Author: Bart Fischer

On March 11, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021 into law.  Section 1005 of the act required the Secretary to make payments to socially disadvantaged farmers or ranchers “in an amount up to 120 percent of the outstanding indebtedness” of eligible producers for both direct and guaranteed loans administered by various USDA agencies.^[1]  While USDA immediately went to work implementing the provisions, multiple lawsuits were filed – alleging that the provision was unconstitutional because it violates the Due Process Clause of the Fifth Amendment – and 3 courts have issued injunctions prohibiting USDA from issuing any payments, loan assistance, or debt relief pursuant to Section 1005.^[2]  According to USDA, the injunctions “do not prohibit FSA from completing administrative actions leading up to payments, including providing payment notifications to potentially eligible borrowers.”^[3]  At the time of passage, the Congressional Budget Office (CBO) estimated the provision would cost $3.98 billion over the next 10 years.^[4]

            In the meantime, the Build Back Better Act (BBB) of 2021 – which passed the House on November 19, 2021 – sought to remedy the concerns raised about Section 1005 in the American Rescue Plan.  Specifically, Section 12101 of the BBB amends Section 1005 of ARP, in part, by changing the focus of the debt relief to “economically distressed borrowers” with eligibility tied to eight (8) broad criteria ranging from debt delinquency metrics to whether the farm or ranch was headquartered in a county with a poverty rate of 20 percent or greater.^[5]  With the presumably expanded list of eligible borrowers, CBO estimated that the provision would cost $6.647 billion over the next 10 years.^[6]  Due, in part, to the price tag of the overall bill, the BBB has languished in the Senate for the last several months.

            Last week, Senators Schumer and Manchin announced a joint agreement to add various provisions from the BBB – via the Inflation Reduction Act of 2022 – to the FY2022 Budget Reconciliation Bill.^[7]  In our review of the draft legislation posted last week, it does not appear that debt relief for farmers and ranchers was included.  While Congressional leaders may have plans for including debt relief in another legislative vehicle, unless and until they do – or unless and until the courts rule on the pending cases or lift the existing injunctions – potentially eligible farmers and ranchers will have to keep waiting.  

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^[1] https://www.congress.gov/117/plaws/publ2/PLAW-117publ2.pdf

^[2] See Holman v. Vilsack, 21-1085-STA-jay, Order Granting Motion for Preliminary Injunction (July 8, 2021); Miller v. Vilsack, 4:21-cv-00595-O, Order (July 1, 2021); Wynn v. Vilsack, 3:21-cv-00514-MMH-JRK, Order (June 23, 2021). 

^[3] https://www.farmers.gov/loans/american-rescue-plan

^[4] https://www.cbo.gov/system/files/2021-03/Estimated_Budgetary_Effects_of_hr1319_detailed_tables.xlsx

^[5] https://www.congress.gov/congressional-record/volume-167/issue-201/house-section/article/H6375-4

^[6] https://www.cbo.gov/system/files/2021-11/hr5376_title_I_Agriculture.xlsx

^[7] https://www.democrats.senate.gov/inflation-reduction-act-of-2022

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Fischer, Bart, and Tiffany Dowell-Lashmet. “Debt Relief for Certain Farmers & Ranchers.” Southern Ag Today 2(32.4). August 4, 2022. Permalink

In May 2022, the Congressional Budget Office (CBO) released its latest 10-year budget projections for a number of Federal programs, including farm-related programs and the Supplemental Nutrition Assistance Program (SNAP).  While CBO typically updates its budget projections up to three times per year, the spring update following the release of the President’s budget is most closely watched as it typically is the baseline against which the cost of legislative proposals is “scored” throughout the year.

During farm bill reauthorization years, CBO typically also releases their baseline projections by farm bill title.  That summary gives policymakers a clear picture of the budget for mandatory spending they have to work with in each title of the farm bill.  That estimate also gives a clear picture of what CBO expects the entire farm bill to spend if existing policies were simply maintained going forward.

While we are still a year out from CBO releasing baseline projections by title, there is still plenty to be gleaned from the May 2022 baseline update.  For example, 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 the most recent May 2022 baseline update, those four categories are projected to spend approximately $1.3 trillion over the next 10 years (Table 1).  The significant increase is due to a 66.4% increase in projected spending on SNAP, with SNAP now projected to account for $1.1 trillion, or 84% 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 $43.3 billion over the next 10 years, or just 3.3% of the total farm bill baseline.

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

	April 2018	May 2022	Change($)	Change (%)
CCC Price Support & Related 1/	64,305	71,092	+6,787	+10.6%
Conservation	59,689	59,216	-473	-0.8%
SNAP 2/	663,828	1,104,384	+440,556	+66.4%
Crop Insurance	78,037	79,761	+1,724	+2.2%
Total	865,859	1,314,453	+448,594	+51.8%

Fischer, Bart. “The Trillion Dollar “Farm” Bill“. Southern Ag Today 2(28.4). July 7, 2022. Permalink

While questions about market power in the meatpacking sector have been around for well over 100 years, the spike in retail beef prices following the fire at the Tyson facility in Holcomb, Kansas, in August 2019, and the COVID-19 outbreak in early 2020, brought about a renewed focus on the issue.  In response to concerns in the countryside, several legislators offered policy solutions, with the bulk focused primarily on enhancing transparency and increasing negotiated trade volumes in fed cattle markets. 

With a number of legislative proposals floating around and with the Livestock Mandatory Reporting Act set to expire in September 2020, the bi-partisan leadership of the House Agriculture Committee asked the Agricultural & Food Policy Center (AFPC) at Texas A&M University to evaluate a number of issues in the cattle markets.  Given the sensitivity and regional nature of the topic, we chose to partner with several respected livestock economists from across the country.  That work ultimately culminated in the release of a book in October 2021 that cautioned against many of the proposed changes, warning that proposals to mandate a minimum amount of negotiated purchases could ultimately reduce prices to cattle producers.

Following the release of that book, Senators Grassley (R-IA), Fischer (R-NE), Tester (D-MT), and Wyden (D-OR) released a compromise bill – the Cattle Price Discovery and Transparency Act of 2021 (S. 3229) – that would, among other things, require the U.S. Secretary of Agriculture to establish a regional mandatory minimum threshold for the percentage of cattle purchased under negotiated grid or negotiated pricing terms.  Senator John Boozman, Ranking Member, Senate Committee on Agriculture, Nutrition, and Forestry asked AFPC to evaluate the bill.  Our January 2022 report found that an additional 6 million head would have to be purchased via negotiation from 2022 to 2026, with the burden (and cost) falling largely on the Southern Plains.

In April 2022, Senators Fischer (R-NE), Grassley (R-IA), Tester (D-MT), and Wyden (D-OR) released an updated version of their bill – the Cattle Price Discovery and Transparency Act of 2022 (S. 4030).  Senator Boozman again asked AFPC to weigh in on the updated bill.  Our latest report, released last Friday, found that the number of head impacted by the updated bill would likely be lower than in S. 3229, but we cautioned that the updated bill gives so much discretion to the Secretary that it was virtually impossible to assess the expected costs to the cattle industry.  When taking all of the uncertainty into account, we noted that it was conceivable that the estimated cost of the latest bill could far exceed earlier estimates. 

Last week, a group of livestock economists – all of whom were involved in drafting the book noted above – independently released a report noting there is “no research evidence of any significant or persistent fed cattle price discovery problem at this time” and that proposed legislation would impose “many millions of dollars of additional cost, added risk, and lost value”  that would result in “lower feeder cattle prices and higher consumer beef prices.”  Over the course of the past two years, that is a consistent message we’ve heard from every economist we’ve consulted.

Fischer, Bart. “Fed Cattle Pricing: Will Well-Intentioned Proposals Actually Reduce Cattle Prices?“. Southern Ag Today 2(18.4). April 28, 2022. Permalink

It’s around this time of year – with the release of the President’s budget – that we start to get a lot of questions about what’s going to happen with Federal spending for the year.  The questions are quite natural given the amount of attention the release of the President’s budget generates and the enormous volume of pages it fills (i.e. this year the Appendix alone spans 1,400 pages).  It’s somewhat ironic, then, that the Constitution gives no formal role to the President in the federal budget process.  In fact, the Constitution vests the authority to “lay and collect taxes” and to authorize the withdrawal of funds from the Treasury exclusively in the U.S. Congress.

While Congress controls the power of the purse, for the past 100 years – since passage of the Budget and Accounting Act of 1921 – there has been a statutory role for the President in establishing a budget and presenting it to Congress.  For the past 30 years, Federal law has stipulated that the President is to submit the budget to Congress “on or after the first Monday in January but not later than the first Monday in February of each year” (we’ll save the discussion about whether they are submitted on time for another day).

If Congress controls the purse strings, then what’s the point of the President’s budget? 

First, it kicks off the Congressional budget process.  In exercising the power of the purse, Congress establishes a budget resolution, which is a broad revenue/spending framework (which is also the basis for budget enforcement) that also provides spending allocations to the Appropriations Committees.  The budget resolution can also include reconciliation instructions, which featured prominently in last year’s debates on the Build Back Better Act.

Second, the President’s budget is an overview of the President’s policy vision.  Often, that vision includes proposing significant changes to existing Federal programs.  With respect to agriculture, notably, the last two budget cycles broke with recent tradition which had proposed a litany of ways in which farm policy could be slashed to save money.  Last year’s budget was silent on the matter and this year is no different.  With that said, the budget does hint at other significant changes that could have a major impact on agriculture.  For example, the so-called Green Book –the Treasury Department’s explanation of this year’s revenue proposals – contemplates imposing capital gains at death.  The Agricultural & Food Policy Center (AFPC) reported last summer on the enormous impact that the elimination of stepped-up basis (or the imposition of transfer taxes) could have on agricultural producers.  While the President can propose changes, only Congress has the power to actually change the law.

Bottom line:  the President’s budget kicks off the budget process and signals the policy priorities of the Administration, but it’s Congress that ultimately controls the purse strings.

Fischer, Bart. “President’s Budget: Does it Matter?“. Southern Ag Today 2(14.4). March 31, 2022. Permalink

As we’ve traveled throughout the Southern United States over the past two months, one of the questions we’ve most often been asked is whether a producer should purchase a Stacked Income Protection Plan (STAX) insurance policy for the 2022 crop year.  While we would never presume to know what’s best for a producer – because we are neither on the hook for paying the premiums nor do we know a particular producer’s financial situation or appetite for risk – we have been encouraging producers to take a very close look at STAX and to exhaust that option before considering any other alternatives.  Generally speaking, area-wide policies like STAX can serve as an effective complement to an individual crop insurance policy. With prices at their current levels, that option arguably becomes even more important.

            STAX was first authorized under the 2014 Farm Bill.  It was retained in the Bipartisan Budget Act of 2018 and the 2018 Farm Bill, but both bills required producers to choose between (1) Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) and (2) STAX.  Any farm (FSA Farm Number) with seed cotton base enrolled in ARC or PLC is ineligible for STAX.  As a result, most producers we talk to are currently trying to choose between ARC (particularly ARC County, or ARC-CO) and STAX.

            While there are a number of factors that must be taken into consideration – for example, how much seed cotton base do you have on your farm and do you plan to plant that farm to cotton – in the example that follows we attempt to draw some comparisons between ARC-CO and STAX.  For those parts of the cotton belt with February 28^th sales closing dates (including the Arkansas, Georgia, and Mississippi counties in the example below), the projected price for crop insurance has been set at $1.02/lb with a 0.22 volatility factor (which is used to establish crop insurance premiums).  While the Texas and Oklahoma counties have a March 15th sales closing date and are still undergoing price discovery, the analysis that follows uses the same price assumptions.  The analysis also assumes that the maximum amount of STAX is being purchased, including a 20% coverage level with a 120% protection factor.  If a producer has an underlying crop insurance coverage level above 70%, then the STAX coverage would be reduced.

            Table 1 below illustrates the maximum possible ARC-CO payment rate in the event of sufficient price and/or yield losses.  It illustrates the same for STAX, but it also includes the estimated premiums paid for STAX coverage.  The last column compares maximum possible net indemnities from STAX to the maximum possible ARC-CO payments.  As noted below, in every case, STAX provides more than TWICE the coverage of ARC-CO (even after accounting for premiums).  Naturally, if both prices and yields end up hitting their average levels, then neither ARC-CO nor STAX will pay, and the producer will be left paying the STAX premium.  As a result, there is no clear-cut answer to the question above, but it is abundantly clear that the amount of protection a producer can secure under STAX vastly exceeds that offered by ARC-CO.  Finally, while we provide estimates in this article for purposes of illustrating options for you to consider, nothing can substitute for discussing these options with your crop insurance agent.

Table 1: Comparing ARC-CO and STAX in the Counties with the Largest Number of Planted Acres in the 5 Largest Southern Cotton States

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Fischer, Bart L., and Joe Outlaw. “Should I Buy Stax?” Southern Ag Today 2(8.4). February 17, 2022. Permalink