An Analysis of the Farmer‐Owned Reserve Program, 1977–82

Abstract

An econometric model of the U.S. agricultural sector is utilized to examine the effects of the Farmer-Owned Reserve Program on crop and livestock production and prices, farm income, crop carry-over levels, and government outlays. The program has had a positive impact on commodity prices and farm income but has not significantly reduced the annual variation in commodity prices. It also increased government outlays for agricultural commodity programs, but all of the increase is potentially recoverable. The continued use of the FORP to enhance commodity prices likely will lead to excessive government outlays in the long run.

Effects of Federal Grain Programs on the Livestock Sector

“…Also, farm planning models indicate the importance of grain prices and grain program requirements and benefits in determining the best uses of farm resources in the Great Plains [Krenz and Danielson;Whitson, Lacewell, and Shipley (1973)]. Salathe, Price, and Banker (1984) estimate that the FORP increased production of wheat and barley, the predominant crops in much of the northern Great Plains, by 2-3 percent in 1979. Others have noted this effect, in the Great Plains and elsewhere [Breimyer (1954); Johnson and Clayton (1982, p. 954)], although Shepherd et al (1960, p. 7) claim that its impact on cattle production is small, and Gardner (1981a, p. 28) and Schertz and others (1979, pp.…”

“…On average their results weakly support Morton, Devadoss, and Heady concerning FORP's effects on corn prices but not on wheat prices, which they say the FORP raised an average of 7-11 percent over1977-81. Salathe, Price, andBanker (1984, Table 2) reach less ambiguous conclusions. Using a fairly detailed model of the grain and livestock sectors they estimate that compared to a continuation of the previous government inventory programs the FORP raised grain prices in all years…”

Economic impacts of the Farmer-Owned Reserve program on the U.S. corn-livestock sector

“…The analysis in this chapter suggests that the Farmer-Owned Reserve program has profound implications for the markets of the corn-livestock The $0.07/bushel estimated increase in corn prices attributed to the FOR was exactly the conclusion reached in an evaluation of the program over the same period by Salathe, Price, and Banker (1984), hereafter SPB. respectively.…”

“…Although the overall period livestock price effects are similar, the prices of hogs and broilers were found by SPB to be higher in each year of the period, whereas the prices of the two commodities in this study were lower The model employed in the analysis was also incapable of empirically measuring the effects of the two programs on net farm income. Salathe et al (1984) demonstrated that the FOR program directly enhanced net farm income. The small reduction in livestock receipts under the FOR was determined to be more than offset by increased crop income in their work.…”

“…Salathe, Price and Banker Salathe et al (1984) An issue which receives lip service in virtually any study of the FOR is the interaction of the demand for free (or speculative) stocks with that of FOR stocks. The operations of the FOR program are not mutually exclusive of the storage activities of private speculators (Peck and Gray, 1980, p. 39), and the extent of this relationship has important implications for the effectiveness of the FOR program.…”