Every July at the Southern Extension Committee Meetings, Southern Ag Today likes to take the opportunity to recognize our authors for all their hard work. We look at all the articles written over the past year May 2022 – April 2023 and decide which were read, viewed, and shared the most using our analytics. We are pleased to announce our 2022-2023 winners.
A recent Agri-Pulse article explored “raising reference prices based on a commodity’s relative input costs” suggesting that the approach “could benefit some southern crops over commodities such as soybeans and corn.” In the article, I was quoted as saying that an “across-the-board increase in PLC reference prices could penalize farmers who don’t grow corn, soybeans and wheat, which together account for 85% of the acreage eligible for the program.”
While the article has generated a significant amount of interest (judging by the call and email volume over the past week), I do think additional context is important. My purpose in making the statement was this:
Corn, soybeans, and wheat account for 85% of the base acres nationwide. As a result, decisions made for those three crops will necessarily drive the vast majority of the spending in Title 1 of the farm bill.
Because each crop is different – with different risk profiles and with producers who have varying views on the various components of the farm safety net – policymakers are in no way constrained to simply making across-the-board adjustments to the farm safety net.
I also argued – and continue to do so – that cost of production is an appropriate metric for making decisions about Reference Prices. The entire point of the traditional farm safety in Title 1 is for it to be reflective of the cost of producing a crop. I suspect that most producers reading this would agree with that point. After all, the primary complaint we’ve heard from the hundreds of producers we work with around the country over the past several years is that the Title 1 safety net has not kept up with the cost of doing business.
The article culminated with a comparison of corn and rice that has led some to ask if I’m suggesting that corn producers (and soybean and wheat producers for that matter) are not in need of a Reference Price increase. To clear up any confusion, in the space that remains, I will quickly address this point for corn, soybeans, and wheat.
Using publicly available data from USDA’s Economic Research Service (USDA-ERS), I compared the total cost of production from 2012-2014 (the 3-year period during which the current Reference Prices were initially established) to the most recent 3-year period for which data is available (2020-2022). As noted in Figure 1, the average cost of production across the United States for corn, soybeans, and wheat increased by 15%, 21%, and 19% respectively over that timeframe. It is also important to note that the impact was not uniform across the nation. For example, while the increase in the national average cost of producing corn may have been 15%, costs in the Northern Crescent (including Michigan, Wisconsin, and parts of Minnesota), the Prairie Gateway, and the Southern Seaboard were all in excess of 20%. A similar dynamic exists for soybeans and wheat. For example, the national average increase for wheat is 19%, but the cost of production for growers in the Northern Great Plains increased more than 25%.
Bottom line: corn, soybean, and wheat producers are absolutely justified in requesting Reference Price increases. Depending on the region in which you produce, the sense of urgency may be even greater.
Figure 1. Percent Change in Cost of Production by Region, 2020-2022 versus 2012-2014.
Source: author calculations of USDA-ERS Commodity Costs and Returns data. NOTE: for assistance in deciphering the regions, see this map.
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.
Two of the primary risks faced by any producer at any point in time are production and price risk. In agricultural crop production, farmers must deal with the risk of crop yield losses due to several causes of loss such as excess rainfall, drought, and pest pressure via parasitic insects or weed populations. While all crops grown in the U.S. are exposed to these risks, the effect that these risks have on crop yield is not the same for all crops. Understanding the differences in the production of each crop and the risks faced by each crop is important for risk management as this information informs which tools a producer will need to select to minimize losses and stabilize their farm income year-to-year. In this article, we evaluate the relative riskiness of rice to other principal crops grown in the midsouth region to better inform a producer’s risk management strategy and provide implications for policymakers evaluating risk protection programs in the upcoming farm bill.
We compare the relative yield risk of rice production to corn, soybean, and cotton production by considering the state-specific coefficient of variation (CV) for the yield of each crop as a measure of relative yield risk. Put simply, the CV is a measure of how much yield across a given state varies relative to the average yield of that state. The CV allows us to make comparisons between different crops and counties to assess if one crop is more or less risky to grow than another crop in a specific state. We used state-level data[1] from 2007-2022 (USDA-NASS, 2023) and removed a linear time trend from each crop yield in each state to account for changes in technology and production practices in each state over time.
Figure 1 gives the state-specific ratio of the CV for corn relative to the CV for rice. This ratio of two CVs tells us how much more, or less, risky corn yield is relative to rice yield. For example, in Arkansas the ratio of 1.62 implies that it is about twice as risky to grow corn relative to rice in that state. Figure 2 gives the state-specific ratio of the CV for soybeans relative to the CV for rice. Using Mississippi as an example, the ratio of 4.92 implies it is nearly 5 times riskier to grow soybeans than rice in that state. Finally, Figure 3 gives the ratio comparing CVs for upland cotton to CVs for rice with ratios ranging from nearly 2 to a little over 5 indicating it is nearly 2-5 times more risky to grow cotton than it is rice in the states considered.
There are several other levels of relative riskiness across rice-producing counties in the midsouth, but the same message generally holds: rice yield risk is relatively lower than the yield risk of its competing crops in the midsouth. This becomes important when deciding between risk management strategies that focus on production risk or price risk. Due to the lower rice yield risk, programs such as the Price Loss Coverage (PLC) may be more advantageous to rice producers than programs like the Agriculture Risk Coverage (ARC) program, which also helps explain why rice producers have overwhelmingly favored PLC.
Figure 1. Ratio[1] of the CV for Corn Yield to the CV for Rice Yield (2007-2022)
[1] The Coefficient of Variation (CV) is the ratio of the Standard Deviation to the Mean of each state and crop yield distribution. The plots in Figures 1-3 gives the ratio of two CVs. The state-specific values plotted are not CVs.
Figure 2. Ratio of the CV for Soybean Yield to the CV for Rice Yield (2007-2022)
Figure 3. Ratio of the CV for Upland Cotton Yield to the CV for Rice Yield (2007-2022)
[1] We note that while we are unable to distinguish between irrigated and nonirrigated yields across time, USDA-NASS provides a breakdown of the shares of irrigated and nonirrgated acres in Table 34 of the 2017 Agricultural Census. The portions of acres irrigated in Arkansas for corn, soybeans, and cotton is 93%, 85%, and 93%, respectively. The same irrigated portions in Mississippi are 81%, 74%, 74%. The irrigated portions for Louisiana are 78%, 68%, 60%. The irrigated portions for Texas are 84%, 83%, and 52%.
References
USDA-NASS. (2023, May 10). USDA-NASS 2017 Agricultural Census. Retrieved from https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_State_Level/
USDA-NASS. (2023, April 20). USDA-NASS QuickStats. Retrieved from https://quickstats.nass.usda.gov/
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.
Source: USDA, https://www.fsa.usda.gov/programs-and-services/arcplc_program/arcplc-program-data/index and https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index
