(Posted Fri. Jun 1st, 2012)
June 1: This week Dr. Carl Zulauf, an economist at the Ohio State University, published a Farm Bill study outlining the benefits of using a 5-year Olympic average of price. He stated using this type of moving average would have provided sizable protection to all U.S. crop producers during the low price period of the late 1990s, the last multi-year low price period for the U.S. This rate is used by the Agricultural Risk Coverage Program, which is included in the Senate Agriculture Committee’s 2012 farm bill.
“NCGA is pleased to see this Farm Bill study as it will help put to rest concerns that have been raised about fairness between commodities under the proposed ARC Program,” NCGA President Garry Niemeyer said. “Dr. Zulauf concludes ARC payments would have been made to all crops, including rice, cotton, corn and peanuts, throughout the difficult price declines in the 1990s. This kind risk management tool is what my fellow farmers across America need to deal with the continuing volatility in commodity markets.”
The study indicates that the Olympic moving average is flexible and can tailor protection to the individual situation of each crop during a period of wide-spread, notably lower prices. In fact, Zulauf shows during the late 1990s, rice and cotton had the highest relative price protection payments from an Olympic moving average program.
“The 5-year moving average does move lower over time to reflect lower prices, so it provides assistance only for a limited period of time," Zulauf summarizes. "But, the size of this assistance can be notable, providing a meaningful cushion to make adjustments needed to survive over the long term.”
To read the study, click here.