Category: Policy

In a January 17^th Dear Colleague letter, Senator Debbie Stabenow (D-MI), Chairwoman of the Senate Committee on Agriculture, Nutrition, and Forestry, outlined her proposal for strengthening the farm safety net in the 2024 Farm Bill (found here). The proposal centered around five key principles:

• programs must be targeted to active farmers;
• we need to provide farmers choices and flexibility;
• assistance should be timely;
• we need to expand the reach of programs to help more farmers; and
• we need to address the emerging risks farmers face.

Since the letter was released, considerable attention has been paid to the comments she offered about crop insurance and providing producers expanded safety net choices.  Part of the proposal reads as follows: 

“The 2018 Farm Bill provided cotton farmers with a choice between the traditional base acre programs and a highly-subsidized and streamlined area-based crop insurance policy. The next Farm Bill should give a similar option to all commodities.”

There is a considerable amount of detail about the evolution of the cotton program – from removing lint as a covered commodity to adding seed cotton as a covered commodity – that is not contained in the letter.  In this article, I walk through the history to provide more context.  

First, to resolve the decade-long WTO Brazil cotton dispute (which involved, among other things, the U.S. Government having to pay the Brazilians $147 million per year in cash to fend off retaliation), cotton industry leadership suggested removing cotton as a covered commodity for Title I commodity programs (PLC and ARC) and modifying the marketing assistance loan.  Second, in lieu of ARC/PLC, the 2014 Farm Bill provided cotton producers an industry-proposed area-wide insurance program, the Stacked Income Protection Plan (STAX).  The premium subsidy for STAX was 80%, higher than the 65% subsidy authorized for the Supplemental Coverage Option (SCO) that is available for all crops. Third, upland cotton producers were provided Cotton Transition Assistance Payments (CTAP) for 2014 to aid in the transition to STAX.  

STAX protection was deemed insufficient to protect cotton producers from collapsing prices, so cotton ginning cost share (CGCS) payments were provided for the 2015 and 2016 crop years. Ultimately, the Bipartisan Budget Act of 2018 restored ARC and PLC protection to cotton producers by adding seed cotton as a covered commodity.  While STAX was still available to seed cotton producers, they could not enroll their seed cotton base in ARC/PLC and still purchase STAX on the farm in the same year – they were required to decide between the two options.  

Requiring producers to make the choice between ARC/PLC and STAX was a political compromise required at the time to get cotton added back to the farm bill.  While there is certainly merit to expanding STAX to other crops – or simply improving SCO and the Enhanced Coverage Option (ECO) that are already available to all crops – I would argue that now is the time to eliminate the requirement altogether (rather than expanding it to other crops).  While there has long been a prohibition between the purchase of SCO and ARC – because both offer area-wide coverage and they are very similar in design – there is little justification for requiring producers to choose between PLC and area-wide coverage, both of which serve vastly different safety net functions.

To illustrate the challenges presented by such a choice, consider the following for cotton.  Figure 1 indicates the share of annual upland cotton insurance liability covered by STAX and the share of policies sold.  Producers initially utilized STAX; however, after a few years of unsatisfactory results, the share of liability covered and policies sold declined.  In 2019, when producers actually began a crop year with a choice of ARC/PLC or STAX, the percent of liability covered by STAX, as well as the share of upland cotton policies sold, was relatively low as marketing year average prices (MYAP) were low (Figure 2).  After that, due to Reference Prices not keeping up with input costs (and due to a relatively higher initial insurance price), seed cotton producers moved back to STAX in 2021, 2022 and 2023, with STAX still accounting for just 20% of the policies sold. 

As for the 2024 growing season – with futures prices currently below the cost of production for most growers – growers must now choose between (1) an ineffective ARC/PLC with Reference Prices that have not kept up with inflation or (2) STAX, which can certainly help, but at most will partially offset significant losses they are almost guaranteed to face (absent well-above-expected prices or yields). In other words, growers are faced with two poor options.

After nearly 40 years of working on farm policy, it seems clear to me that there is a need for both (1) improving Reference Prices in Title 1 and (2) improving area-wide coverage in crop insurance, particularly since the two were designed to work in tandem.  It certainly isn’t clear that expanding the choice that was forced on cotton producers to everyone else without higher reference prices is much of a choice.

Figure 1.  STAX Share of Cotton Crop Insurance Liability and Policies Sold.

Figure 2.  Historic Cotton Prices.

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Outlaw, Joe L. “Proposed Safety Net Choice Could Add Risk to Farmers.” Southern Ag Today 4(5.4). February 1, 2024. Permalink

On November 16, 2023, President Biden signed H.R. 6363 – the Further Continuing Appropriations and Other Extensions Act of 2024 – into law. The bill extended the Agriculture Improvement Act of 2018 (2018 Farm Bill), reauthorizing programs like the Agriculture Risk (ARC) and Price Loss Coverage (PLC) programs through September 30, 2024. Producers will have an opportunity to make a one-time election between ARC and PLC for the 2024 crop year. USDA opened the election and enrollment period on December 18, 2023, and it runs through March 15, 2024.^[1]

The ARC/PLC decision for 2024 is against the backdrop of a general softening in prices, but the implications vary by crop. For some crops, the decision may be clear-cut. In this article, we illustrate the case of wheat (Figure 1). While Effective Reference Prices are projected to climb starting next year for wheat, it is important to remember that you are making a one-year decision for crop year 2024, where the Statutory Reference Price remains at $5.50/bu. With a projected Marketing Year Average Price (MYAP) of $6.63/bu, it is unlikely (though not impossible as we are very early in the growing season) that PLC will trigger. While some may be tempted to elect ARC as a result, note that the 86% trigger threshold is at a price of $5.34/bu, largely indicating that any hope of receiving an ARC payment would rest on very low yields. In other words, in the case of wheat, it’s unlikely that either ARC or PLC will trigger (unless there is a disaster that results in low yields).

Figure 1. Historical and Projected Wheat Prices and What They Mean for the ARC/PLC Decision.

As we have noted in the past,^[2] we highly encourage you to also look at tools like the Supplemental Coverage Option (SCO) or the Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, if you elect ARC, you cannot purchase SCO. In other words, you are essentially evaluating ARC versus PLC + SCO. Even if PLC is not expected to trigger, you may still choose to elect it and purchase SCO, particularly if the value of SCO is expected to exceed that of ARC. 

For cotton producers, we continue recommending that you first evaluate the Stacked Income Protection Plan (STAX) before making decisions about ARC/PLC. In the case of cotton, STAX cannot be purchased on any farm where the seed cotton base has been enrolled in ARC or PLC for that crop year. As we will discuss at the Red River Crops Conference in Altus, OK, later today, in a scenario where the crop is a total loss, the area-wide policies can provide considerably more coverage than ARC. For example, as noted in the example for Jackson County, OK, in Table 1, STAX can provide more than twice as much support as ARC in a total loss scenario.

Table 1. ARC versus STAX Comparison for Cotton in 2024, Jackson County, OK

Practice	Maximum Possible ARC Payment	STAX				Ratio:  STAX-to-ARC
		Expected County Yield (lint lbs/ac)	Maximum Possible Indemnity	Producer-Paid Premium	Maximum Possible Net Indemnity
IRR	$126	1,273	$243	$30	$213	1.69
DRY	$31	385	$74	$9	$65	2.08

As always, 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. But, as with previous years, 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.

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.

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^[1] https://www.fsa.usda.gov/programs-and-services/arcplc_program/index

^[2] https://southernagtoday.org/2023/03/02/strongarc-plc-sign-up-deadline-just-weeks-away-strong/

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Fischer, Bart L., and Joe Outlaw. “Making the ARC/PLC Election for 2024.” Southern Ag Today 4(3.4). January 18, 2024. Permalink

In remarks during a March 16, 2023, hearing before the Senate Committee on Agriculture, Nutrition, and Forestry, Secretary Vilsack testified that while “our policies have ensured an increasingly abundant food supply, growth in farm size and consolidation has put extreme economic pressure on small and medium sized farms and our rural communities…. We must ask ourselves: do we want a system that continues to force the big to get bigger and the small and underserved to get out or do we want a build a more innovative system?”

The United States has grappled with this small-farm versus large-farm debate for decades.

While many claim that the safety net is targeted toward large farms, it should be noted that (1) the safety net is provided to producers on a per-acre basis regardless of size and (2) Congress has invested a significant amount of resources in helping small, beginning, socially disadvantaged, limited resource, and veteran producers get started in production agriculture. Congress has also significantly curtailed access to the farm safety net for larger farm operations via means testing, actively engaged determinations, and payment limits.

The U.S. has been on this path of fewer but larger farms since the beginning of the last century.  Data from the 1920 Census indicated there were 6,448,343 farms with an average farm size of 148.2 acres.^[1]  According to the 2017 Census of Agriculture, in 2017 there were 2,042,220 farms with an average farm size of 441 acres.^[2]  Not only has average farm size been growing, it is also resulting in a shift in the composition of farms.  Figure 1 illustrates that about one-half of U.S. production comes from large-scale family farms that only make up 3.2 percent of farms, versus 94.7 percent (small and moderate size farms) accounting for 26.2 percent of production.  The USDA Economic Research Service (ERS) also noted that small-scale operators depend on off-farm income while large-scale farms derive almost all of their income from the farm. 

These results have significant policy implications: namely, who is the farm bill – and the farm safety net in particular – intended to benefit?  Washington think tanks argue that Title I benefits in the farm bill should be redirected to smaller farms. This ignores economic reality on the ground, where full-time family operations are putting enormous amounts of capital at risk. We applaud Congress for continuing to focus on full-time family producers who are actually trying to make a living from their operation – all while doing the most to feed the country. 

Figure 1. Median income of farm households, by income source and farm type, 2021.

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This paper summarizes the farm size part of a paper by these authors entitled “Examining Farm Size & Payment Limits” commissioned by the Southwest Council of Agribusiness.

^[1] 1920 Census of Agriculture. Accessed at h#ps://agcensus.library.cornell.edu/census_year/1920-census/

^[2] 2017 Census of Agriculture. Accessed at

https://www.nass.usda.gov/PublicaKons/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf

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Outlaw, Joe, and Bart L. Fischer. “Shouldn’t the Farm Safety Net Target Those Feeding the Country?” Southern Ag Today 4(1.4). January 4, 2024. Permalink

The weather outlook for the Southern Great Plains and Southeast regions in 2024 and beyond signals a heightened risk of intense downburst events and extended periods without rainfall^[1]. This shift poses a big challenge for rainfed farms, especially with the transition from La Nina to El Nino ENSO patterns, which could mean too much rain in certain southern areas.

The timing of these weather events is crucial for farming success. Farmers recognize this and use various strategies like crop insurance, safety net programs like Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC), and disaster programs. Combining these tools strategically, following program guidelines, helps strengthen individual farms’ resilience against unpredictable weather.

Recent events, especially those resulting in financial support, strongly influence farmers’ decisions—this is known as ‘recency effects.’ A study in the Southern Great Plains^[2] found that when a weather disaster triggered a government program payment in the previous year, farmers were more likely to buy crop insurance the next year. This effect was even stronger for farmers already using crop insurance who had received both indemnity and a government program payment. Interestingly, as D2 drought weeks increased, policy sales also rose by a factor of 1.017, underlining the impact of recent experiences on risk management choices.

Farmers also stack safety net programs based on expected weather challenges. A recently published analysis^[3] showed that combining a safety net program with crop insurance led to better financial outcomes under a wide range of potential yields compared to relying on any one program alone. For rainfed wheat farmers, the best strategy involved combining PLC and revenue protection multi-peril crop insurance, along with planting a double crop of summer soybeans or grain sorghum alongside winter wheat. This not only maximized net returns but also reduced return variability.

PLC wasn’t triggered for the 2022 crop year, and commodities triggering a PLC payment rate were limited in 2020 and 2021 due to high commodity prices. ARC payments depended on county-level yields, reflecting weather-related damages to crops. As a result, many farmers have widely chosen ARC County (ARC-CO) coverage for 2023. Combining ARC-CO election with crop insurance has proven to yield higher net returns than relying solely on crop insurance, although payment limits can result in lower payments than PLC when the price program triggers.

With deadlines for 2023 disaster programs approaching in January, followed by ARC/PLC election and crop insurance deadlines later in the spring, the importance of whole-farm risk management is clear. Navigating these challenges requires farmers to carefully combine available tools, adapt to evolving climate projections, and strengthen their operations against future uncertainties.

Days with Excess Precipitation (Greater than 3 inches) in the Southeast over time. (Figure 19.3 from the IPCC 2018) 

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^[1] Intergovernmental Panel on Climate Change (IPCC), 5^th Assessment. https://www.ipcc.ch/report/ar5/wg2/north-america/

^[2] Unpublished study by Hagerman, A.D., L.H. Lambert, and M. Fan “Recency effects of drought and government disaster payments on crop insurance decisions in the Southern Great Plains.” Presented at the Agricultural and Applied Economics Association Annual Meeting, Austin, TX: August, 2021.

^[3] Westbrook, L., D.M. Lambert, A.D. Hagerman, L.H. Lambert, E.A. DeVuyst, and C.A. Maples. 2023. “Should Producers of Rainfed Wheat Enroll in Agricultural Risk Coverage or Price Loss Coverage?” Choices Magazine. Vol 38(Q4). Available online at: https://www.choicesmagazine.org/choices-magazine/submitted-articles/should-producers-of-rainfed-wheat-enroll-in-agricultural-risk-coverage-or-price-loss-coverage

If you were following farm bill developments over the past year, chances are you’ve heard a lot of chatter about the Inflation Reduction Act (IRA).  The IRA—signed into law in August 2022—provided approximately $18 billion in new, additional funding for climate-smart agriculture delivered via the existing conservation programs authorized in Title 2 of the farm bill. But, what does that have to do with the farm bill reauthorization?  As it turns out, quite a lot.

While the IRA infused $18 billion into the conservation programs, it was one-time funding. The IRA passed through Congress under a budget process known as reconciliation. While that process lowers the vote threshold in the Senate—allowing bills that might not otherwise pass to find their way through the process, typically in partisan fashion—it also requires that no spending extend beyond the 10-year budget window in the reconciliation agreement. For the IRA, that window closes in 2031. Contrast that with the farm bill, where the budget for conservation programs is assumed to continue in perpetuity.  

While the debate over the IRA has largely involved (1) quibbling over CBO’s projections of IRA spending and (2) speculating if USDA will be able to obligate the entire $18 billion by 2031, both of these arguments miss the bigger point. Absent creative thinking, the IRA funding will be a one-time flash in the pan—gone by 2031—as noted in Figure 1.  

Figure 1. Historic Conservation Spending with Estimated Spending under Current Law

Sadly, like most debates in Washington, D.C., creativity often takes a backseat. The same is true of this debate.  Much of the conversation has focused on the fringe options: (1) doing absolutely nothing, despite the caution above and (2) clawing back all of the IRA funding and using it to fund deficit reduction. We don’t see either of these as viable—or likely—options. In the remainder of this article, we explore the middle ground: options that deviate from the status quo but that could result in permanent increases to conservation funding.

As noted above, the farm bill differs from the IRA in that the budget for conservation programs in Title II of the farm bill is assumed to continue in perpetuity. The options that follow all involve reallocating the IRA funding within the context of the farm bill. It is complicated to be sure—and would require navigating arcane budget rules—but it is possible and would ensure that elevated funding levels for conservation extend beyond the life of the IRA. To illustrate the point, the gray area from Figure 1 is simply reallocated (in a nearly linear fashion) in Figure 2. A few key observations from this hypothetical reallocation: 

• This option results in additional conservation funding beyond 2031, which is not an option under status quo;

• By CBO’s estimates, the IRA will result in Title II outlays reaching a maximum of $9 billion in FY2027 (Figure 1), while the hypothetical reallocation option presented in Figure 2 would reach $9 billion by 2033; and

• Perhaps most importantly when compared to status quo, this option would result in these elevated levels in perpetuity.  In other words, rather than reaching $9 billion for a single year, it’s possible to build a Title II baseline at $9 billion per year in perpetuity.

Importantly, this example is hypothetical.  The faster USDA obligates the IRA funding, the less there is available to build long-term baseline in a farm bill. In other words, the longer this drags on, the less opportunity there is to have a long-term impact.  Regardless, while this option would trim IRA spending in the near term, it would result in permanent additional baseline to Title II of the farm bill going forward.

Figure 2. Historical Conservation Spending and Hypothetical Reallocation of IRA Dollars

Of course, Congress is under no obligation to follow the hypothetical allocation presented in Figure 2. The IRA was a one-time agreement strictly limited to $18 billion.  If policymakers agree to a solution that allows for a permanent increase in Title II spending—particularly those who were opposed to the IRA in the first place—then it stands to reason that compromise may be required.  For example, some of the gray area in Figure 2 could be allocated to fund other priorities in the farm bill.  While some may be naturally opposed to this option, it could still result in long-term investments to Title II that dwarf the IRA funding. 

Where does that leave us? Supporters of status quo (i.e., those demanding that the IRA not be brought into farm bill discussions) are guaranteeing that no more than $18 billion will be added to Title II programs for carrying out climate-smart agriculture (at least not in the near term, given the political environment that appears against more spending).  While it would require some very difficult conversations about priorities and funding levels, to us this seems to present a win-win opportunity…but only if cooler heads can prevail.

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Bart L. Fischer, and Joe Outlaw. “What’s all the Fuss about the Inflation Reduction Act?” Southern Ag Today 3(50.4). December 14, 2023. Permalink