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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 Annual Convention Omaha, Nebraska March 5, 2012. Policy Description. Objectives of MDIS

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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 Annual Convention Omaha, Nebraska March 5, 2012

  2. Policy Description Objectives of MDIS • Bulk of revenue from market receipts • Reduce government payments while maintaining farm income • Reduce price volatility that otherwise would cause “viable and profitable” agricultural firms to go out of business including: • Crop farmers • Livestock producers • Ethanol producers • Agricultural processors

  3. Policy Description Two Parts to the MDIS Analysis • Historical • Rerun of history from 1998 to 2010 • Except the commodity programs are replaced with MDIS • Ten Years into Future • Analysis covers 2012 to 2021 using the ten-year USDA baseline released in February of 2012 • The baseline is shocked to mimic the variability experienced during 1998 thru 2021 • Compare MDIS with current program variations

  4. Policy Description MDIS Specifications for Historical Study Period, 1998 thru 2010 • 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 loan rate ratios with corn • Release prices are set at 160% of loan rates

  5. 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

  6. Corn Prices Release Price Historic Baseline Loan Rate

  7. Corn Prices Release Price MDIS Historic Baseline Loan Rate

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

  9. 8 Crops - Government Payments $ Billion Historic Baseline MDIS

  10. 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

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

  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. 8 Crops Value of Exports $ Billion MDIS Historic Baseline

  14. 8 Crops - Value of Exports $ Billion $32.8 $31.2 MDIS Historic Baseline $23.7 $22.2 $19.1 $15.6

  15. MDIS Stocks Million Bu. Corn Wheat Soybeans

  16. 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

  17. 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

  18. Summary Historical Analysis 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 $20 billion higher • Lower price volatility benefitting: • Crop farmers • Livestock producers and industrial users • Consumers and agricultural processors

  19. But What About the Future? Two distinct sets of “future” analyses: • One straight-line “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the variation we experienced tested against various policies: • With current policies in place • Elimination of Direct Payments • Raise Loan Rates with no DPs • MDIS

  20. Corn Prices

  21. 8 Crops – Value of Production Million $

  22. 8 Crops – Value of Exports Million $

  23. 8 Crops – Government Payments Million $

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

  25. Realized Net Farm Income Million $

  26. But What About the Future? Two distinct sets of “future” analyses: • One straight-line “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the variation we experienced tested against various policies: • With current policies in place • Elimination of Direct Payments • Raise Loan Rates with no DPs • MDIS

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

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

  29. 8 Crops - Government Payments Million $

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

  31. Realized Net Farm Income Million $

  32. But What About the Future? Two distinct sets of “future” analyses: • One straight-line “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the variation we experienced tested against various policies: • With current policies in place • Elimination of Direct Payments • Raise Loan Rates with no DPs • MDIS

  33. 8 Crops - Government Payments Million $

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

  35. Realized Net Farm Income Million $

  36. But What About the Future? Two distinct sets of “future” analyses: • One straight-line “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the variation we experienced tested against various policies: • With current policies in place • Elimination of Direct Payments • Raise Loan Rates ($3.50 for corn, etc.) with no DPs • MDIS

  37. 8 Crops - Government Payments Million $

  38. Realized Net Farm Income Million $

  39. But What About the Future? Two distinct sets of “future” analyses: • One straight-line “future” represented by the 2012 USDA baseline • A “future” roughly patterned after the historical experience of 1996-2010 and the variation we experienced tested against various policies: • With current policies in place • Elimination of Direct Payments • Raise Loan Rates ($3.50 for corn, etc.) with no DPs • MDIS

  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. MDIS Stocks Million Bu. Corn Wheat Soybeans

  48. 8 Crops – Value of Exports Million $

  49. 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

  50. 8 Crops - Government Payments Million $

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