Patrick Westhoff
September 22, 2003 www.fapri.missouri.edu

• Each Census of Agriculture farm operation can receive no more than:
− $40,000 in direct payments
− $60,000 in counter-cyclical payments
− $175,000 in marketing loan benefits
• No generic certificates, loan defaults, or paper reorganizations to avoid limits
• Stylized scenario—does NOT reflect specific legislation

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•
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Farm consolidation has continued since
1997 Census
Effects of limits on CCPs and LDPs depend on prices
Producers will find ways to adapt to limitations over time
Assumptions and modeling approach are explained more fully in report

Effects at 2004 baseline prices if producers do not adjust to limits (from
Table 1 in the report)
Rice
Cotton
Sorghum
Wheat
Corn
Soybeans
% of farms w/ limited payments
44%
23%
3%
1%
2%
2%
% of prod.
on limited farms
77%
62%
23%
14%
14%
14%
% of prod.
ineligible for paym’t
39%
30%
8%
6%
6%
4%
Type of payment limited
Direct
CCP
Direct
Direct
Direct
Direct
FAPRI estimates based on projected farm distributions, crop mixes, and payment rates.

Proportion of cotton crop ineligible for payments if producers do not adjust (Fig. 1)
35%
30%
25%
20%
15%
10%
5%
0%
0.25
0.28
0.31
0.34
0.37
0.40
0.43
0.46
0.49
0.52
0.55
0.58
0.61
0.64
Cotton farm price, $/lb.
Direct Payments Counter-cyclical Payments Loan Deficiency Payments
FAPRI estimates based on projected farm distributions, crop mixes, and payment rates.

Proportion of production ineligible for
2004 payments if producers do not adjust to limits (Table 2)
Cotton
Rice
Corn
Soybeans
Wheat
Sorghum
Direct payments
25.7%
39.0%
5.7%
4.4%
6.5%
7.8%
Countercyclical payments
26.7%
19.8%
3.4%
2.4%
4.7%
5.7%
Figures represent average of FAPRI results for 500 alternative futures.
Loan deficiency payments
4.8%
8.5%
0.6%
0.5%
0.2%
1.4%

Crop
Cotton
Rice
Corn
Soybeans
Wheat
Sorghum
6 Crops
Change in area (mil. a.)
-0.51
-0.25
0.01
0.11
-0.02
0.06
-0.61
Change in area (%)
Change in price ($)
-3.66% 0.011/lb.
-7.92% 0.399/cwt
Change in price (%)
2.30%
8.23%
0.01% -0.001/bu.
-0.04%
0.15% -0.008/bu.
-0.17%
-0.04% 0.002/bu.
0.05%
0.61% -0.004/bu.
-0.19%
-0.25%
Figures represent average of FAPRI results for 500 alternative futures.

Effects of stricter payment limits on cotton and rice area (Fig. 2)
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Crop Year
Cotton Rice
Figures represent average of FAPRI results for 500 alternative futures.

Effects of stricter payment limits on 2004 cotton area at different prices (Table 4)
2003 cotton price
Under 40 cents/lb.
40-50 cents/lb.
Over 50 cents/lb.
Change in 2004 cotton area
-1.17 mil. a.
-0.51 mil. a.
-0.22 mil. a.
Figures represent the average of 2004 area results for each price category from FAPRI’s analysis of 500 alternative futures.

Possible impacts on other crops
(from NFAPP at ASU)
• Planting flexibility provisions
−
Deters entry into produce sectors
• Payment limitations
−
Induces entry into produce sector?
• Pros: Already, long term transition from cotton to produce (California); higher returns in produce.
• Cons: More volatile returns in produce; high startup costs; lengthy establishment periods; contract production

Possible impacts on other crops (from
NFAPP at ASU)
• Possible entry into produce
−
Cotton growing regions – California,
Arizona, Georgia
• Similar climatic requirements; existing infrastructure
• Will it occur?
• Potential impact
− Likely very modest…

Effects of stricter limits on average FY
2004-12 government farm program outlays (Table 3)
Crop
Cotton
Rice
Corn
Soybeans
Wheat
Sorghum
Total CCC,
Conservation
Baseline
($ mil./yr.)
2,513
1,142
5,304
2,044
2,124
413
19,952
Limits
($ mil./yr.)
2,321
1,044
5,225
2,032
2,084
404
19,520
Change
($ mil./yr.)
Change
(%)
-192 -7.63%
-98 -8.60%
-79 -1.49%
-12 -0.59%
-40 -1.89%
-9 -2.11%
-431 -2.16%
Figures represent average of FAPRI results for 500 alternative futures.

Effects of stricter limits on average
2004-12 farm income and land values
(Table 3)
Crop Baseline
($ mil./yr.)
Limits
($ mil./yr.)
Change
($ mil./yr.)
Change
(%)
Payments
Crop sales
Other income
Rental costs
Other costs
Net farm inc.
Land value ($/a., end of yr.)
17,648
112,767
138,446
14,108
205,316
49,437
17,213
112,761
138,423
13,998
205,202
49,198
-435
-6
-22
-110
-114
-238
-2.47%
-0.01%
-0.02%
-0.78%
-0.06%
-0.48%
1,485.32
1,479.55
-5.78
-0.39%
Figures represent average of FAPRI results for 500 alternative futures.

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Effects of payment limits are hard to estimate—many uncertainties
This analysis is of a stylized limitation—not of specific legislation
FAPRI tries to provide useful information, but does not support or oppose proposals
For more information, see full report at www.fapri.missouri.edu