AP CA

A Market Directed Inventory System

(MDIS)

National Farmers UnionFebruary 29, 2012

Daryll E. Ray and Harwood D. SchafferAgricultural Policy Analysis Center

University of Tennessee Institute of Agriculture

AP CA

Policy DescriptionObjectives – Bulk of revenue from market receipts– Reduce government payments while

maintaining farm income– Reduce price volatility

AP CA

Policy DescriptionMDIS 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

AP CA

Policy DescriptionMDIS 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

AP CA

8 Crops - Government Payments

$0

$5

$10

$15

$20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Historic Baseline

MDIS

$ Billion

AP CA

8 Crops – Government PaymentsAverage Per Year Over Each Period

$0

$2

$4

$6

$8

$10

$12

$14

$16

1998-2005 2006-2010 1998-2010

Historic Baseline

MDIS

$ Billion

$14.8

$4.8

$6.8

$3.6

$11.7

$4.3

AP CA

Corn Prices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Historic Baseline

Release Price

Loan Rate

AP CA

Corn Prices

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Historic Baseline

MDIS

Release Price

Loan Rate

AP CA

Corn PricesAverage Per Year Over Each Period

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

1998-2005 2006-2010 1998-2010

Historic Baseline

MDIS

$2.05

$2.68

$4.02$3.71

$2.81$3.07

AP CA

Corn Exports - Quantity

0

500

1000

1500

2000

2500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Historic Baseline

MDIS

Million Bu.

AP CA

Corn Exports - Value

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0

$2

$4

$6

$8

$10

$12

Historic Baseline

MDIS

$ Billion

AP CA

Corn Value of ExportsAverage Per Year Over Each Period

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

1998-2005 2006-2010 1998-2010

Historic Baseline

MDIS

$ Billion

$3.9

$4.8

$8.3$7.7

$5.6 $5.9

AP CA

MDIS Stocks

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

500

1000

1500

2000

2500

3000

3500Corn

Wheat

Million Bu.

Soybeans

AP CA

Corn – Value of Production plus Government Payments

Average Per Year Over Each Period

$0

$10

$20

$30

$40

$50

$60

1998-2005 2006-2010 1998-2010

Historic Baseline

MDIS

$ Billion

$26.4$28.2

$51.5$46.5

$36.1 $35.2

AP CA

Realized Net Farm IncomeAverage Per Year Over Each Period

$0

$10

$20

$30

$40

$50

$60

1998-2005 2006-2010 1998-2010

Historic Baseline MDIS

$ Billion

$49.8 $50.8$55.8

$51.5 $52.1 $51.1

AP CA

Summary of FindingsOver 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

APCA

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

AP CA

Corn Prices

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Baseline

AP CA

8 Crops – Value of Production

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$50,000

$100,000

$150,000

$200,000

Baseline

Million $

AP CA

8 Crops – Value of Exports

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Baseline

Million $

AP CA

8 Crops – Government Payments

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Baseline

Million $

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

Million $

AP CA

Realized Net Farm Income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

Million $

APCA

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

AP CA

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

AP CA

Corn Yield Shock

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20210

20

40

60

80

100

120

140

160

180

200

Baseline

Yield Shock

Bu/Ac.

AP CA

Corn Prices

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Baseline

Shocked Baseline

Below $3.00

Above $7.00

AP CA

8 Crops - Government Payments

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Baseline

Million $

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

Million $

Shocked Baseline

AP CA

Realized Net Farm Income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

Shocked Baseline

Million $

AP CA

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

AP CA

8 Crops - Government Payments

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

BaselineShocked No DP

Million $

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$20,000

$40,000

$60,000

$80,000

$100,000

Baseline

Shocked Baseline

Shocked No DP

Million $

AP CA

Realized Net Farm Income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

Shocked Baseline

Shocked No DP

Million $

AP CA

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

AP CA

8 Crops - Government Payments

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Baseline

Shocked New LR No DP

Million $

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$20,000

$40,000

$60,000

$80,000

$100,000

Baseline

Shocked New LR No DP

Shocked Baseline

Million $

AP CA

Realized Net Farm Income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline Shocked New LR No DP

Shocked Baseline

Million $

AP CA

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

APCA

Policy DescriptionMDIS 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

APCA

Policy DescriptionMDIS 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

AP CA

Corn PriceLoan Rate and Release Price

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00Release Price

Loan Rate

AP CA

Corn PriceLoan Rate and Release Price with Baseline

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Baseline

Release Price

Loan Rate

AP CA

Corn PriceLoan Rate and Release Price with Scenarios

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Baseline

Shocked Baseline Release Price

Loan Rate

AP CA

Corn PriceLoan Rate and Release Price with Scenarios

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Baseline

Shocked Baseline

MDIS

Release Price

Loan Rate

AP CA

Corn PricesAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Shocked Baseline

MDIS

$3.43

$4.07

$5.75$5.29

$4.59$4.68

AP CA

Corn PricesAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Shocked New LR No DP

MDIS

$3.54

$4.07

$5.89

$5.29

$4.71 $4.68

AP CA

MDIS Stocks

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

250

500

750

1000

1250

1500

1750

2000

2250

2500

Corn

Wheat

Million Bu.

Soybeans

AP CA

8 Crops – Value of Exports

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Baseline

Shocked Baseline

MDIS

Million $

AP CA

8 Crops - Value of ExportsAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Shocked Baseline

MDIS

$ Billion

$29.9

$35.4

$46.5 $47.0

$38.2$41.2

AP CA

8 Crops - Value of ExportsAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Shocked New LR No DP

MDIS

$ Billion

$30.1

$35.4

$47.4 $47.0

$38.8$41.2

AP CA

8 Crops - Government Payments

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Shocked

Shocked New LR No DP

MDIS

Million $

AP CA

8 Crops – Government PaymentsAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$2

$4

$6

$8

$10

$12

$14

$16

Shocked

MDIS

$ Billion

$4.9 $3.0$2.3

$4.9

$2.6$4.9

AP CA

8 Crops – Government PaymentsAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$2

$4

$6

$8

$10

$12

$14

$16

Shocked New LR No DP

MDIS

$ Billion

$14.8

$3.0$0.2 $2.3

$6.5

$2.6

AP CA

Value of Production – 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$50,000

$100,000

$150,000

$200,000

Baseline Shocked Baseline

MDIS

Million $

AP CA

8 Crops – Value of ProductionAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Shocked

MDIS

$ Billion

$96.5

$116.9

$151.4 $148.1

$124.0$132.5

AP CA

8 Crops – Value of ProductionAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

Baseline New LR No DP

MDIS

$ Billion

$98.0

$116.9

$155.0 $148.1

$126.4 $132.5

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$20,000

$40,000

$60,000

$80,000

$100,000

Baseline

Shocked Baseline

MDIS

Million $

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

Average Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$10

$20

$30

$40

$50

$60

$70

Shocked

MDIS

$ Billion

$16.0

$33.8

$66.7

$59.5

$41.4$46.6

AP CA

Value of Production + Government Payments - Cash Expenses: 8 Crops

Average Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$10

$20

$30

$40

$50

$60

$70

Shocked New LR No DP

MDIS

$ Billion

$26.4

$33.8

$64.2$59.5

$45.3 $46.6

AP CA

Realized Net Farm Income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

$25,000

$50,000

$75,000

$100,000

$125,000

Baseline

MDIS

Shocked Baseline

Million $

AP CA

Realized Net Farm IncomeAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Shocked MDIS

$ Billion

$59.2

$70.6

$92.4$88.5

$75.8 $79.5

AP CA

Realized Net Farm IncomeAverage Per Year Over Each Period

2012-2016 2017-2021 2012-2021$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100Shocked New LR No DP

MDIS

$ Billion

$67.9 $70.6

$90.6 $88.5$79.2 $79.6

Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519

www.agpolicy.org

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