Author: Joe Outlaw

On March 16, I testified before the House Agriculture Committee at a hearing titled

“A 2022 Review of the Farm Bill:  The Role of USDA Programs in Addressing Climate Change”.  Working closely with commercial producers has provided the Agricultural and Food Policy Center with a unique perspective on agricultural policy.  While we normally provide the results of policy analyses at committee hearings, on this occasion I was carrying the message from the nearly 675 producers we work with across the United States.

         In preparation for the testimony we emailed our representative farm members the following points that I planned on making and asked them to let us know if they agreed or disagreed with each of the 5 points.  In two days, we received 105 responses and several more after I had submitted my testimony.

1. Having a strong safety net from Title I programs (ARC/PLC and the marketing loan) and Title XI (crop insurance) remains critical even with new carbon market opportunities. They unanimously agreed with this statement in spite of the fact they expect very little benefit from Title I programs this year. 
2. USDA conservation programs (CRP, CSP and EQIP) that have incentivized a broad array of conservation practices have worked well in the past. They have just been under funded.  Producers much prefer this type of program to the current carbon program situation where the significant record keeping requirements, additionality requirements, uncertain soil tests, and very low financial benefits have the majority of our representative farm panel members not interested in participating. 
3. Congress should strongly consider providing financial incentives to early adopters who are not eligible to participate in current carbon programs due to the additionality requirement. If it is good to sequester carbon it should also be good to keep carbon sequestered.  Many of the producers who responded to my request indicated that they are disgusted with a system that only rewards late adopters
4. All producers regardless of size, region, or crops planted should have opportunities in any new USDA climate programs. This statement appears fairly benign but let me assure you it is not.  If all producers in the U.S. do not have some USDA NRCS identified practice they can undertake in the name of sequestering carbon then there will be regional winners and losers, and by crop, and by size as carbon programs are created.
5. Congress should consider providing USDA the authority to safeguard producers from being taken advantage of in current carbon markets dealing with private entities. For example, signing a carbon contract with at least one current company would require a producer to forgo commodity and conservation program benefits on that land.  This is really the only point where many producers disagreed with me.  Several producers would rather not have the government get involved in the carbon market at all and asked me to point out that while they see a problem – it could be made worse.

Link to Full Testimony

Outaw, Joe. “A 2022 Review of the Farm Bill: The Role of USDA Programs in Addressing Climate Change“. Southern Ag Today 2(12.4). March 17, 2022. Permalink

Producers are calling asking about the FSA signup decision they have to make by March 15^th.   Even though commodity programs have used marketing year average prices to trigger payments for decades, there still seems to be some uncertainty among producers. 

A quick look at nearby futures would indicate that neither agriculture risk coverage (ARC) nor price loss coverage (PLC) will likely trigger a payment for the 2022 crop.  While it makes some sense to look at nearby (old crop) and harvest time (new crop) futures to help decide what to plant, futures prices may or may not be a very good guide for program signup decisions. 

Why?  Because marketing year average prices start being calculated at harvest of this year’s crop ending prior to the next year’s harvest (Figure 1).  At the end of the marketing year, USDA will multiply each monthly price for the commodity by the percent of the crop marketed that month to arrive at a marketing year average price that weights the monthly prices with higher marketings greater than those months (like right now) with very little marketings occurring. 

While most would agree that the current futures outlook would indicate no ARC or PLC payments, trying to guess at weather, geopolitical and trade conditions around the world 18 months in advance can be daunting.

Figure 1.  Marketing Years and Expected Date Final Price will be Reported by Commodity.

Commodity	Marketing Year	Publishing Dates for the Final 2022/2023
Wheat	Jun. 1- May 31	August 28, 2023
Barley	Jun. 1- May 31	August 28, 2023
Oats	Jun. 1- May 31	August 28, 2023
Peanuts	Aug. 1- Jul. 31	August 28, 2023
Corn	Sep. 1- Aug. 31	September 30, 2023
Grain Sorghum	Sep. 1- Aug. 31	September 30, 2023
Soybeans	Sep. 1- Aug. 31	September 30, 2023
Dry Peas	Jul. 1- Jun. 30	September 30, 2023
Lentils	Jul. 1- Jun. 30	September 30, 2023
Canola	Jul. 1- Jun. 30	September 30, 2023
Large Chickpeas	Sep. 1- Aug. 31	November 30, 2023
Small Chickpeas	Sep. 1- Aug. 31	November 30, 2023
Sunflower Seed	Sep. 1- Aug. 31	November 30, 2023
Flaxseed	Jul. 1- Jun. 30	November 30, 2023
Mustard Seed	Sep. 1- Aug. 31	November 30, 2023
Rapeseed	Jul. 1- Jun. 30	November 30, 2023
Safflower	Sep. 1- Aug. 31	November 30, 2023
Crambe	Sep. 1- Aug. 31	November 30, 2023
Sesame Seed	Sep. 1- Aug. 31	November 30, 2023
Seed Cotton	Aug. 1- Jul. 31	October 30, 2023
Rice (Long Grain)	Aug. 1- Jul. 31	October 30, 2023
Rice (Med/Short Grain)	Aug. 1- Jul. 31	October 30, 2023
Rice (Temperate Japonica)	Oct. 1- Sep. 30	January 2024

Should I Buy STAX?

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Outlaw, Joe. “What is a Marketing Year Average Price?” Southern Ag Today 2(10.4). March 3, 2022. Permalink

Producers have until March 15^th to select their Title I safety net coverage at their local county FSA office.  Current futures prices for many U.S. covered commodities are well above the reference prices which has most producers thinking there will be no payments for the Price Loss Coverage (PLC) so they should choose the revenue coverage provided by Agriculture Risk Coverage-County Option (ARC-CO).  The combination of price and yield protection provided by ARC-CO should be somewhat more likely to trigger a payment than just the price protection provided by PLC.  On the surface this seems quite reasonable, however, as is the case with most decisions in life, this one is much more complicated than that.

First, with a 2022 yield equal to the 2022 county benchmark yield, ARC-CO would not trigger a payment until market prices fall below $3.18/bu for corn, $7.84/bu for soybeans, $3.40/bu for grain sorghum, and $4.73/bu for wheat (Figure 1).  These trigger prices are considerably lower than the effective reference prices for each crop.  So, what if the yield isn’t average?  Across these 4 commodities, it would take a 14 percent yield decline relative to the 2022 county benchmark yield just to increase each commodity’s ARC-CO trigger price to the effective reference price (i.e., $3.70 for corn, etc).

Second, the supplemental coverage option (SCO) is only available on the crops for which a producer chooses PLC as their Title I safety net program.  Given the extremely high futures prices that currently are in place during price discovery, if a producer is looking for a shallow loss revenue protection option, SCO often provides significantly more revenue protection than ARC-CO which uses marketing year average prices to determine revenue benchmarks.  While SCO has a premium that must be paid, many producers may find the coverage difference well worth the cost.

Finally, the current high futures prices for most commodities are good indicators that market prices will be quite strong this harvest.  However, both ARC-CO and PLC use marketing year average prices to determine whether a payment is triggered.  The 2022-23 marketing year for corn begins September 1, 2022 and continues through August 31, 2023.  While not likely to crash, a lot can happen between now and August 2023.  Purchasing SCO allows a producer to elect PLC for the covered commodity, effectively establishing a free put option at the reference price (at least on those base acres and program yields).

Figure 1.  Example ARC-CO and PLC Parameters for the 2022 Decision.

Crop Name	2016 County Yield	2017 County Yield	2018 County Yield	2019 County Yield	2020 County Yield	2022 Benchmark County Yield	2022 Benchmark Price	2022 Benchmark Revenue	2022 Guarantee Revenue	Price below which ARC-CO is Triggered with an Avg Yield	2022 Effective Reference Price (ERP)
Corn	129.62	144.90	168.80	137.45	157.42	146.59	$3.70	$542.38	$466.45	$3.18	$3.70
Grain Sorghum	97.93	109.10	120.02	93.14	93.48	100.17	$3.95	$395.67	$340.28	$3.40	$3.95
Soybeans	49.46	44.56	51.96	39.06	45.11	46.38	$9.12	$422.99	$363.77	$7.84	$8.40
Wheat	74.45	86.24	61.69	61.77	64.21	66.81	$5.50	$367.46	$316.46	$4.73	$5.50

Outlaw, Joe, and Bart Fischer. “The ARC-CO/PLC Decision isn’t as Easy as You Think.” Southern Ag Today 2(6.4). February 3, 2022. Permalink

For the 2021 program year, the U.S. had a total of 246,601,268 enrolled base acres across 23 covered commodities, ranging from feed and food grains to various major and minor oilseeds and seed cotton.  The 13 Southern States (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) accounted for 50,459,543 acres or 20 percent of the U.S. total.  

Looking at enrolled crop bases for the 2021 program year, the South accounted for a relatively low percentage of corn and soybean bases (9% and 14%, respectively).  The Southern States accounted for over 90 percent of seed cotton, long grain rice, and peanut base acres, which makes sense as these three commodities are generally grown in warmer climates and are often referred to as “Southern crops”.  While the share of wheat base in the Southern States was only 24 percent of the U.S. total, the 14,734,976 acres of wheat base represented the largest raw number of base acres of any single crop in the 13-state region.

Table 1. Enrolled Base Acres for the 2021 Program Year.

Base Acres	Corn	Soybeans	Seed Cotton	Long Grain Rice	Wheat	Grain Sorghum	Peanuts
13 Southern States	7,996,187	7,186,913	10,483,866	3,487,440	14,734,976	3,563,167	2,355,027
U.S. Total	92,307,697	52,245,516	11,546,346	3,790,095	61,910,841	8,501,757	2,404,116
13 States as % of Total	9%	14%	91%	92%	24%	42%	98%

These seven crops accounted for 49,807,514 of the 13 Southern State total of 50,459,543 base acres (or 98.7 percent), indicating there are very few enrolled base acres of other covered commodities on farms located in the South.

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Outlaw, Joe, and J. Marc Raulston. “Southern States Share of Major Crop Bases.” Southern Ag Today 1(45.4). November 4, 2021. Permalink

Producers across the United States benefited from the Coronavirus Food Assistance Program (CFAP) 1.0 and CFAP 2.0 programs aimed at providing assistance for losses due to the COVID-19 pandemic.  CFAP 1.0 provided more than $10 billion in payments on over 600,000 applications.  CFAP 2.0 provided almost $14 billion in payments along with top-up payments for acreage based commodities totaling another $4.8 billion from over 900,000 approved applications.

CFAP 2.0 provided broader coverage than the CFAP 1.0 program that limited eligibility to only those crops experiencing a 5 percent decline while focusing on unsold inventories from 2019, left out HRW wheat, and only protected livestock inventories on the farm as of January 15th, 2020.  

 CFAP 2.0 was widely accessed by producers across the South with the 13 southern states accounting for $3.7 billion or nearly 27 percent of the payments.  Soybeans, cattle, and sales commodities were the highest commodity categories in four states each, while corn was the highest in Kentucky.  Sales commodities include specialty crops, aquaculture, nursery crops and floriculture, and other commodities not included in the price trigger and flat-rate payment categories.

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Outlaw, Joe, and J. Marc Raulston. “CFAP 2.0 Payments Across the South.” Southern Ag Today 1(43.4). October 21, 2021. Permalink