Author: Joe Outlaw

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.

---

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

As the process to develop the 2023 Farm Bill is underway, it is interesting to look at the make-up of the House and Senate from the South.  The South typically includes Alabama, Arkansas, Georgia, Florida, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.  Southern Ag Today also includes Maryland in our grouping of Southern states.  

Currently, 161 (or 37 percent) of the members of the House of Representatives are from the South (Table 1).   In terms of agriculture committee make-up, 17 of the 54 members (31 percent) of the House Agriculture Committee are from the South.  Mr. David Scott, the ranking member of the committee is also from the South (Georgia). In the 118^th Congress, 29 of the 75 freshmen members (39 percent) are from the South.

In the Senate, obviously each state has two senators, so the South would have 28 of the 100.  Five of the 23 members of the Senate Committee on Agriculture, Nutrition and Forestry are from the South (Table 2), with Mr. John Boozman of Arkansas serving as ranking member.

While the South has a significant amount of representation in Congress – and especially on the agricultural committees – there is a considerable amount of work to do in educating new members who have never taken a vote on a farm bill.

Table 1.  States with Members on the House Agriculture Committee.

Table 2.  States with Senators on the Senate Committee on Agriculture, Nutrition, and Forestry.

---

Outlaw, Joe, and Bart L. Fischer. “Congressional Representation from the South.” Southern Ag Today 3(13.4). March 30, 2023. Permalink

Producers have until March 15^th to make their sign-up elections (agriculture risk coverage (ARC) or price loss coverage (PLC)) with FSA and enroll for the 2023 crop year. Based on the number of calls we have been receiving, relatively high but volatile commodity prices for many of the covered commodities have at least a few producers confused as to what would be the best choice to make. Unlike in many previous years, based on price forecasts for the 2023 marketing year average prices, there appears to be very little chance that the safety net for many of the major Southern commodities will trigger support based on price alone. Except for peanuts, marketing year average prices are projected to be well above reference prices used to calculate PLC payments. In other words, if the price projections come true, there would be no payments for the 2023 crop (Table 1).  

This is the reason for many of the calls we receive. The caller usually says they are going to select ARC since it covers both price and yield. While this makes sense, it just isn’t that easy. With respect to price, ARC and PLC are counter-cyclical safety net programs. They were developed to provide little to no support when marketing year average prices are high, with support increasing as prices move lower year to year. Since ARC is a revenue program, there is protection against both low prices and low yields or some combination of low prices and low yields. 

It is easy to see that a projected $6.80/bushel price for corn for the 2023 crop, for example, is well above the $3.70/bushel reference price, which means there is almost no way a PLC payment would be triggered for corn. But the same holds for ARC as well. Under ARC, the 2023 benchmark price for corn is $3.98/bushel. This is calculated taking the last 5 years of prices from the 2017 marketing year to the 2021 marketing year and calculating an Olympic average (dropping the high ($6.00) and low ($3.70) and averaging the remaining three years ($3.70, $3.70 and $4.53). Using yield data for Autauga County, Alabama, indicates a 2023 benchmark yield for corn of 174.70 bushels. That means the benchmark revenue is $3.98 * 174.70 or $695.31 per acre. Multiplying by 0.86 gets you to a guaranteed revenue for 2023 of $597.97. Without a yield loss, 2023 corn marketing year average prices would have to fall below $3.42/bushel for ARC to trigger payments for Autauga County, Alabama, corn producers. Using a 25% yield reduction (131 bushels/acre instead of 174.7) would require a corn price lower than $4.56/bushel to trigger an ARC payment for this year. That is still well below the $6.80/bushel that is projected for this crop year. 

So, what should you do?  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. 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.   

With ARC and PLC unlikely to trigger, your crop insurance decisions take on even more importance. You may also want to look at tools like the Supplemental Coverage Option (SCO) or the new Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, you must choose between ARC and SCO – you can’t have both.

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. 

Table 1.  USDA 2023 Effective Reference Prices and Marketing Year Average Price Forecasts for Select Southern Commodities. 

Commodity	2023 Effective Reference Price	2023 Marketing Year Average Price
Wheat ($/bu)	$5.50	$9.20
Peanuts ($/lb)	$0.2675	$0.265
Corn ($/bu)	$3.70	$6.80
Grain Sorghum ($/bu)	$3.95	$6.65
Soybeans ($/bu)	$8.40	$14.00
Seed Cotton ($/lb)	$0.3670	$0.4645
Long Grain Rice ($/cwt)	$14.00	$16.50

During Extension and commodity group meetings this winter, we have been asked over and over what will be in the next farm bill.  After answering with “it depends” – based on money and interest in bi-partisanship on Capitol Hill – we then go on to give our thoughts on what we think will be in the next farm bill.  At that point, the audience is generally happy…and ready to see if they won a door prize…until we ask them the question: what is it that you want or need in the next farm bill?

The expressions on the audiences’ faces generally remind us of the pained looks on the faces of the kids in the Scripts National Spelling Bee competition.  Google it…it’s intense.  After some reflection, below is a summary of what we tend to hear.

There is just so much more risk in farming now than there has been in the past.  Producers need as much help defraying as much of the risk as they can get.  Title I programs like ARC and PLC have not helped much at all during the current run up in most input costs.  Neither are triggering since market prices are too high to generate payments (despite the fact that those market prices are still not high enough to cover costs in some cases).  Overall, there is a lot of interest in raising the reference prices that are used in both the ARC and PLC payment calculations.

On the other hand, producers almost universally acknowledge that crop insurance has provided significant protection as the revenue guarantees have risen along with market prices (since they are based on futures prices for most covered commodities).  Additionally, there are a wide variety of products for producers to choose from to tailor their coverage to their operations such as different coverage types (yield or revenue) across different units (basic, optional or enterprise).  Producers can also purchase supplemental, area-wide coverage such as the Stacked Income Protection Plan (STAX), the Supplemental Coverage Option (SCO), or the Enhanced Coverage Option (ECO).   Some producers will say that the cost of the supplemental policies (and the complicated array of choices) makes them less attractive options.  At the same time, producers are not looking forward to sustained price declines (that everyone knows are coming eventually) that will lower price guarantees and reduce the effectiveness of insurance as a safety net – especially if production costs have not declined. 

A few producers will say that the safety net needs to be bankable – a term that generally refers to lenders allowing prospective safety net payments to be added to loan packages which would aid in showing their operating loan request is viable.  While the ad hoc assistance over the last several years has been vital – particularly against the backdrop of Title 1 providing less support – that assistance arrives long after the disaster has come and gone.  If and when the markets begin to fall, bankability of the safety net will be even more important. 

Overall, producers are quick to point out how much they appreciate the safety net support they receive; however, some are looking for Congress to be innovative in providing programs that are bankable and more aligned with the amount of risk exposure modern farms have today.

---

Outlaw, Joe and Bart Fischer. “What Do Producers Want/Need in a Safety Net?” Southern Ag Today 3(5.4). February 2, 2023. Permalink

One of the questions we have been getting the most as agricultural policy economists is whether we are going to get a 2023 Farm Bill on time.  While there are dedicated teams of ag committee members and staff in the House of Representatives and Senate who are going to do their best to get a farm bill done on time, history is not on their side.  This article isn’t going to focus on the probability or odds of getting a bill in 2023 but rather – how much would it matter if it doesn’t get done? 

Figure 1 contains our estimate of the mandatory spending associated with programs that will expire on September 30, 2023.  It may come as a surprise to many of our readers that only about 5% of the funding is actually facing the threat of expiration.  Why?  The Supplemental Nutrition Assistance Program (SNAP) is what’s known as an appropriated entitlement.  In other words, if the farm bill expires, the appropriators will continue to fund SNAP.  Beyond that, crop insurance is permanently authorized by legislation outside of the farm bill.  In addition, the Inflation Reduction Act (IRA) recently reauthorized spending for the major conservation programs.  Further, annual appropriations bills have provided significant funding for ad hoc disaster programs over the past four years for programs such as WHIP, WHIP+, and ERP.

So – what does this information mean?  It means that the impending expiration of the 2018 Farm Bill means very little for the vast majority (i.e., 95%) of the mandatory spending in the farm bill.  It also means that unless policymakers are able to significantly enhance Title I commodity programs, this is little reason to go through the process that invariably will include damaging amendments to farm policy.  While this still leaves a number of programs in limbo (particularly those without mandatory baseline spending),  a simple extension of the 2018 Farm Bill would maintain the status quo.

Figure 1.  Estimated mandatory spending in the 2018 Farm Bill that will expire on September 30, 2023.

---

Outlaw, Joe, and Bart Fischer. “What If We Don’t Get a Farm Bill in 2023?” Southern Ag Today 3(1.4). January 5, 2023. Permalink

Photograph by Mark Stebnicki