ABSTRACT

This research estimates the farm-level impacts of the 2002 Farm Bill on the financial strength and performance of five representative cotton farms as compared to projections under continuation of the 1996 Farm Bill with government payment rates held constant at their 2002 level. Five southeastern representative cotton farms are simulated under both policy scenarios including: 1) a 4,050 acre cotton farm in southwest Tennessee; 2) a 1,900 acre cotton farm in southwest Tennessee; 3) a 3,000 acre cotton farm in northwest Alabama; 4) a 1,500 acre cotton farm in the coastal plains of North Carolina; and 5) a 1,700 acre cotton farm in southwestern Georgia. The farms were designed to represent a typical operation in each region and are processed using the stochastic FLIPSIM model and baseline agricultural and economic projections from the Food, Agricultural and Policy Research Institute (FAPRI) (December 2001 FAPRI Baseline and November 2002 FAPRI Baseline). The financial position of all five representative cotton farms improves considerably under the provisions of the 2002 Farm Bill compared to continuation of the 1996 Farm Bill. The primary cause of the rightward shift in net farm income under the new farm legislation is the influx of government payments under the new policy. In addition to fixed direct payments, additional direct payments are made to the farms in the form of counter-cyclical payments when prices are low. The option to update base acreages exercised by each farm also contributes to a significantly better financial position under the new farm legislation. The Georgia cotton farm further benefits from the changes to the peanut program in the new legislation. Over the projection period, net cash farm income is improved significantly for all farms, however, several farms (North Carolina, larger Tennessee, and Alabama) still face a fairly significant risk of a cash flow deficit. Government payments as a portion of total cash receipts increase for all farms under the new legislation, with all five farms receiving at least 20% of their total cash receipts from government program payments under the 2002 Farm Bill. Among the five representative farms, the smaller Tennessee cotton farm is on the most sound financial footing under the new farm legislation provisions. This is primarily a result of their input cost structure and relatively high average yields. All of the farms experience a significant reduction in the ratio of total costs to total cash receipts under the new farm legislation.