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Agricultural Economics 429
Fall 2015 Exam #2
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2. ________
3. ________
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Total ________
1a. (6 pts.) Answer the following question as it relates to wheat payments in the 2002 farm bill assuming:
the target price is $4.00/bu
the marketing loan rate is $2.50/bu
the direct payment rate is $0.25/bu
market price for corn of $3.75/bu
If the market price decreases by $2.00/bu to $1.75/bu, what would be the impact on counter-cyclical payments, direct payments, and marketing loan gains/loan deficiency payments? (i.e. CCPs go from xx to xx, etc)
CCPs –
DPs –
MLG/LDPs -
1b. (6 pts.) What was the primary reason David Gibson gave for Texas Corn Producers being so effective? In your answer explain why the numbers 218 and 60 are important.
2a. (6 pts.) Why would consumers of commodities and the U.S. government prefer the nonrecourse marketing loan more than the nonrecourse loan?
2b. (4 pts.) In the 1990 Farm Bill the carrot and stick approach were used. What were the carrot and stick that were used and why were they used?
2c. (6 pts.) Evaluate this statement by answering true or false and providing support. “the purpose of the farm bill is to provide support to farmers in good and bad times”.
2c. (6 pts.) What were the primary reasons the 1996 farm bill was called a watershed change in agricultural policy? Why is it considered a success and failure?
2d. (6 pts.) The 2008 Farm Bill gave producers a choice of farm programs. Name the choice options. If a producer was extremely risk adverse which option would they choose and why?
2e. (6 pts.) In what situation would a producer choose ARC over PLC in the 2014 Farm Bill? In what situation would a producer choose PLC over ARC?
3a. (6 pts.) Dr. Tom Zacharias talked about how the whole crop insurance system worked because “everyone has skin in the game”. Describe what this statement means and why it makes crop insurance politically popular.
3b. (6 pts.) Define parity prices and describe how they are related to making sure that a new farm bill gets passed when the old one is about to expire.
3c. (4 pts.) What are a couple of reasons that many observers claim the 2014 Farm Bill is another big step toward eliminating commodity programs in favor of crop insurance?
Write the letter corresponding to the most appropriate answer in the blank provided:
_______4a. (3 pts) Which Farm Bill was the last to have production controls?
A. 1996
B. 2002
C. 2008
D. All of the above had production controls
E. None of the above had production controls
_______4b. (3 pts) If a target price and nonrecourse marketing loan program are in effect for corn which of the following HAS to be true?
A. There will be a price floor
B. There will be CCC purchases
C. There will be a deficiency payment paid to producers
D. All of the above
E. None of the above
_______4c. (3 pts) If an ARP of 5% is in place for cotton, which of the following HAS to be true?
A. This refers to a 1996 farm bill policy
B. There will be slippage
C. Commodity prices will be higher than without the ARP
D. All of the above
E. None of the above
_______4d. (3 pts) Which of the following policy tools discussed in class are counter-cyclical?
A. Direct payments
B. Conservation Reserve Payments
C. Deficiency payments
D. All of the above
E. None of the above
_______4e. (3 pts) What is the basic difference between the target price and loan rate?
A. The target price can be used for both price and income support while the loan rate is only used for income support
B. The loan rate can be used for both price and income support while the target price is only used for price support
C. The loan rate can only be used for price support while the target price is only used for income support
D. The target price can be used for income support while the loan rate is used
for both price and income support
_______4f. (3 pts) Which Farm Bill utilized the nonrecourse loan rate?
A. 2002
B. 2008
C. 2014
D. All of the above
E. None of the above
D. Fruit and Vegetables
Place a T (for True) or F (for False) in the space provided based on your assessment of each statement below.
(1 point each)
5a. ______ The ACRE program had a dual trigger that had to be met before farmer received a payment.
5b. ______ The adjusted gross income (AGI) test in the 2002 Farm Bill is referred to as the Scottie Pippen Rule.
5c. ______ A nonrecourse loan rate below the competitive equilibrium has an effect on price stability.
5d. ______ Cotton is not a covered commodity in the 2014 Farm Bill.
5e. ______ The farm problem can best be characterized as one of low farm income.
5f. ______ The livestock industry has historically indirectly benefited from farm programs.
5g. ______ Direct payments authorized by the 2002 Farm Bill are fully decoupled.
5h. ______ The great depression and the 1980s are two periods of extremely high farm bankruptcies in the United States.
6a. (12 pts) Given the initial situation of a target price and nonrecourse loan rate. Indicate where the market price, quantity supplied and demanded, government stocks and farmer payments would be on the graph below. Now on the second graph below show the difference in outcomes if the loan was a nonrecourse marketing loan and indicate where the market price, quantity supplied and demanded, government stocks and farmer payments would be on the graph below.
-----------------------
$
NLR
D0
Q/yr
S0
TP
$
NLR
D0
Q/yr
S0
TP
................
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