.43
Large Chickpeas (/cwt) n/a n/a 11.28 11.28
Peanuts (/ton) 355.0 355.0 355.0 355.0
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Target Prices
Crops 2002 Farm Bill 2008 Farm Bill 2008 Farm Bill 2008 Farm Bill
2007 2008 2009 2010-12
Corn (/bu) 2.63 2.63 2.63 2.63
Sorghum (/bu) 2.57 2.57 2.57 2.63
Wheat (/bu) 3.92 3.92 3.92 4.17
Upland Cotton (/lb) 0.724 0.7125 0.7125 0.7125
Rice1 (/cwt) 10.50 10.50 10.50 10.50
Barley (/bu) 2.24 2.24 2.24 2.63
Oats (/bu) 1.44 1.44 1.44 1.79
Soybeans (/bu) 5.80 5.80 5.80 6.00
Other Oilseeds (/cwt) 10.10 10.10 10.10 12.68
Dry peas (/cwt) n/a n/a 8.32 8.32
Lentils (/cwt) n/a n/a 12.81 12.81
Small Chickpeas (/cwt) n/a n/a 10.36 10.36
Large Chickpeas (/cwt) n/a n/a 12.81 12.81
Peanuts (/ton) 495.0 495.0 495.0 495.0
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Counter-Cyclical Payments

• CCP Rate TP Max(MP,LR) DP
• Payment Fraction
• 0.85 for 2008 and 2012
• 0.833 for 2009-2011
• Payment Timing
• 40 advance available 180 days after marketing
  year starts
• No advance available starting 2011 crop year
• Full or remaining payment made not before Oct. 1

10
Counter-Cyclical Payments

• Maximum CCP For Oilseeds
• Max CCP TP (LR DP)
• Through 2009
• 10.10 (9.30 0.80) zero
• 2010-2012
• 12.68 (10.09 0.80) 1.79

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ACRE Program

• Irrevocable Election beginning 2009
• Current program
• or
• ACRE 80DP 70LR
• Choice by Farm Number

12
Average Crop Revenue Election
State ACRE Guarantee 90 5-Year Olympic State
Avg. Yield 2-year Natl. Average Mkt. Yr. Price
Restricted to lt 10 change/year
Actual State Revenue Actual State Planted Acre
Yield MAX Natl. Average Mkt. Yr. Price OR 70
Loan Rate
gt
AND
Farm ACRE Benchmark Farm's 5-Year Olympic Avg.
Yield 2-year Natl. Average Mkt. Yr. Price
Ins Premium
Actual Farm Revenue Actual Farms Planted Acre
Yield MAX Natl. Average Mkt. Yr. Price OR 70
Loan Rate
gt
THEN
Farm Payment 0.833 (0.85 in 2012) Actual
Planted or Considered Planted Acres Farm's
5-Year Olympic Average Yield / States 5-year
Olympic Average Yield MIN (State ACRE
Guarantee Actual State Revenue) OR State ACRE
Guarantee 25
Note All Yields are Planted Acre Yields
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Average Crop Revenue Election (ACRE) Payment
(Cont.)

• Enrollment cannot exceed base acres on the farm
• Option to choose planted acres to enroll in ACRE
• Bill reads as if LR reduction applies to entire
  farm
• Provisions for assigning yields, etc.
• Provisions for determining whether a state will
  have both irrigated and non-irrigated state
  guarantees
• If a state has at least 25 of the acres of a
  crop that are irrigated and at least 25 of the
  acres of the crop that are non-irrigated then
  Secretary shall calculate separate irrigated and
  non-irrigated ACRE program guarantees

14
Texas Planted Acres
5 Year Average (2003-07) 5 Year Average (2003-07) 2007 2007
Irrigated Non-Irr Irrigated Non-Irr
Corn 46 54 51 49
Peanuts 90 10 93 7
Cotton 38 62 38 62
Grain Sorghum 22 78 24 76
Soybeans 20 80 21 79
Wheat 17 83 16 84
15
Average Crop Revenue Election Sunflower Example
Planted Acres Yield (lbs.) Price (/lbs.) Revenue
2003 59,000 1,193 0.1210
2004 41,000 1,366 0.1370
2005 145,000 1,354 0.1210
2006 52,000 410 0.1450
2007 41,000 1,300 0.2130
5-Year Olympic Average (2003-07) 5-Year Olympic Average (2003-07) 1,282
2-Year Avg. Price (2006-07) 2-Year Avg. Price (2006-07) 2-Year Avg. Price (2006-07) 0.179
State Acre Guarantee State Acre Guarantee State Acre Guarantee State Acre Guarantee 206.53
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Average Crop Revenue Election Sunflower Example
State Acre Guarantee State Acre Guarantee State Acre Guarantee 206.53
State Actual Revenue State Actual Revenue State Actual Revenue 186.53
Payment Available Not to exceed 51.63 ( 25 of 206.53 ) Payment Available Not to exceed 51.63 ( 25 of 206.53 ) Payment Available Not to exceed 51.63 ( 25 of 206.53 ) 20
Farm Yield 5-Year Olympic Average (2003-07) 1000 Ratio 0.78
State Yield 5-Year Olympic Average (2003-07) 1,282 Ratio 0.78
If Farm is eligible Farm Payment / acre 0.833 x 0.78 x 20 0.833 x 0.78 x 20 12.99
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Supplemental Revenue Assurance (SURE) Program

• Whole farm program
• Requires at least CAT or NAP purchase on all
  crops
• Except following a prevented planting or failed
  crop
• Except crops that are not of economic
  significance
• (NAP fee gt 10 of NAP coverage) or Crop value
  of roughly 9,100 or less
• Payment requires disaster declaration or 50 loss
• Requires a minimum 10 production loss on at
  least one crop of economic significance
• SURE Calculations
• SURE Guarantee is 115 of crop insurance coverage
  for all crops
• (capped at 90 of expected revenue for all
  crops)
• Revenue to Count for all crops
• crop value indemnities 15 of DP all other
  Gov. Pmts.
• SURE Payment (Guarantee Revenue to Count) x
  60

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Payment Limits

• Continue 40,000 limit on DP
• and 65,000 on CCP and ACRE
• Loan Deficiency Payments not limited
• Change to Direct Attribution (Eliminate 3-entity
  rule)
• If one spouse is actively engaged, then both are
  eligible
• Payment for children under 18 are attributed to
  parents
• Will trace through 4 levels of ownership
• Replace 2.5 million AGI limitation
• A person with over 500,000 in nonfarm AGI will
  be ineligible
• A person with over 750,000 in adjusted gross
  farm income will be ineligible for direct
  payments

19
Farm Bill Changes to Crop Insurance

• Farm Bill Cost Savings Created
• Reduce Loss ratio to 1.0 from 1.075
• Modified reimbursement rate
• Increased CAT / NAP fees
• Timing shifts

20
Crop Insurance Risk Management Options

• Crop Insurance
• APH
• RA
• NAP
• Acreage Contracts

21
Sunflower Crop InsuranceAPH and Revenue Assurance
22
Sunflower Crop InsuranceAPH and Revenue Assurance
23
Sunflower Crop InsuranceHale County APH 2009
1200 lbs/acre 0.2035/lb. Yield Coverage Levels Yield Coverage Levels Yield Coverage Levels Yield Coverage Levels Yield Coverage Levels Yield Coverage Levels
1200 lbs/acre 0.2035/lb. 50 55 60 65 70 75
Premium 4.34 5.72 6.84 9.23 11.43 15.36
Coverage Liability 122.10 134.31 146.52 158.73 170.94 183.15
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Sunflower APH

• Dates
• Sales Date March 15
• Planting June 15
• Reporting July 15
• Billing Oct. 1
• Proven Yields (10 year history)
• t-yields

25
Sunflower Crop InsuranceAPH and Revenue Assurance
Texas Counties 2009 Sunflower T-yield 2009 Sunflower T-yield
Irrigated Dryland
Bailey 1244 622
Briscoe 1133 567
Carson 1249 624
Castro 1310 655
Cochran 1126 598
Crosby 1244 622
Dallam 1285 642
Deaf Smith 1282 641
Floyd 1261 631
Gray 1248 624
Hale 1244 622
Hartley 1285 642
Hidalgo 1244 622
Hockley 1191 595
Texas Counties 2009 Sunflower T-yield 2009 Sunflower T-yield
Irrigated Dryland
Jim Wells N/A 744
Lamb 1222 587
Lipscomb 744 744
Lubbock 1214 607
Moore 1294 675
Nueces N/A 744
Parmer 1252 601
Potter 1271 659
Randall 1246 623
Sherman 1285 642
Swisher 1229 615
Yoakum 1239 620
Oklahoma Counties
Harper 1287 697
Texas 1422 697
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CAT and NAPCrop Insurance

• CAT Coverage
• Like APH (50 yield and 55 price)
• 300 / crop / county
• NAP Coverage
• Similar to CAT (50 yield and 55 price)
• 250 / crop / county

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Sunflower Example Revenue Profile
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Sunflower CAT/NAP55 Price, 50 Yield
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Sunflower APH (50 Yield)
30
Sunflower APH (65 Yield)
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Sunflower RA (65)
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On-Farm Biodiesel Production

• Markets change incredibly fast.
• A feasibility study in print is probably out of
  date,
• or will be soon.
• Things often missed in feasibility studies
• Initial investment interest costs
• Depreciation Re-investment
• Opportunity cost, especially time
• Impact on equipment (real or perceived)

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Funding Provided by