Author: Joe Outlaw

As discussed in a May 25, 2023, SAT article “The Silly Season Has Begun… Must Be Farm Bill Time,” every farm bill cycle, we run across a report or research geared toward “informing” farm bill discussions that, while not technically wrong, boy does it leave out something kind of important…hence the term “Silly Season.”  This time the article was written by Scott Faber and Jared Hayes of the Environmental Working Group.  Their September 5, 2023, article entitled “Calls to Increase Crop Reference Prices Would Help Fewer Than 6,000 Farmers” caught our attention.

The authors analyzed individual producer payment data from their database of FSA payment data obtained through Freedom of Information Act requests to arrive at the following conclusions:

For the most part, we have few technical issues with what they said based on what they did. However, there are a number of factors – not discussed – that make their results meaningless.  First, they picked 2021, a year where most commodities in PLC did not trigger a payment.  The black line in Figure 1 intersects the marketing year average price for 2021 for the top 5 commodities in terms of base acreage.  All commodity prices are above their respective reference prices, so…no safety net payments would have been made.  If they had picked a year or two prior to 2021, there would easily have been more than 6,000 producers receiving payments.  Second, rather than try to use payment data to draw a conclusion, it would have been more meaningful to use FSA enrolled base acre data.  Figure 2 provides the FSA enrolled base acres for PLC and ARC county and individual for all 23 covered commodities.  While acreage data doesn’t allow one to say definitively how many farmers would be affected, it is pretty clear that in 2021 there were over 140 million acres of base in the PLC program that, depending upon prices, could have benefitted from higher reference prices. That applies to every single farmer with base acres in the United States.  In fact, every farmer would receive assistance in direct proportion to the amount of acres they have at risk, except for mid-to-large-sized operations that are payment limited. However, that is not likely the headline the authors were looking for…

Figure 1.  Historical and Projected Prices for Five Major Commodities, 2009 – 2023.

Figure 2.  Enrolled Base Acres in PLC and ARC, 2015 to 2023.

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Outlaw, Joe, and Bart L. Fischer. “EWG Takes the Spotlight in the Silly Season.” Southern Ag Today 3(39.4). September 28, 2023. Permalink

Given all the discussion in Washington these days focused on updating crop base acres, it made me wonder whether farm program yields (PFC payment yields) have kept pace with actual crop yields.  Most people refer to the mid-1980s as when crop bases as we currently know them were set based off of a producer’s planting during the early 1980s.  It made sense to start with the U.S. average payment yields from the target price/deficiency payment program from 1985.  The 1985 yields were compared to PFC payment yields from 2021 for the major crops.  As seen in the table, corn (35.2%), rice (26.6%) and wheat (19.7%) experienced the highest percent change in payment yields over the 1985 to 2021 period. Seed cotton, soybeans, and peanuts all became normal program commodities after 1985 so there isn’t a comparison yield for that time period. 

The percent changes in actual yields were evaluated from 1985 to 2021 for all of the listed commodities with upland cotton replacing seed cotton in the actual yield evaluation.  Several commodities (corn, soybeans, upland cotton, rice, and peanuts) all experienced a significant increase in actual yields.  

While this is only evaluating 2021 relative to 1985 it does indicate that nationwide, corn, wheat, and rice producers have done a good job of using yield updating opportunities to increase payment yields.  On the other hand, both actual and payment yields for grain sorghum have largely stayed the same over the period.

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Outlaw, Joe. “Have Payment Yields Kept Up with Actual Crop Yields?” Southern Ag Today 3(31.4). August 3, 2023. Permalink

In previous updates, we have talked about the likelihood of Congress passing a new farm bill “on time” which means by September 30^th of this year.  Through the middle of July, neither the House nor the Senate agriculture committee leadership have released their farm bill drafts.  If they don’t release their drafts next week, it appears that this will likely happen during the August recess or when they return in September.   

Looking at the calendars for both the House and Senate indicates the Senate is in session 17 days in September and the House is in session 12 days.  While we are certain getting the entire farm bill completed by September 30^th would be welcomed by House and Senate agriculture committee members and staff, we feel that a more realistic goal would be to have bill completed before the members leave for the Christmas holidays.  The Senate is in session 44 days from October to December, while the House is in session 24 days during that period.

Getting the farm bill completed by the end of the year would still be considered somewhat of a surprise as, to date, there hasn’t been a significant new source of funds provided to agricultural committee leadership to develop the new farm bill.   During farm bill hearings in both the House and Senate this spring and summer, the near unanimous request by commodity groups testifying was for higher reference prices that would protect a meaningful amount of their production costs.  Our estimate is that a 20 percent increase in reference prices for all 23 covered commodities will cost between $55 and $60 billion over 10 years.  The increase doesn’t have to be for all covered commodities nor does it have to be the same percent for each commodity, although doing so might be politically easier.  

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Outlaw, Joe, and Bart L. Fischer. “Time Running Out on a New Farm Bill This Year.” Southern Ag Today 3(29.4). July 20, 2023. Permalink

When the Agriculture Committees and their staff begin working on a farm bill, like clockwork, experts from around the country, including us, put out information intended to help inform the process.  Every farm bill cycle, we run across a report or research geared toward the next farm bill that, while what the authors did and said isn’t technically wrong, boy does it leave out something kind of important…hence the term “Silly Season.”

The article that caught our eye this time is titled “State Shares of US Commodity Program Payments: 2002–2021” by Zulauf, et al., written for farmdoc.^[1]  The authors summarize their paper with the following:

“Payments are compared to the value of all field crop production. One would expect payments to be proportional to value of production. In general, commodity payments follow farm production, but exceptions exist. States whose share of commodity payments are higher (lower) than their share of field crop production tend to be in the South (Midwest).”

When looking at the share of commodity payments relative to the share of the value of crop production, the South does receive proportionally more payments than the Midwest.  The implication is that Southern farmers are provided significantly more benefits than the value of their crops would imply is needed.  The problem is the report leaves out one word that we think should have been included: ethanol.

The biofuels blending mandates contained in the Energy Policy Act of 2005 (EPA of 2005) and the Energy Independence and Security Act of 2007 (EISA of 2007) dramatically changed the value of corn production in the United States.  See the SAT article from April 14, 2022, for more information on these two acts.  Overnight, this effectively created a new demand for biofuels – and therefore corn – leading to a significant increase in price and the quantity of corn diverted to ethanol production (Figure 1).  The blue line indicates the share of total corn supply going to industrial uses…namely ethanol.  The red line indicates what happened to corn prices when the ethanol mandate took effect.

All corn producers have benefitted greatly from the ethanol mandate.  While there are definitely spillover effects on some other crops resulting from ethanol policy, leaving out the effect of ethanol when discussing proportional shares of farm program payments is misleading.  As Paul Harvey was fond of saying: “now you know…the rest of the story.”  

Figure 1.  Share of Total Corn Supply Utilized in Food, Alcohol and Industrial Use and Marketing Year Average Corn Prices, 1973 to 2022.

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^[1]

 Permalink: https://farmdocdaily.illinois.edu/2023/05/state-shares-of-us-commodity-program-payments-2002-2021.html

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Outlaw, Joe, and David Anderson. “The Silly Season Has Begun… Must Be Farm Bill Time.” Southern Ag Today 3(21.4). May 25, 2023. Permalink

As reported this week by Jim Wiesemeyer with Pro Farmer, there is renewed interest by some in Washington, D.C., in tying commodity program payments to planted acres rather than base acres.  Since the mid-1980s, commodity programs in the U.S. have used base acres of each program crop on a farm to determine a producers’ payment for each crop, with two notable exceptions: (1) the period covered by the 1996 Farm Bill (1996 to 2001) and (2) the Average Crop Revenue Election (ACRE) program in the 2008 Farm Bill which paid on planted acres (not to exceed total base acres on the farm).  

The primary argument for using base acres rather than planted acres centers around the desire to not have potential commodity program benefits unduly influence program commodity plantings.  On the other hand, using planted acres as the basis for payments would allow producers to more effectively manage their risk, as potential payments would be based on the crop they are actually planting. 

So, why is paying on planted acres a topic of discussion in Washington, D.C.?  There are producers that plant more acres than they have base all over the United States.  These producers and their associations are lobbying Congress to allow them to add base either through a forced base update or alternatively, by basing payments on planted acres, which effectively is the same thing.  Either way you look at it, there will be a cost as additional acres are added.  Looking at 2022 FSA enrolled base acres and 2022 planted and prevented planted acres reported to FSA shows a difference of about 9 million acres (Table 1).  Most of the commodities in the table would have lower bases in the future while soybeans and seed cotton would add acres.

The House version of the 2014 Farm Bill included what some would call a compromise option (similar to payment acres in ACRE in the 2008 Farm Bill) where commodity payments would have been paid on planted acres not to exceed their current base acres.  While it was not included in the final bill, this would seem to solve some of the risk management concerns but would still leave producers with more planted acres than base wanting more.

Table 1. FSA Total Enrolled Base Acres and Planted and Prevented Planted Acres Reported to FSA in 2022.

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Outlaw, Joe, and Bart Fischer. “Revisiting Planted Versus Base Acres.” Southern Ag Today 3(17.4). April 27, 2023. Permalink