Author: Bart Fischer

A recent Agri-Pulse article explored “raising reference prices based on a commodity’s relative input costs” suggesting that the approach “could benefit some southern crops over commodities such as soybeans and corn.”  In the article, I was quoted as saying that an “across-the-board increase in PLC reference prices could penalize farmers who don’t grow corn, soybeans and wheat, which together account for 85% of the acreage eligible for the program.”

While the article has generated a significant amount of interest (judging by the call and email volume over the past week), I do think additional context is important.  My purpose in making the statement was this:

• Corn, soybeans, and wheat account for 85% of the base acres nationwide.  As a result, decisions made for those three crops will necessarily drive the vast majority of the spending in Title 1 of the farm bill.

• Because each crop is different – with different risk profiles and with producers who have varying views on the various components of the farm safety net – policymakers are in no way constrained to simply making across-the-board adjustments to the farm safety net.

I also argued – and continue to do so – that cost of production is an appropriate metric for making decisions about Reference Prices.  The entire point of the traditional farm safety in Title 1 is for it to be reflective of the cost of producing a crop.  I suspect that most producers reading this would agree with that point.  After all, the primary complaint we’ve heard from the hundreds of producers we work with around the country over the past several years is that the Title 1 safety net has not kept up with the cost of doing business.  

The article culminated with a comparison of corn and rice that has led some to ask if I’m suggesting that corn producers (and soybean and wheat producers for that matter) are not in need of a Reference Price increase.  To clear up any confusion, in the space that remains, I will quickly address this point for corn, soybeans, and wheat.

Using publicly available data from USDA’s Economic Research Service (USDA-ERS), I compared the total cost of production from 2012-2014 (the 3-year period during which the current Reference Prices were initially established) to the most recent 3-year period for which data is available (2020-2022).  As noted in Figure 1, the average cost of production across the United States for corn, soybeans, and wheat increased by 15%, 21%, and 19% respectively over that timeframe.  It is also important to note that the impact was not uniform across the nation.  For example, while the increase in the national average cost of producing corn may have been 15%, costs in the Northern Crescent (including Michigan, Wisconsin, and parts of Minnesota), the Prairie Gateway, and the Southern Seaboard were all in excess of 20%.  A similar dynamic exists for soybeans and wheat.  For example, the national average increase for wheat is 19%, but the cost of production for growers in the Northern Great Plains increased more than 25%. 

Bottom line:  corn, soybean, and wheat producers are absolutely justified in requesting Reference Price increases.  Depending on the region in which you produce, the sense of urgency may be even greater.

Figure 1.  Percent Change in Cost of Production by Region, 2020-2022 versus 2012-2014.

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Fischer, Bart. “Adjusting Reference Prices Based on Changes in Cost of Production.” Southern Ag Today 3(23.4). June 8, 2023. Permalink

Those who like to sow discord during farm bill discussions will often argue that crop insurance is regionally inequitable – that one region (typically the Midwest) subsidizes crop insurance in other regions of the country.  The argument often takes this form: loss ratios – the ratio of indemnities received to premiums paid – are highest in areas like the Great Plains and the South. Regional battles in farm bill deliberations are seldom constructive.  In the case of crop insurance, those battles endanger the entire crop insurance system and threaten to reduce the risk pool which is essential in spreading risk across multiple crops and states.

For serious participants in the policy process, it’s important to make informed/balanced decisions based on the facts.  While loss ratios are certainly one metric, focusing on loss ratios alone can leave the impression that growers in certain parts of the country are not pulling their weight (i.e., not paying enough for coverage).  In this article, we delve into this topic using corn production to illustrate.  In particular, we explore average premiums paid by county for the highest coverage level (85%) for the most popular crop insurance product (Revenue Protection) in 2022 to examine regional equity throughout the country.  In carrying out the analysis, we utilize average yields in the county (specifically, the county reference yield utilized by RMA in rating crop insurance policies).  We further assume the crop is being produced for grain, and we focus exclusively on non-irrigated crop production.  Finally, we illustrate the case of enterprise units, but the relative results are largely the same for optional units as well.

As noted in Figure 1, the lowest average premiums paid for 85% coverage are in the heart of the Midwest.  For example, the lowest premium rate in the country is in Marshall Co., IA, where producers are paying just 2.13% (or 2.13 cents for every dollar of liability insured) for 85% coverage.  In contrast, corn producers in Wilbarger Co., TX, would have to pay 32.5% (or 32.5 cents for every dollar of liability insured) for the same percentage coverage level.  No producer can afford to spend that kind of money on crop insurance, so their only option is to reduce their coverage level – and increase their risk exposure – as a result.  While we illustrate the two extremes, this highlights one reason why coverage levels outside of the Midwest tend to be considerably lower than 85% – producers simply cannot afford the coverage.    

It is also important to note that rates are significantly variable within states as well.  For example, while the median county rate in Minnesota is just 3.9%, as noted in Figure 2, the average ranges from just 2.14% in Watonwan Co., MN, to 17.8% in St. Louis Co., MN.  No surprise…producers reduce their coverage as a result.  For example, in Marshall Co., MN, where the average premium for 85% coverage in 2022 was 13%, the average coverage level actually purchased by producers has averaged just 73% over the past 5 years, far below the maximum 85% coverage available.

Bottom line: outside of the Midwest, much of the country is (1) paying considerably higher rates for crop insurance which is (2) resulting in producers having to significantly reduce coverage while shouldering considerably more risk.  Any effort in the farm bill to further raise premiums on these producers would simply drive coverage levels even lower and risk exposure even higher.

Figure 1.  2022 Average Premium Rates for 85% Revenue Protection for Corn, by County

Figure 2.  Range of County Average Premium Rates for 85% Revenue Protection for Corn, by State (median county premium rate denoted by black dots).

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Fischer, Bart, Henry L. Bryant, and Joe Outlaw. “Regional Equity in Crop Insurance.” Southern Ag Today 3(15.4). April 13, 2023. Permalink

Livestock producers tend to be an independent lot.  We can identify – we both have livestock backgrounds.  It’s not uncommon for us to hear that there’s really nothing in the farm bill – or in farm policy in general – for livestock producers.  In fact, livestock producers often wear it as a badge of honor, arguing they get nothing from the federal government and would prefer the federal government just stay out of their way in return.  The problem: that’s not really the case…at least not anymore.

While it’s true that the farm safety net historically has been focused on row crops – with dairy being a very notable exception – there has been a significant shift over the past 25 years. Below, we highlight four of the major changes.

• Environmental Quality Incentives Program (EQIP).  The 1996 Farm Bill initiated the EQIP program to provide cost share assistance to crop and livestock producers.  Fifty percent of the funding available for technical assistance, cost-share payments, incentive payments, and education under EQIP was targeted at practices relating to livestock production.

• Livestock Disaster Programs.  The 2008 Farm Bill was the first to authorize the livestock disaster programs, including the Livestock Forage Program (LFP), the Livestock Indemnity Program (LIP), and the Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish Program (ELAP).  Unfortunately, the 2008 Farm Bill authorization was short-lived, and all three programs expired in 2011.  The 2014 Farm Bill resurrected all three programs, providing permanent baseline funding going forward.  As of February 2023, the Congressional Budget Office (CBO) estimates that those 3 programs will provide $5.6 billion in assistance to livestock producers over the next 10 years.

• Disaster Preparedness.  The 2018 Farm Bill maintained the livestock disaster programs and provided $300 million over 10 years for animal disease prevention and management programs in addition to authorizing supplemental funding through the appropriations process.  The bill established a vaccine bank to respond to the accidental or intentional introduction of animal diseases like foot‐and‐mouth disease (FMD) and established the National Animal Disease Preparedness and Response Program to leverage local, state, and national resources to prevent and respond to animal disease threats.

• Federal Crop Insurance.  Historically, USDA’s Risk Management Agency (RMA) was limited to spending $20 million per fiscal year on livestock insurance policies.  The Bipartisan Budget Act of 2018 eliminated the restriction.  Since then, the liability insured by livestock policies has increased from just over $500 million in 2018 to more than $21 billion in 2022 – a 4,000% increase in just 5 years (Figure 1).  There are also new insurance policies on the horizon, including one that would provide revenue coverage for weaned calves for cow-calf producers.

Bottom line: livestock producers have a vested interest in the farm bill.  With that said, despite the rapid growth in liability insured by livestock policies, it still represents a small share of the value of livestock production in the United States and there are significant opportunities for expansion going forward.  For policymakers, it’s likely worth exploring if the current infrastructure – including things like RMA’s Livestock Price Reinsurance Agreement (LPRA) – are up to the task.

Figure 1.  Liability Insured by Livestock Policy Type and Year

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Fischer, Bart L., and Joe Outlaw. “What’s in the Farm Bill for Livestock Producers?” Southern Ag Today 3(11.4). March 16, 2023. Permalink

Yesterday, the Congressional Budget Office (CBO) released its February 2023 budget projections for a number of Federal programs, including farm-related programs and the Supplemental Nutrition Assistance Program (SNAP).  All eyes are on the farm bill, which expires on September 30, 2023, and this latest update gives us an initial glimpse of the budget baseline that will be available to the farm bill authors this year.  

CBO typically updates their budget projections early in the year, and yesterday’s release follows that pattern.  Following the release of the President’s budget in February, CBO will often release a revised outlook in March.  If the President’s budget is delayed, the updated outlook from CBO can stretch into late Spring or early summer – for example, in 2021, the update was released in July.  Why does this matter?  It is generally the update following the release of the President’s budget that is the baseline against which the cost of legislative proposals is “scored” throughout the year.  In other words, while the current release will get a lot of attention, CBO may choose to update their projections again this spring; if they do, that baseline likely will be used for writing the farm bill.  CBO will also typically release – at least to policymakers – their baseline projections by farm bill title.

In the meantime, there is much to glean from the information made publicly available in yesterday’s release.  As we noted in a Southern Ag Today article last summer, if we look back to the April 2018 baseline (the scoring baseline for the 2018 Farm Bill), the spending projections for CCC Price Support and Related Activities, Conservation, SNAP, and Crop Insurance accounted for $865.9 billion (Table 1), or 99.85% of the $867.2 billion in projected total baseline outlays for the farm bill.  Applying the same methodology to CBO’s most recent February 2023 baseline update, those four categories are projected to spend approximately $1.45 trillion over the next 10 years (Table 1).  The significant increase is due to an 81.6% increase in projected spending on SNAP, with SNAP now projected to account for $1.2 trillion, or 83.3% of the total farm bill baseline.  By contrast, the income support provisions for agricultural producers that make up the largest component of Title 1 – the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs – are projected to spend $48.6 billion over the next 10 years, or just 3.4% of the total farm bill baseline. Following are a few initial observations from Table 1:

• While some may look to the $71.8 billion in CCC Price Support & Related Activities (a $7.5 billion increase) as additional resources with which to write the farm bill, it’s not that simple.  In January 2020, CBO began including $100 million per year in the baseline as an estimate of the amount they project the Secretary of Agriculture to spend using discretionary authority available under the CCC.  In May 2022, CBO increased that amount to $1 billion per year (or $10 billion over 10 years).  In other words, absent the amount that CBO includes in the baseline as a guess of what they expect the Secretary to spend using discretionary CCC authority, the baseline for CCC Price Support & Related Activities would be going down.  

• These estimates would also likely be considerably lower if one were using USDA’s latest market projections which were also released yesterday.  For example, USDA projects cotton prices in the long run that are 16% higher than CBO.  If USDA’s projections were to materialize, ARC and PLC spending would be considerably less and the safety net would still be doing nothing to address the high cost of inputs.

• The increase in conservation spending is almost entirely due to the infusion provided in the Inflation Reduction Act (IRA) of 2022, although CBO has revised downward the amount they expect USDA to spend on these efforts (by roughly $1.5 billion).

• On crop insurance, the increase in projected spending is generally attributable to expanded product availability over the last 5 years along with projected increases in liability coverage due to higher market prices.

Table 1. Congressional Budget Office (CBO) 10-Year Outlays in Million$

	April 2018	February 2023	Change ($)	Change (%)
CCC Price Support & Related Activities 1/	64,305	71,806	+7,501	+11.7%
Conservation 2/	59,689	72,610	+12,921	+21.6%
SNAP 3/	663,828	1,205,440	+541,612	+81.6%
Crop Insurance	78,037	96,974	+18,937	+24.3%
Total	865,859	1,446,830	+580,971	+67.1%

Bottom line: the already relatively small 10-year baseline for writing Title 1 may ultimately be an overestimate, especially when comparing with USDA’s economic outlook.  Even now, it pales in comparison to the almost $88 billion in unbudgeted ad hoc assistance that was provided to agricultural producers over the past 5 years alone.  If Congress plans to move away from ad hoc assistance to a more sustainable risk management framework for producers, additional resources will be needed for the farm safety net.

Author: Bart L. Fischer

Research Assistant Professor and Co-Director Agricultural & Food Policy Center at Texas A&M University

Author: Joe Outlaw

Professor and Extension Economist

Co-Director Agricultural & Food Policy Center at Texas A&M University

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Fischer, Bart, and Joe Outlaw. “CBO’s February 2023 Baseline Update.” Southern Ag Today 3(7.4). February 16, 2023. Permalink

Photo by Karolina Grabowska: https://www.pexels.com/photo/image-of-old-building-on-american-banknote-4386157/

The Consolidated Appropriations Act, 2023 (P.L. 117-328) was signed into law by President Biden on December 29, 2022.  Among other things, the $1.7 trillion bill funds the federal government for fiscal year 2023.  The package also included $250 million in support for rice producers, a key priority of Senator John Boozman (R-AR), Ranking Member of the Senate Committee on Agriculture, Nutrition, and Forestry.

The Agricultural & Food Policy Center at Texas A&M University maintains almost 100 representative farms across 30 different states which serve as a basis on which to conduct policy analysis at the request of Congress.  In a May 2022 report requested by Sen. Boozman, we highlighted that the 15 representative rice farms maintained by AFPC faced the largest drop in net cash farm income in 2022 of all 64 representative crop farms maintained by AFPC – a reduction of $880,000 per farm or $442 per acre.

In the case of rice, AFPC has consistently reported that rice growers have faced the harshest financial outlook over the last several years.  Rice producers, in particular, received very little support from ad hoc aid packages like the Market Facilitation Program (MFP) and the Coronavirus Food Assistance Program (CFAP).  These problems are compounded by trading partners like India whose minimum support prices and input subsidies cause significant harm to U.S. rice producers, contributing to a nearly 40-year low in U.S. rice exports this year.  Relatively flat prices and high input costs further exacerbated an already tenuous situation for U.S. rice producers in 2022.

The $250 million – all of which USDA is required to spend – is for one-time payments for U.S. rice producers for the 2022 crop.  The payment is based on (1) a rate of not less than 2 cents per pound multiplied by (2) the producer’s actual production history (i.e., crop insurance APH) multiplied by (3) all of the producer’s planted (or prevented planted) rice acres in 2022.  A separate payment limit applies, consistent with the limit imposed for WHIP+ (i.e., $250,000 if 75 percent or more of the average adjusted gross income of the person or legal entity is average adjusted gross farm income).

Importantly, nothing is final until USDA announces the official details of the program.  In the meantime, our colleagues at the University of Arkansas have put together a helpful FAQ document that answers several key questions. 

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Fischer, Bart, and Joe Outlaw. “Support for Rice Producers in the Fiscal Year 2023 Omnibus.” Southern Ag Today 3(3.4). January 19, 2023. Permalink