AFPC Working Paper 96-8

Edward G. Smith
James W. Richardson
David P. Anderson
Allan W. Gray
Steven L. Klose
John W. Miller
Joe L. Outlaw
Ronald D. Knutson
Robert B. Schwart, Jr.

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

December 1996

College Station, Texas 77843-2124
Telephone: (409) 845-5913



The farm level economic impacts of the Federal Agriculture Improvement and Reform Act of 1996 (FAIR) on representative crop and livestock operations are projected in this report. For this report the FAIR Act will be referred to as the 1996 Farm Bill. 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 1996 Farm Bill is implemented.

This report is organized into ten sections. The first section summarizes the major provisions of the 1996 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 1996 Baseline and the policy and price assumptions used for the representative farm analyses. The third through sixth sections present the results of the simulation analyses for feed grain, 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 producers and land grant faculty who cooperated in the panel interview process.

Provisions of the 1996 Farm Bill

Provisions in the 1996 Farm Bill which are 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 (deficiency) payment rates, decoupling of income support payments from prices and production, allowing virtual full flexibility in planting decisions, and eliminating acreage reduction program (ARP) authority.

Contract payments for participating cotton, wheat, feed grain, and rice producers are made based on 85 percent of their historical base acreage times farm program yield times a contract payment rate. The contract payment rate is calculated by dividing the fixed annual appropriations by the production that signs up in the program. While the annual contract payment rates can be estimated, they are not certain because of CRP issues and other technical factors which may change the eligible production slightly.

Planting flexibility was increased from the 15 percent NFA and 10 percent OFA for the 1990 farm bill to 100 percent (Table 1). Producers are now 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 1996 farm bill.

Marketing loan provisions for cotton and rice are continued under the 1996 Farm Bill. Marketing loans for wheat, feed grains, and soybeans are authorized in the 1996 Farm Bill, with the provision that the Secretary of Agriculture set the loan repayment rates so as to minimize forfeitures, government storage costs, and promote marketing.

The 1996 Farm Bill eliminates the dairy assessments and provides for a reduction in the milk support price. Each year the dairy support price falls 15 cents per hundred weight until the support price reaches $9.90 per hundred weight in 1999.

Panel Farm Process

AFPC has developed and maintains data to simulate 76 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 location, size, crop mix, assets, and average receipts are summarized in Appendix A. The location of these farms are primarily the result of discussions with staffers for the House and Senate Agriculture Committees. Information necessary to simulate the economic activity on these representative farms are 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) developed by AFPC. 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 reasonably reflect economic activity on their representative farm prior to using the farm for policy analyses.

Most farms used in the analysis have been updated with the panels through 1996. Those not updated during 1996 were indexed to begin in 1996 using indices for input costs for 1993-95. FAPRI projections of prices and yields for 1996-2002 are utilized for the baseline analyses presented in this report. All of the crop farms are assumed to begin 1996 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; initial debt levels for beef cattle ranches were 1 percent for land and 5 percent for cattle and machinery; and initial debt levels for hog farms were 45 percent.

Key Assumptions

FAPRI December 1996 Baseline

Projected crop prices for FAPRI's December 1996 baseline are summarized in Table 2. Assumed loan rates and projected annual contract payment rates, net of 1995 deficiency repayments in 1996 and 1997, are also summarized in Table 2. It has been estimated that the net annual contract payment rates for corn will be $0.28/bu. in 1997; decreasing to $0.376/bu. in 1998 and decreasing to $0.26/bu. in 2002. Contract payment rates for wheat are estimated at $0.61/bu. in 1997 with the payment rate decreasing to $0.45/bu. in 2002. Cotton's contract payment rate for 1997 is estimated at $0.0725/lb. and is projected to decrease to $0.0536/lb. by 2002. The contract payment rate for rice is projected to be $2.725/cwt. in 1997; increasing to $2.925/cwt. in 1998 and declining to $2.02/cwt in 2002. The farms that grow contract commodities are assumed to have accepted the 1995 advance deficiency payments and will have the repayments offset against 1996 contract payments for wheat, barley, oats, and upland cotton. The corn and sorghum repayments will be offset against their 1997 contract payments.

Projected livestock prices for FAPRI's December 1996 baseline are summarized in Table 3. Beef cattle prices are projected to increase starting in 1997. The 1996 feeder cattle price is estimated at $61.77/cwt. for a low, with 1997 price being projected at $66.86/cwt., and 2000 is projected to experience the peak price of $94.47/cwt. Hog prices decline after 1996 to a low of $43.82/cwt. in 1999, then recover to $47.40/cwt. in 2000. Annual milk prices for the ten states, where representative dairy farms are located, are summarized in Table 3. Milk prices generally decrease after 1996 to a low in 2000 and then show a small increase to 2002.

Projected annual rates of change for variable cash expenses are presented in Table 4. The rate of change in input prices and interest rates come from FAPRI's December 1996 Baseline which relies on WEFA's macroeconomic projections. Annual interest rates paid for long-term and intermediate-term loans and earned for savings are also summarized in Table 4. Assumed annual rates of change in land values over the 1996-2002 period are provided by the FAPRI Baseline (Table 4).

Definitions of Variables in the Summary Tables

Representative Farms Producing Feed Grains

Map of Representative Farms Producing Feed Grains
Tables for Feed Grain Farms
Figures for Feed Grain Farms

Representative Farms Producing Wheat

Map of Representative Farms Producing Wheat
Table for Wheat Farms
Figures for Wheat Farms

Representative Farms Producing Cotton

Map of Representative Farms Producing Cotton
Table for Cotton Farms
Figures for Cotton Farms

Representative Farms Producing Rice

Map of Representative Farms Producing Rice
Table for Rice Farms
Figures for Rice Farms

Representative Farms Producing Milk

Map of Representative Farms Producing Milk
Tables for Farms Producing Milk
Figures for Dairy Farms

Representative Farms Producing Beef Cattle

Map of Representative Farms Producing Beef Cattle
Table for Ranches Primarily Producing Beef
Figures for Cattle Ranches

Representative Farms Producing Hogs

Map of Representative Farms Producing Hogs
Table for Farms Primarily Producing Pork
Figures for Hog Farms


Table A1. Feed Grain Farms in Iowa, Missouri, and Nebraska
Table A2. Feed Grain Farms in Texas, Kansas, and South Carolina
Table A3. Wheat Farms in Washington, North Dakota, Kansas, and Colorado
Table A4. Cotton Farms in California, Texas and Mississippi
Table A5. Rice Farms in California, Texas, Missouri, Arkansas, and Louisiana
Table A6. Dairy Farms in California, Washington, Texas, Wisconsin, and Missouri
Table A7. Dairy Farms in New York, Vermont, Georgia, Florida and New Mexico
Table A8. Cow/Calf Ranches in Montana, Wyoming, Colorado, Texas and Missouri
Table A9. Farrow-to-Finish Hog Farms in Missouri, Illinois, Indiana, and North Carolina


Feed Grain Farms
Wheat Farms
Cotton Farms
Rice Farms
Dairy Farms
Beef Producers
Hog Farms