Category: Policy

Those who like to sow discord during farm bill discussions will often argue that crop insurance is regionally inequitable – that one region (typically the Midwest) subsidizes crop insurance in other regions of the country.  The argument often takes this form: loss ratios – the ratio of indemnities received to premiums paid – are highest in areas like the Great Plains and the South. Regional battles in farm bill deliberations are seldom constructive.  In the case of crop insurance, those battles endanger the entire crop insurance system and threaten to reduce the risk pool which is essential in spreading risk across multiple crops and states.

For serious participants in the policy process, it’s important to make informed/balanced decisions based on the facts.  While loss ratios are certainly one metric, focusing on loss ratios alone can leave the impression that growers in certain parts of the country are not pulling their weight (i.e., not paying enough for coverage).  In this article, we delve into this topic using corn production to illustrate.  In particular, we explore average premiums paid by county for the highest coverage level (85%) for the most popular crop insurance product (Revenue Protection) in 2022 to examine regional equity throughout the country.  In carrying out the analysis, we utilize average yields in the county (specifically, the county reference yield utilized by RMA in rating crop insurance policies).  We further assume the crop is being produced for grain, and we focus exclusively on non-irrigated crop production.  Finally, we illustrate the case of enterprise units, but the relative results are largely the same for optional units as well.

As noted in Figure 1, the lowest average premiums paid for 85% coverage are in the heart of the Midwest.  For example, the lowest premium rate in the country is in Marshall Co., IA, where producers are paying just 2.13% (or 2.13 cents for every dollar of liability insured) for 85% coverage.  In contrast, corn producers in Wilbarger Co., TX, would have to pay 32.5% (or 32.5 cents for every dollar of liability insured) for the same percentage coverage level.  No producer can afford to spend that kind of money on crop insurance, so their only option is to reduce their coverage level – and increase their risk exposure – as a result.  While we illustrate the two extremes, this highlights one reason why coverage levels outside of the Midwest tend to be considerably lower than 85% – producers simply cannot afford the coverage.    

It is also important to note that rates are significantly variable within states as well.  For example, while the median county rate in Minnesota is just 3.9%, as noted in Figure 2, the average ranges from just 2.14% in Watonwan Co., MN, to 17.8% in St. Louis Co., MN.  No surprise…producers reduce their coverage as a result.  For example, in Marshall Co., MN, where the average premium for 85% coverage in 2022 was 13%, the average coverage level actually purchased by producers has averaged just 73% over the past 5 years, far below the maximum 85% coverage available.

Bottom line: outside of the Midwest, much of the country is (1) paying considerably higher rates for crop insurance which is (2) resulting in producers having to significantly reduce coverage while shouldering considerably more risk.  Any effort in the farm bill to further raise premiums on these producers would simply drive coverage levels even lower and risk exposure even higher.

Figure 1.  2022 Average Premium Rates for 85% Revenue Protection for Corn, by County

Figure 2.  Range of County Average Premium Rates for 85% Revenue Protection for Corn, by State (median county premium rate denoted by black dots).

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Fischer, Bart, Henry L. Bryant, and Joe Outlaw. “Regional Equity in Crop Insurance.” Southern Ag Today 3(15.4). April 13, 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.

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

Livestock producers tend to be an independent lot.  We can identify – we both have livestock backgrounds.  It’s not uncommon for us to hear that there’s really nothing in the farm bill – or in farm policy in general – for livestock producers.  In fact, livestock producers often wear it as a badge of honor, arguing they get nothing from the federal government and would prefer the federal government just stay out of their way in return.  The problem: that’s not really the case…at least not anymore.

While it’s true that the farm safety net historically has been focused on row crops – with dairy being a very notable exception – there has been a significant shift over the past 25 years. Below, we highlight four of the major changes.

• Environmental Quality Incentives Program (EQIP).  The 1996 Farm Bill initiated the EQIP program to provide cost share assistance to crop and livestock producers.  Fifty percent of the funding available for technical assistance, cost-share payments, incentive payments, and education under EQIP was targeted at practices relating to livestock production.

• Livestock Disaster Programs.  The 2008 Farm Bill was the first to authorize the livestock disaster programs, including the Livestock Forage Program (LFP), the Livestock Indemnity Program (LIP), and the Emergency Assistance for Livestock, Honey Bees, and Farm-raised Fish Program (ELAP).  Unfortunately, the 2008 Farm Bill authorization was short-lived, and all three programs expired in 2011.  The 2014 Farm Bill resurrected all three programs, providing permanent baseline funding going forward.  As of February 2023, the Congressional Budget Office (CBO) estimates that those 3 programs will provide $5.6 billion in assistance to livestock producers over the next 10 years.

• Disaster Preparedness.  The 2018 Farm Bill maintained the livestock disaster programs and provided $300 million over 10 years for animal disease prevention and management programs in addition to authorizing supplemental funding through the appropriations process.  The bill established a vaccine bank to respond to the accidental or intentional introduction of animal diseases like foot‐and‐mouth disease (FMD) and established the National Animal Disease Preparedness and Response Program to leverage local, state, and national resources to prevent and respond to animal disease threats.

• Federal Crop Insurance.  Historically, USDA’s Risk Management Agency (RMA) was limited to spending $20 million per fiscal year on livestock insurance policies.  The Bipartisan Budget Act of 2018 eliminated the restriction.  Since then, the liability insured by livestock policies has increased from just over $500 million in 2018 to more than $21 billion in 2022 – a 4,000% increase in just 5 years (Figure 1).  There are also new insurance policies on the horizon, including one that would provide revenue coverage for weaned calves for cow-calf producers.

Bottom line: livestock producers have a vested interest in the farm bill.  With that said, despite the rapid growth in liability insured by livestock policies, it still represents a small share of the value of livestock production in the United States and there are significant opportunities for expansion going forward.  For policymakers, it’s likely worth exploring if the current infrastructure – including things like RMA’s Livestock Price Reinsurance Agreement (LPRA) – are up to the task.

Figure 1.  Liability Insured by Livestock Policy Type and Year

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Fischer, Bart L., and Joe Outlaw. “What’s in the Farm Bill for Livestock Producers?” Southern Ag Today 3(11.4). March 16, 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

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/