U.S. Farm Policy and the Variability of Commodity Prices and Farm Revenues, February 2000

A dynamic, three-commodity rational-expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a freemarket policy and with the agricultural policies that preceded the FAIR Act. Results support the hypothesis that the changes made when FAIR was enacted did not lead to permanent significant increases in the volatility of farm prices or revenues. An important finding is that the main economic impacts of the Pre-FAIR scenario, relative to the free-market regime were to transfer income to farmers and to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes.

Adoption Subsidies and Environmental Impacts of Alternative Energy Crops, March 2007

We provide estimates of the costs associated with inducing substantial conversion of land from production of traditional crops to switchgrass. Higher traditional crop prices due to increased demand for corn from the ethanol industry has increased the relative advantage that row crops have over switchgrass. Results indicate that farmers will convert to switchgrass production only with significant conversion subsidies. To examine potential environmental consequences of conversion, we investigate three stylized landscape usage scenarios, one with an entire conversion of a watershed to switchgrass production, a second with the entire watershed planted to continuous corn under a 50% removal rate of the biomass, and a third scenario that places switchgrass on the most erodible land in the watershed and places continuous corn on the least erodible. For each of these illustrative scenarios, the watershed-scale Soil and Water Assessment Tool (SWAT) hydrological model (Arnold et al., 1998; Arnold and Forher, 2005) is used to evaluate the effect of these landscape uses on sediment and nutrient loadings in the Maquoketa Watershed in eastern Iowa.

Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets, 2007

Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum of 1.1% over baseline levels. Results of a model of a 1988-type drought combined with a large mandate for continued ethanol production show sharply higher crop prices, a drop in livestock production, and higher food prices. Corn exports would drop significantly, and feed costs would rise. Wheat feed use would rise sharply. Taking additional land out of the CRP would lower crop prices in the short run. But because long-run corn prices are determined by ethanol prices and not by corn acreage, the long-run impacts on commodity prices and food prices of a smaller CRP are modest. Cellulosic ethanol from switchgrass and biodiesel from soybeans do not become economically viable in the Corn Belt under any of the scenarios. This is so because high energy costs that increase the prices of biodiesel and switchgrass ethanol also increase the price of cornbased ethanol. So long as producers can choose between soybeans for biodiesel, switchgrass for ethanol, and corn for ethanol, they will choose to grow corn. Cellulosic ethanol from corn stover does not enter into any scenario because of the high cost of collecting and transporting corn stover over the large distances required to supply a commercial-sized ethanol facility.