Author: Bart Fischer

As the saying goes: a picture is worth a thousand words.  We present to you Figure 1.

Figure 1: Farm Safety Net and SNAP Spending, 1962 to 2026F

Any serious student of farm policy is taught very early on that nutrition policy and farm policy go hand in hand…and that you can’t get a farm bill done that doesn’t include both.  Why?  The argument goes like this: there are not enough rural votes to pass a farm bill, and including nutrition brings along urban votes that otherwise would not vote for a farm bill. Figure 1 paints an interesting picture of how this relationship has changed over time. Following are our observations:

• For 40 years, spending on the Supplemental Nutrition Assistance Program (SNAP) and the farm safety net were roughly equivalent.^[1] Remarkably, over the 40-year period from 1962 to 2001, SNAP spending edged out farm safety net spending by just 2/10^ths of 1 percent ($439.28 billion versus $438.39 billion). Interestingly, the House was controlled by Democrats for 33 of those 40 years.

• In contrast, over the past 20 years (2002-2021), SNAP spending has outpaced spending on the farm safety net by 242% ($1,231.87 billion versus $360.14 billion).  While part of this increase is certainly attributable to the Great Recession and COVID, it was also the subject of considerable scrutiny during both the 2014 and 2018 Farm Bills. Interestingly, the significant increase in SNAP spending occurred despite the fact that Republicans controlled the House in 14 of the last 20 years.

• In spite of the politically-charged concerns over SNAP spending levels in each of the last two farm bills, in 2021 the Biden Administration revised the Thrifty Food Plan market basket which was estimated to further increase spending on SNAP by $254 billion from 2022 to 2031.^[2] As a result, according to the last estimates from the Office of Management and Budget (OMB), over the next 6 years, SNAP spending is projected to outpace farm safety net spending by 508% ($787.44 billion versus $129.49 billion). Notably, that provision was estimated to be budget neutral in the 2018 Farm Bill.

• With respect to the farm safety net, spending over the last 20 years has been flat. In inflation-adjusted terms, spending is actually declining.

While we are simply making observations, the purpose in doing so is to help paint a picture for why it has become so painfully difficult to get a farm bill done. In our judgement, this latest administrative action – against the backdrop of what had already been a considerable amount of angst over SNAP spending levels – is putting a significant amount of strain on that historic coalition.  At the same time, grower comments at listening sessions across the country over the last two years have repeatedly highlighted what is self-evident in the chart below: the farm safety net is lagging behind. 

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^[1] For purposes of this article, we are equating farm income stabilization (budget subfunction 351) and the farm safety net.

^[2] https://www.whitehouse.gov/wp-content/uploads/2021/08/msr_fy22.pdf

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Fischer, Bart L. and Joe Outlaw. “Farm Bill Fault Lines: Why is the Farm Bill Debate Stuck in Neutral?” Southern Ag Today 4(7.4). February 15, 2024. Permalink

On November 16, 2023, President Biden signed H.R. 6363 – the Further Continuing Appropriations and Other Extensions Act of 2024 – into law. The bill extended the Agriculture Improvement Act of 2018 (2018 Farm Bill), reauthorizing programs like the Agriculture Risk (ARC) and Price Loss Coverage (PLC) programs through September 30, 2024. Producers will have an opportunity to make a one-time election between ARC and PLC for the 2024 crop year. USDA opened the election and enrollment period on December 18, 2023, and it runs through March 15, 2024.^[1]

The ARC/PLC decision for 2024 is against the backdrop of a general softening in prices, but the implications vary by crop. For some crops, the decision may be clear-cut. In this article, we illustrate the case of wheat (Figure 1). While Effective Reference Prices are projected to climb starting next year for wheat, it is important to remember that you are making a one-year decision for crop year 2024, where the Statutory Reference Price remains at $5.50/bu. With a projected Marketing Year Average Price (MYAP) of $6.63/bu, it is unlikely (though not impossible as we are very early in the growing season) that PLC will trigger. While some may be tempted to elect ARC as a result, note that the 86% trigger threshold is at a price of $5.34/bu, largely indicating that any hope of receiving an ARC payment would rest on very low yields. In other words, in the case of wheat, it’s unlikely that either ARC or PLC will trigger (unless there is a disaster that results in low yields).

Figure 1. Historical and Projected Wheat Prices and What They Mean for the ARC/PLC Decision.

As we have noted in the past,^[2] we highly encourage you to also look at tools like the Supplemental Coverage Option (SCO) or the Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, if you elect ARC, you cannot purchase SCO. In other words, you are essentially evaluating ARC versus PLC + SCO. Even if PLC is not expected to trigger, you may still choose to elect it and purchase SCO, particularly if the value of SCO is expected to exceed that of ARC. 

For cotton producers, we continue recommending that you first evaluate the Stacked Income Protection Plan (STAX) before making decisions about ARC/PLC. In the case of cotton, STAX cannot be purchased on any farm where the seed cotton base has been enrolled in ARC or PLC for that crop year. As we will discuss at the Red River Crops Conference in Altus, OK, later today, in a scenario where the crop is a total loss, the area-wide policies can provide considerably more coverage than ARC. For example, as noted in the example for Jackson County, OK, in Table 1, STAX can provide more than twice as much support as ARC in a total loss scenario.

Table 1. ARC versus STAX Comparison for Cotton in 2024, Jackson County, OK

Practice	Maximum Possible ARC Payment	STAX				Ratio:  STAX-to-ARC
		Expected County Yield (lint lbs/ac)	Maximum Possible Indemnity	Producer-Paid Premium	Maximum Possible Net Indemnity
IRR	$126	1,273	$243	$30	$213	1.69
DRY	$31	385	$74	$9	$65	2.08

As always, we aren’t in the business of telling you exactly what to do because, frankly, we don’t know what will end up being the best choice. But, as with previous years, we do have a decision aid available at www.afpc.tamu.edu where you can input your info, and it will show you expected payments under as many different price scenarios as you want to look at. We also have students who will input your information for you and call you to discuss results. All you need to do is call (979) 845-5913 and ask for decision aid help.

Hopefully we have given you something to think about as you consider your signup decisions. We wish you luck, and don’t hesitate to call for assistance.

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^[1] https://www.fsa.usda.gov/programs-and-services/arcplc_program/index

^[2] https://southernagtoday.org/2023/03/02/strongarc-plc-sign-up-deadline-just-weeks-away-strong/

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Fischer, Bart L., and Joe Outlaw. “Making the ARC/PLC Election for 2024.” Southern Ag Today 4(3.4). January 18, 2024. Permalink

If you were following farm bill developments over the past year, chances are you’ve heard a lot of chatter about the Inflation Reduction Act (IRA).  The IRA—signed into law in August 2022—provided approximately $18 billion in new, additional funding for climate-smart agriculture delivered via the existing conservation programs authorized in Title 2 of the farm bill. But, what does that have to do with the farm bill reauthorization?  As it turns out, quite a lot.

While the IRA infused $18 billion into the conservation programs, it was one-time funding. The IRA passed through Congress under a budget process known as reconciliation. While that process lowers the vote threshold in the Senate—allowing bills that might not otherwise pass to find their way through the process, typically in partisan fashion—it also requires that no spending extend beyond the 10-year budget window in the reconciliation agreement. For the IRA, that window closes in 2031. Contrast that with the farm bill, where the budget for conservation programs is assumed to continue in perpetuity.  

While the debate over the IRA has largely involved (1) quibbling over CBO’s projections of IRA spending and (2) speculating if USDA will be able to obligate the entire $18 billion by 2031, both of these arguments miss the bigger point. Absent creative thinking, the IRA funding will be a one-time flash in the pan—gone by 2031—as noted in Figure 1.  

Figure 1. Historic Conservation Spending with Estimated Spending under Current Law

Sadly, like most debates in Washington, D.C., creativity often takes a backseat. The same is true of this debate.  Much of the conversation has focused on the fringe options: (1) doing absolutely nothing, despite the caution above and (2) clawing back all of the IRA funding and using it to fund deficit reduction. We don’t see either of these as viable—or likely—options. In the remainder of this article, we explore the middle ground: options that deviate from the status quo but that could result in permanent increases to conservation funding.

As noted above, the farm bill differs from the IRA in that the budget for conservation programs in Title II of the farm bill is assumed to continue in perpetuity. The options that follow all involve reallocating the IRA funding within the context of the farm bill. It is complicated to be sure—and would require navigating arcane budget rules—but it is possible and would ensure that elevated funding levels for conservation extend beyond the life of the IRA. To illustrate the point, the gray area from Figure 1 is simply reallocated (in a nearly linear fashion) in Figure 2. A few key observations from this hypothetical reallocation: 

• This option results in additional conservation funding beyond 2031, which is not an option under status quo;

• By CBO’s estimates, the IRA will result in Title II outlays reaching a maximum of $9 billion in FY2027 (Figure 1), while the hypothetical reallocation option presented in Figure 2 would reach $9 billion by 2033; and

• Perhaps most importantly when compared to status quo, this option would result in these elevated levels in perpetuity.  In other words, rather than reaching $9 billion for a single year, it’s possible to build a Title II baseline at $9 billion per year in perpetuity.

Importantly, this example is hypothetical.  The faster USDA obligates the IRA funding, the less there is available to build long-term baseline in a farm bill. In other words, the longer this drags on, the less opportunity there is to have a long-term impact.  Regardless, while this option would trim IRA spending in the near term, it would result in permanent additional baseline to Title II of the farm bill going forward.

Figure 2. Historical Conservation Spending and Hypothetical Reallocation of IRA Dollars

Of course, Congress is under no obligation to follow the hypothetical allocation presented in Figure 2. The IRA was a one-time agreement strictly limited to $18 billion.  If policymakers agree to a solution that allows for a permanent increase in Title II spending—particularly those who were opposed to the IRA in the first place—then it stands to reason that compromise may be required.  For example, some of the gray area in Figure 2 could be allocated to fund other priorities in the farm bill.  While some may be naturally opposed to this option, it could still result in long-term investments to Title II that dwarf the IRA funding. 

Where does that leave us? Supporters of status quo (i.e., those demanding that the IRA not be brought into farm bill discussions) are guaranteeing that no more than $18 billion will be added to Title II programs for carrying out climate-smart agriculture (at least not in the near term, given the political environment that appears against more spending).  While it would require some very difficult conversations about priorities and funding levels, to us this seems to present a win-win opportunity…but only if cooler heads can prevail.

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Bart L. Fischer, and Joe Outlaw. “What’s all the Fuss about the Inflation Reduction Act?” Southern Ag Today 3(50.4). December 14, 2023. Permalink

The Congressional Budget Office (CBO) is every political budget analyst’s favorite punching bag.  Truth be told, they have an impossible job.  At its core, CBO is responsible for forecasting spending by the Federal government.^[1]  In some cases, this involves forecasting macroeconomic variables and the resulting Federal spending.  For example, CBO forecasts marketing year average prices for commodities covered by the farm bill and the resulting Price Loss Coverage (PLC) payments.  In other cases, CBO looks into its crystal ball to estimate spending that Executive Branch agencies will undertake using discretionary authority granted to them by Congress.  For example, Section 5 of the CCC Charter Act vests USDA with eight categories of specific powers ranging from supporting the prices of agricultural commodities to increasing the domestic consumption of agricultural commodities.  While some of these authorities are used to carry out programs explicitly authorized by Congress (e.g., carrying out conservation or environmental programs authorized by law), the authority has been used to deliver a number of new programs at the discretion of the Secretary. CBO’s efforts to forecast spending under the latter is the focus of this article.

From fiscal years 2012 to 2017, Congress restricted the Secretary’s discretionary use of the CCC Charter Act.^[2] Since the restriction was dropped in fiscal year 2018, both the Trump and Biden Administrations have used Section 5 of the Charter Act in a number of creative ways.  For example, in the midst of the trade war with China, the Trump Administration authorized a combined $28 billion in assistance to producers via the Market Facilitation Program (MFP).^[3]  More recently, the Biden Administration has used Section 5 to fund over $3 billion in Partnerships for Climate-Smart Commodities^[4] along with $1.2 billion for the new Regional Agricultural Promotion Program to “enable exporters to diversify into new markets and increase market share in growth markets.”^[5]

While CBO tries to reflect such spending in their regular baseline updates (for example, the January 2019 baseline explicitly listed $9.799 billion in spending for fiscal year 2019 under MFP), the baseline historically has not included an explicit (i.e., separate line item) forecast of additional spending.  That changed with the January 2020 baseline which – beyond merely reflecting significant additional spending under MFP – included a long-term forecast of $100 million per year in “Other CCC Spending” under the CCC Charter Act Authority. To CBO’s credit, it presumably was attempting to account for the likelihood that spending at the discretion of the Secretary would continue into the future – and continue it did, as noted in Figure 1.  As a result, in its May 2022 baseline, CBO increased the long-term estimate to $1 billion per year.  At this point, the main question is whether $1 billion per year is a reasonable/sufficient estimate of future spending.

Figure 1. Actual versus Projected Spending under USDA’s Discretionary Use of CCC

As noted in Figure 1, spending under Section 5 has averaged $10.7 billion over the last 6 years since Congress restored the Secretary’s full authority under the CCC Charter Act.  That is significantly higher than the $1 billion per year currently being forecasted by CBO.  Even if you consider the most recent 3 years under a different administration – while treating MFP as an outlier – spending still averages almost $4 billion per year, 4 times higher than CBO’s forecast.

While an estimate of $1 billion per year would indicate CBO is projecting a return to “normal,” reality seems to paint a different picture. By our estimates, use of Section 5 authorities of the CCC has resulted in spending in excess of $64 billion over the last 6 years. If the current administration were re-elected, it’s hard to imagine a reduction in spending for the priorities noted above, indicating that recent spending levels could become the status quo.  Further, a second Trump Administration could result in an expansion of tariffs and elevated spending under Section 5 in response. Regardless of the election outcome, recent hearings before the Select Committee on the Chinese Communist Party have indicated a significant interest in a resumption of tariffs on Chinese products.

All of this leads us to question the direction CBO will take in its Spring baseline update.  In light of recent spending and ongoing priorities, if the CBO baseline is intended to be realistic, we would anticipate a significant increase in forecasted spending under CCC Charter Act Authority.

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^[1] It likely goes without saying that this understates the scope of CBO’s duties.  For example, on a recurring basis, CBO projects Federal spending as a “baseline” against which authorizing committees consider changes (e.g., farm bill).  CBO must also estimate the budget impact of those proposed changes, a process colloquially known as “scoring.”  All of this involves CBO predicting into the future.

^[2] https://crsreports.congress.gov/product/pdf/R/R44606/4

^[3] https://crsreports.congress.gov/product/pdf/IF/IF11289

^[4] https://www.usda.gov/climate-solutions/climate-smart-commodities/faqs

^[5] https://fas.usda.gov/programs/regional-agricultural-promotion-program

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Fischer, Bart L., and Joe Outlaw. “Forecasting Discretionary Spending by the Commodity Credit Corporation (CCC).“ Southern Ag Today 3(49.4). December 7, 2023. Permalink

With cotton added back to the farm safety net via the Bipartisan Budget Act of 2018, the 2018 Farm Bill largely maintained the statutory reference prices (SRPs) established in the 2014 Farm Bill. One noticeable exception was the addition of Effective Reference Prices (ERPs) in the 2018 Farm Bill at the insistence of House Republican negotiators.  As we noted in a December 2022 Southern Ag Today article, Section 1101 of the 2018 Farm Bill (P.L. 115-334) allows for the ERP for a commodity to replace the SRP if 85% of the previous five-year Olympic average of the national marketing year average price is greater than the SRP. The ERP may increase to as much as 115% of the SRP.

A recent article noted that the Congressional Budget Office (CBO) is projecting that “9 of the 19 program crops will have an ERP higher than the SRP in at least some of the years of the baseline” with those crops representing “over 90% of all base acres in the United States.”  They argue that this will result in an increase in Reference Prices “without Congress needing to do anything more than extend those [ERP] provisions.” While the article expressed surprise at “how little attention the ERP has received,” we have been reporting on it since the inception of Southern Ag Today as noted above. It seems the real purpose of this new article was to call into question the need for higher SRPs in the next farm bill, a key request of many state and national commodity organizations across the country. We believe this latest article seriously misses the mark in two key respects:

• First, while there is no question that the ERP provision is projected to result in higher Reference Prices for certain crops, it is projected to have zero impact on several other major commodities, including cotton, rice, and peanuts. While the author acknowledged this point, he simply used the absence of an increase in market prices for these other crops as a nonsensical justification for not adjusting the SRPs for these crops. As we’ve noted elsewhere (including in recent Southern Ag Today articles), sticky production costs and the prospect of lower prices are the primary justifications for increased SRPs (frankly, for all covered commodities).

• Second, while ERPs are certainly projected to provide higher levels of protection for some crops, those levels will also drop if marketing year average prices fall going forward. As a result, while CBO’s relatively flat price projections are an important factor in the debate, the much more important consideration for policymakers is how the farm safety net will fare if those projections are wrong.  To that end, we analyzed the impact of an unforeseen price drop on all 64 crop farms maintained by the Agricultural & Food Policy Center (AFPC) at Texas A&M University.  Specifically, we examined the impact of a price decrease over the next 5 years assuming that crop prices followed the same path experienced during the last downturn from 2013 to 2017. Under this scenario, 33 of the 64 crop farms maintained by AFPC would face a greater than 50% likelihood of an ending cash shortfall at the end of the baseline outlook (2028). In other words, under that scenario, 52% of the farms would have a greater than 50% chance of exhausting all cash on hand over the next 5 years and would have to debt-finance the day-to-day operations of the farm.  Bottom line: if there are any unforeseen hiccups in the market, the current farm safety net is simply NOT up to the task of mitigating losses for many farms across the country.

As we’ve noted time and again, the farm bill debate is fertile ground for those who like to sow regional discord.  Serious observers know that the farm bill must work for growers throughout the United States and not just one region of the country. If the goal is to ensure that the farm safety net can provide meaningful levels of support for producers in the event of a downturn in the farm economy, simply relying on existing Effective Reference Prices – or even modest 5-10% increases in the Statutory Reference Prices for many covered commodities – will simply prove insufficient.  Producers are operating in a higher cost environment, the Federal farm safety net needs to reflect that fact.  We are all for the swift completion of the farm bill, but given the extraordinary amount of capital that American producers are putting at risk, we continue to believe that the substance of the farm bill is far more important than the timeline.

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Fischer, Bart L., and Joe Outlaw. “Reference Prices: Setting the Record Straight.“ Southern Ag Today 3(41.4). October 12, 2023. Permalink