Master of Science (MS)
Increased government deficit has led the congress to reduce federal spending. Proposed budget cuts are intended to decrease government spending in several areas, including agriculture. Reductions in farm program spending could cause significant adverse effects on the financial situation of many farms, particularly to rice and cotton enterprises, due to their high reliance on farm program payments as a source of income. Representative rice and cotton operations of one, two, three, and four entities as single crop enterprises were considered and developed for use in this study. Farm enterprise sizes were determined by estimating the acreage level at which a one, two, three, and four entity operations would reach the most restrictive payment limit. Rice and cotton farms were considered to plant and harvest 85 percent of base acreage (100 percent of paid base acreage). For each enterprise evaluated, gross income, variable production costs, fixed equipment costs, and general farm overhead expenses are included in the analysis. Projections of income and expenses are made for a five-year period (2005-2009). For each year of simulation, random market prices and crop yields are generated to allow for inclusion of price and yield risk. Random domestic market prices, world market prices and crop yields per acre, for both rice and cotton, were generated. The analysis includes a comparison of a baseline simulation of projected income and expenses with six alternative program payment reduction scenarios. Continuation of current policy without reductions in farm program spending has shown to generate insufficient net farm income to both rice and cotton enterprises. One entity operations under the baseline scenario have resulted as being non-viable operations. Increasing reductions in program payments had a detrimental effect on the financial situation of both rice and cotton operations. The combination of 5 percent reduction in program payments along with a 10 percent decline in market prices resulted as the worse case scenario for all rice and cotton enterprises placing them in a higher risk of negative returns over variable and total costs. No program reductions below the baseline scenario are recommended for the viability of an already suffering agricultural sector.
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Aldana, Manuel E., "Economic evaluation of potential changes in farm program price support for typical Louisiana rice and cotton farming operations" (2005). LSU Master's Theses. 165.