Exam 1 Fall 2012

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Texas A&M University *

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Economics

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Feb 20, 2024

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Exam 1 Fall 2012 1. Russian farmers, again, have a poor crop. Their government has announced that they will not ban exports. This year they are going to release grain stocks from their government held reserves. Analyze, using graphs, and discuss the impact on domestic and world prices, consumers and producers the effects of the Russian government’s decision. 2. The new farm bill (whether the House plan or the Senate plan, or some mix of the two, is adopted) is very different from the current farm program. Analyze the effect of the new farm bill proposals on price and income risk compared to the current farm program. 3. As you know, the House farm bill proposal includes the use of a reference price to set average crop revenue. The Senate farm bill uses an average of market prices to set average crop revenue. Compare the effects of this difference in farm bill proposals on the level of revenue safety for farmers, advantages, and disadvantages of each. Do the proposals differ in their effect on margin risk (a farmer’s margin being revenue minus production costs). 4. The Conservation Reserve Program (CRP) began in the 1985 farm bill and took marginal land out of production. It has been popular with farmers, hunters, and has reduced soil erosion. High crop prices are encouraging farmers to take their land out of CRP and begin planting it again. Analyze using graphs and explain the impacts of this on a crop like corn (or wheat). What would a farmer require in the next CRP registration period to keep his land in the CRP program. 5. Farm programs do have an effect on land values. The proposed farm bill (House and Senate versions) eliminates direct payments and replaces them with a type of revenue safety net. Analyze the effect of this change on farmland values. The direct payment is a direct, decoupled payment that is paid on base acres whether that crop is grown or not (cotton grown on cotton base acres, for example) or even if no crop is grown. Do you think elimination of the direct payment would also affect the variability, or risk, in farmland values? Why?

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