AFPC Working Paper 95-21

Edward G. Smith
James W. Richardson
Joe L. Outlaw
Ronald D. Knutson
Allan W. Gray
Steven L. Klose
John W. Miller

Agricultural and Food Policy Center
Department of Agricultural Economics
Texas Agricultural Experiment Station
Texas Agricultural Extension Service
Texas A&M University

December 1995

College Station, Texas 77843-2124
Telephone: (409) 845-5913
Web Site: hhtp:/AFPC1.TAMU.EDU/



The farm level economic impacts of the Agricultural Market Transition Act of 1995 (1995 AMTP) on representative crop and livestock producers are projected in this report. The analysis was conducted over the 1996-2002 planning horizon using AFPC's whole farm simulation model. Data to simulate farming operations in the nation's major production regions came from two sources:

The primary objective of the analysis is to determine the farms' economic viability by region and commodity over the next seven years, as the 1995 farm bill is implemented.

This report is organized into ten sections. The first section summarizes the provisions of the 1995 farm bill, the panel farm process, key assumptions for the farm level analysis, and a map showing where the panel farms are located. The second section summarizes the FAPRI December 1995 Baseline and the policy and price assumptions used for the panel farm analyses. The third through sixth sections present the results of the simulation analyses for feed grains, wheat, cotton, and rice farms. The seventh through ninth sections summarize simulation results for dairy, cattle and hog farms. Two appendices constitute the final section of the report. Appendix A provides tables which summarize the characteristics for each of the representative farms. Appendix B provides the names of farmers and land grant faculty who cooperated in the panel farm process.

Provisions of the 1995 Farm Bill

Provisions in the 1995 AMTP which were important to the farm level analysis are summarized in Table 1. Major changes from the 1990 farm bill included elimination of target prices to calculate income support payment rates, decoupling of income support payments, allowing full flexibility in planting decisions, and eliminating acreage reduction program (ARP) authority.

Income support payments for cotton, wheat, feed grain, and rice producers will be made to producers based on 85 percent of their historical base acreage times farm program yield times a fixed payment rate to be determined based on the number of producers (eligible production) who enroll in the program and the pool of money available each year for the particular crop.

Planting flexibility was increased from the 15 percent NFA and 10 percent OFA for the 1990 farm bill to 100 percent (Table 1). Producers would be allowed to plant any combination of program and non-program crops (excluding vegetables) on their farmland without the loss of fixed payments. The 0/85 and 50/85 provisions in the 1990 farm bill are eliminated under the 1995 farm bill as producers would be eligible to receive their fixed payments and not produce a crop, i.e., which is roughly equivalent to a 0/100 program.

Panel Farm Process

AFPC has developed and maintains data to simulate 72 representative crop and livestock farms chosen from major production areas across the United States (Figure 1). Characteristics for each of the farms in terms of size, crop mix, assets, and average receipts are summarized in Appendix A. The location of these farms was the result of discussions with staffers for the House and Senate Agriculture Committees. Information necessary to simulate the economic activity on these representative farms was developed from panels of producers using a consensus building interview process. Normally two farms are developed in each region using separate panels of producers: one is representative of moderate size full-time farm operations, while the second panel represents farms that are two to three times larger.

The data collected from the panel farms are analyzed in a whole farm simulation model (FLIPSIM) that was developed by AFPC and has been refined for more than a decade. The producer panels are provided pro-forma financial statements for their representative farm and are asked to verify the accuracy of the past year and the reasonableness of a four to five year projection. Each panel must approve of the model's ability to project economic activity for their representative farm prior to using the farm for policy analyses.

All farms used in the analysis have been updated with the panels through 1992; using indices for input costs for 1992-94 the input data were indexed to 1994 conditions. Actual yields and prices reflective of the representative farms' locations for 1994 are utilized for the present analyses. FAPRI projections of prices and yields for 1996-2002 are utilized for the baseline analyses. All of the crop farms are assumed to begin 1994 with 20 percent intermediate- and long-term debt, based on information provided by ERS-USDA and the panel members. Initial debt levels for dairy farms were set at 30 percent, while initial debt levels for beef cattle ranches were 5 percent and initial debt levels for hog farms were 45 percent.

Key Assumptions

FAPRI December 1995 Baseline

Projected commodity prices for FAPRI's December 1995 baseline are summarized in Table 2. Assumed loan rates and annual decoupled payment rates under the farm program are summarized in Table 3. FAPRI estimated that the fixed annual payment rates for corn will be $0.27/bu. in 1996; increase to $0.401/bu. in 1998 and decrease to $0.276/bu. in 2002. Fixed payment rates for wheat are estimated at $0.677/bu. in 1996 with the payment rate decreasing to $0.466/bu. in 2002. Cotton's fixed payment rate for 1996 is estimated at $0.0795/lb. and is projected to decrease to $0.0561/lb. by 2002. The fixed payment rate for rice is projected to be $1.75/cwt. in 1996; increases to $2.69/cwt. in 1997 and declines to $2/cwt in 2002.

Projected rates of inflation for variable cash expenses by commodity are presented in Table 4. Annual interest rates paid for long-term and intermediate-term loans and earned for savings are also summarized in Table 4.

Definitions of Variables in Summary Tables

Impacts for Representative Farms Producing
Feed Grains

Map of Representative Feed Grain Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Feed Grain Farms

Impacts for Representative Farms Producing

Map of Representative Wheat Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Wheat Farms

Impacts for Representative Farms Producing

Map of Representative Cotton Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Cotton Farms

Impacts for Representative Farms Producing

Map of Representative Rice Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Rice Farms

Impacts for Representative Farms Producing

Map of Representative Milk Farms

Figures for Projected Annual Net Cash Farm Income

Tables of Results for Milk Farms

Impacts for Representative Farms Producing
Beef Cattle

Map of Representative Beef Cattle Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Beef Cattle Farms

Impacts for Representative Farms Producing

Map of Representative Hog Farms

Figures for Projected Annual Net Cash Farm Income

Table of Results for Hog Farms




Appendix Tables A1 - A8




Feed Grain Farms

Wheat Farms

Cotton Farms

Rice Farms

Dairy Farms

Beef Producers

Hog Farms