Category: Policy

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

Yesterday, the Congressional Budget Office (CBO) released its February 2023 budget projections for a number of Federal programs, including farm-related programs and the Supplemental Nutrition Assistance Program (SNAP).  All eyes are on the farm bill, which expires on September 30, 2023, and this latest update gives us an initial glimpse of the budget baseline that will be available to the farm bill authors this year.  

CBO typically updates their budget projections early in the year, and yesterday’s release follows that pattern.  Following the release of the President’s budget in February, CBO will often release a revised outlook in March.  If the President’s budget is delayed, the updated outlook from CBO can stretch into late Spring or early summer – for example, in 2021, the update was released in July.  Why does this matter?  It is generally the update following the release of the President’s budget that is the baseline against which the cost of legislative proposals is “scored” throughout the year.  In other words, while the current release will get a lot of attention, CBO may choose to update their projections again this spring; if they do, that baseline likely will be used for writing the farm bill.  CBO will also typically release – at least to policymakers – their baseline projections by farm bill title.

In the meantime, there is much to glean from the information made publicly available in yesterday’s release.  As we noted in a Southern Ag Today article last summer, 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 CBO’s most recent February 2023 baseline update, those four categories are projected to spend approximately $1.45 trillion over the next 10 years (Table 1).  The significant increase is due to an 81.6% increase in projected spending on SNAP, with SNAP now projected to account for $1.2 trillion, or 83.3% 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 $48.6 billion over the next 10 years, or just 3.4% of the total farm bill baseline. Following are a few initial observations from Table 1:

• While some may look to the $71.8 billion in CCC Price Support & Related Activities (a $7.5 billion increase) as additional resources with which to write the farm bill, it’s not that simple.  In January 2020, CBO began including $100 million per year in the baseline as an estimate of the amount they project the Secretary of Agriculture to spend using discretionary authority available under the CCC.  In May 2022, CBO increased that amount to $1 billion per year (or $10 billion over 10 years).  In other words, absent the amount that CBO includes in the baseline as a guess of what they expect the Secretary to spend using discretionary CCC authority, the baseline for CCC Price Support & Related Activities would be going down.  

• These estimates would also likely be considerably lower if one were using USDA’s latest market projections which were also released yesterday.  For example, USDA projects cotton prices in the long run that are 16% higher than CBO.  If USDA’s projections were to materialize, ARC and PLC spending would be considerably less and the safety net would still be doing nothing to address the high cost of inputs.

• The increase in conservation spending is almost entirely due to the infusion provided in the Inflation Reduction Act (IRA) of 2022, although CBO has revised downward the amount they expect USDA to spend on these efforts (by roughly $1.5 billion).

• On crop insurance, the increase in projected spending is generally attributable to expanded product availability over the last 5 years along with projected increases in liability coverage due to higher market prices.

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

	April 2018	February 2023	Change ($)	Change (%)
CCC Price Support & Related Activities 1/	64,305	71,806	+7,501	+11.7%
Conservation 2/	59,689	72,610	+12,921	+21.6%
SNAP 3/	663,828	1,205,440	+541,612	+81.6%
Crop Insurance	78,037	96,974	+18,937	+24.3%
Total	865,859	1,446,830	+580,971	+67.1%

Bottom line: the already relatively small 10-year baseline for writing Title 1 may ultimately be an overestimate, especially when comparing with USDA’s economic outlook.  Even now, it pales in comparison to the almost $88 billion in unbudgeted ad hoc assistance that was provided to agricultural producers over the past 5 years alone.  If Congress plans to move away from ad hoc assistance to a more sustainable risk management framework for producers, additional resources will be needed for the farm safety net.

Author: Bart L. Fischer

Research Assistant Professor and Co-Director Agricultural & Food Policy Center at Texas A&M University

Author: Joe Outlaw

Professor and Extension Economist

Co-Director Agricultural & Food Policy Center at Texas A&M University

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Fischer, Bart, and Joe Outlaw. “CBO’s February 2023 Baseline Update.” Southern Ag Today 3(7.4). February 16, 2023. Permalink

Photo by Karolina Grabowska: https://www.pexels.com/photo/image-of-old-building-on-american-banknote-4386157/

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.

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

The Consolidated Appropriations Act, 2023 (P.L. 117-328) was signed into law by President Biden on December 29, 2022.  Among other things, the $1.7 trillion bill funds the federal government for fiscal year 2023.  The package also included $250 million in support for rice producers, a key priority of Senator John Boozman (R-AR), Ranking Member of the Senate Committee on Agriculture, Nutrition, and Forestry.

The Agricultural & Food Policy Center at Texas A&M University maintains almost 100 representative farms across 30 different states which serve as a basis on which to conduct policy analysis at the request of Congress.  In a May 2022 report requested by Sen. Boozman, we highlighted that the 15 representative rice farms maintained by AFPC faced the largest drop in net cash farm income in 2022 of all 64 representative crop farms maintained by AFPC – a reduction of $880,000 per farm or $442 per acre.

In the case of rice, AFPC has consistently reported that rice growers have faced the harshest financial outlook over the last several years.  Rice producers, in particular, received very little support from ad hoc aid packages like the Market Facilitation Program (MFP) and the Coronavirus Food Assistance Program (CFAP).  These problems are compounded by trading partners like India whose minimum support prices and input subsidies cause significant harm to U.S. rice producers, contributing to a nearly 40-year low in U.S. rice exports this year.  Relatively flat prices and high input costs further exacerbated an already tenuous situation for U.S. rice producers in 2022.

The $250 million – all of which USDA is required to spend – is for one-time payments for U.S. rice producers for the 2022 crop.  The payment is based on (1) a rate of not less than 2 cents per pound multiplied by (2) the producer’s actual production history (i.e., crop insurance APH) multiplied by (3) all of the producer’s planted (or prevented planted) rice acres in 2022.  A separate payment limit applies, consistent with the limit imposed for WHIP+ (i.e., $250,000 if 75 percent or more of the average adjusted gross income of the person or legal entity is average adjusted gross farm income).

Importantly, nothing is final until USDA announces the official details of the program.  In the meantime, our colleagues at the University of Arkansas have put together a helpful FAQ document that answers several key questions. 

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Fischer, Bart, and Joe Outlaw. “Support for Rice Producers in the Fiscal Year 2023 Omnibus.” Southern Ag Today 3(3.4). January 19, 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.

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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