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A Market Directed Inventory System (MDIS)

A Market Directed Inventory System (MDIS). Daryll E. Ray and Harwood D. Schaffer Agricultural Policy Analysis Center University of Tennessee Institute of Agriculture. National Farmers Union February 29, 2012. Policy Description. Objectives Bulk of revenue from market receipts

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A Market Directed Inventory System (MDIS)

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  1. A Market Directed Inventory System(MDIS) Daryll E. Ray and Harwood D. Schaffer Agricultural Policy Analysis Center University of Tennessee Institute of Agriculture National Farmers Union February 29, 2012

  2. Policy Description Objectives • Bulk of revenue from market receipts • Reduce government payments while maintaining farm income • Reduce price volatility

  3. Policy Description MDIS Specifications for 1998-2010 Study Period • Initial corn loan rate set at midpoint between variable and full cost of production • Indexed with a prices paid by farmers index • Other crop loan rates set to historic ratios with corn • Release price is set at 160% of loan rate

  4. Policy Description MDIS Specifications for 1998-2010 Study Period • MDIS maximums • Corn – 3 billion bushels • Wheat – 800 million bushels • Soybeans – 400 million bushels • Farmer storage payment rate 40¢/bu./yr • Set-aside available if needed • Eliminate Direct Payments, LDPs, & CCPs

  5. 8 Crops - Government Payments $ Billion Historic Baseline MDIS

  6. 8 Crops – Government PaymentsAverage Per Year Over Each Period $ Billion Historic Baseline $14.8 $11.7 MDIS $6.8 $4.8 $4.3 $3.6

  7. Corn Prices Release Price Historic Baseline Loan Rate

  8. Corn Prices Release Price MDIS Historic Baseline Loan Rate

  9. Corn PricesAverage Per Year Over Each Period $4.02 $3.71 MDIS Historic Baseline $3.07 $2.81 $2.68 $2.05

  10. Corn Exports - Quantity Million Bu. Historic Baseline MDIS

  11. Corn Exports - Value $ Billion MDIS Historic Baseline

  12. Corn Value of ExportsAverage Per Year Over Each Period $ Billion $8.3 $7.7 MDIS Historic Baseline $5.9 $5.6 $4.8 $3.9

  13. MDIS Stocks Million Bu. Corn Wheat Soybeans

  14. Corn – Value of Production plus Government PaymentsAverage Per Year Over Each Period $ Billion $51.5 MDIS $46.5 Historic Baseline $36.1 $35.2 $28.2 $26.4

  15. Realized Net Farm IncomeAverage Per Year Over Each Period $ Billion Historic Baseline MDIS $55.8 $51.1 $50.8 $51.5 $49.8 $52.1

  16. Summary of Findings Over the Study Period, 1998-2010, with MDIS in Place: • Government payments 60% lower • Increased crop prices and increased reliance on market receipts • Value of exports $4.9 billion higher • Lower price volatility benefitting: • Consumers • Crop farmers • Livestock producers and industrial users

  17. Policy in an Uncertain Future Two sets of analyses: • A “future” represented by the 2012 USDA baseline (Baseline) • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced

  18. Corn Prices

  19. 8 Crops – Value of Production Million $

  20. 8 Crops – Value of Exports Million $

  21. 8 Crops – Government Payments Million $

  22. Value of Production + Government Payments - Cash Expenses:8 Crops Million $

  23. Realized Net Farm Income Million $

  24. Policy in an Uncertain Future Two sets of analyses: • A “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced

  25. Policy in an Uncertain Future Four Shocked Scenarios: • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced • Shocked Baseline: Shocked yields, current farm programs

  26. Corn Yield Shock Bu/Ac. Yield Shock Baseline

  27. Corn Prices Above $7.00 Shocked Baseline Below $3.00

  28. 8 Crops - Government Payments Million $

  29. Value of Production + Government Payments - Cash Expenses:8 Crops Million $ Shocked Baseline

  30. Realized Net Farm Income Million $

  31. Policy in an Uncertain Future Shocked Scenarios: • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced • Shocked Baseline: Shocked yields, current farm programs • Shocked No DP: Shocked yields, no direct payments

  32. 8 Crops - Government Payments Million $

  33. Value of Production + Government Payments - Cash Expenses:8 Crops Million $

  34. Realized Net Farm Income Million $

  35. Policy in an Uncertain Future Shocked Scenarios: • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced • Shocked Baseline: Shocked yields, current farm programs • Shocked No DP: Shocked yields, loan rates unchanged, no direct payments • Shocked New LR No DP: Shocked yields, higher loan rates, no direct payments

  36. 8 Crops - Government Payments Million $

  37. Value of Production + Government Payments - Cash Expenses: 8 Crops Million $

  38. Realized Net Farm Income Million $

  39. Policy in an Uncertain Future Shocked Scenarios: • A “future” roughly patterned after the historical experience of 1996-2010 and the supply variation we experienced • Shocked Baseline: Shocked yields, current farm programs • Shocked No DP: Shocked yields, loan rates unchanged, no direct payments • Shocked New LR No DP: Shocked yields, higher loan rates, no direct payments • MDIS (Market Driven Inventory System): Shocked yields, higher loan rates, no DP, reserve stocks

  40. Policy Description MDIS Specifications for 2012-2021 Study Period • MDIS corn loan rate set at $3.50 • Other crop loan rates set to historic ratios with corn – Minimize distortion • Release price is set at 160% of loan rate

  41. Policy Description MDIS Specifications for 2012-2021 Study Period • MDIS maximums • Corn – 3 billion bushels • Wheat – 800 million bushels • Soybeans – 400 million bushels • Farmer storage payment rate 40¢/bu./yr • Eliminate Direct Payments, LDPs, & CCPs except for rice and cotton

  42. Corn PriceLoan Rate and Release Price

  43. Corn PriceLoan Rate and Release Price with Baseline

  44. Corn PriceLoan Rate and Release Price with Scenarios

  45. Corn PriceLoan Rate and Release Price with Scenarios

  46. Corn PricesAverage Per Year Over Each Period MDIS $5.75 $5.29 Shocked Baseline $4.68 $4.59 $4.07 $3.43

  47. Corn PricesAverage Per Year Over Each Period Shocked New LR No DP $5.89 MDIS $5.29 $4.68 $4.71 $4.07 $3.54

  48. MDIS Stocks Million Bu. Corn Wheat Soybeans

  49. 8 Crops – Value of Exports Million $

  50. 8 Crops - Value of ExportsAverage Per Year Over Each Period $ Billion $47.0 $46.5 MDIS Shocked Baseline $41.2 $38.2 $35.4 $29.9

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