In May 2022, the Congressional Budget Office (CBO) released its latest 10-year budget projections for a number of Federal programs, including farm-related programs and the Supplemental Nutrition Assistance Program (SNAP). While CBO typically updates its budget projections up to three times per year, the spring update following the release of the President’s budget is most closely watched as it typically is the baseline against which the cost of legislative proposals is “scored” throughout the year.
During farm bill reauthorization years, CBO typically also releases their baseline projections by farm bill title. That summary gives policymakers a clear picture of the budget for mandatory spending they have to work with in each title of the farm bill. That estimate also gives a clear picture of what CBO expects the entire farm bill to spend if existing policies were simply maintained going forward.
While we are still a year out from CBO releasing baseline projections by title, there is still plenty to be gleaned from the May 2022 baseline update. For example, 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 the most recent May 2022 baseline update, those four categories are projected to spend approximately $1.3 trillion over the next 10 years (Table 1). The significant increase is due to a 66.4% increase in projected spending on SNAP, with SNAP now projected to account for $1.1 trillion, or 84% 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 $43.3 billion over the next 10 years, or just 3.3% of the total farm bill baseline.
Table 1. Congressional Budget Office (CBO) 10-Year Outlays in Million$
April 2018
May 2022
Change($)
Change (%)
CCC Price Support & Related 1/
64,305
71,092
+6,787
+10.6%
Conservation
59,689
59,216
-473
-0.8%
SNAP 2/
663,828
1,104,384
+440,556
+66.4%
Crop Insurance
78,037
79,761
+1,724
+2.2%
Total
865,859
1,314,453
+448,594
+51.8%
1/ CBO included $10 billion in “Other Administrative CCC Spending” in the May 2022 baseline update. 2/ Revised economic assumptions and administrative changes to the Thrifty Food Plan (TFP) resulted in the Office of Management and Budget (OMB) projecting an additional $254 billion in SNAP outlays from FY2022-31 (https://www.whitehouse.gov/wp-content/uploads/2021/08/msr_fy22.pdf).
Looking at unemployment rates experienced from February to December of 2020 paints a picture of the resiliency of southeastern states counties to the COVID-19 pandemic. As shutdowns took place and unemployment rates rose, telework became an important factor in recovery. Across the 1,206 counties of the 12 southeastern states, rates of telework ability – defined as the percentage of jobs that could be done remotely – ranged from 22% to 43%. As the pandemic unfolded, the resiliency of each county was determined by industry composition, unemployment rates at the beginning of the pandemic, county demographic characteristics, and – broadband adoption rates.
Household broadband subscription rates ranged from 34% to 94% across the counties in the sample, and the results demonstrate that these differences are vital. The ability to telework had no impact on unemployment rates from February to April in counties with broadband adoption rates under 50%. Although some individuals may have been employed in occupations that were telework-friendly, their home broadband situation may have prevented them from continuing work. Alternatively, telework increased resilience in counties with higher broadband adoption rates, with marginal effects of -0.21 percentage points. That is, counties with high rates of broadband adoption had more resiliency (lower increases in unemployment) during the first two months of the pandemic. During the April to December period, areas where a high percentage of workers could telework – but had low broadband adoption – saw lower rates of recovery.
During the initial months of the pandemic, a high ability to telework and a high broadband adoption rate helped dampen increases in unemployment rates. However, the longer-term effects of broadband on unemployment recovery were diminished. Counties with a high ability to telework but low broadband adoption rates were held back in recovering from April to December. This is a striking finding that local broadband adoption rates are crucial for the potential impact of telework. In particular, federal programs put in place to subsidize household broadband access (the Emergency Broadband Benefit and Affordable Connectivity Programs) likely came too late to influence resiliency during the initial phase of the pandemic.
To read more about these findings and other correlations corresponding to counties resiliency, check out the full journal article: Carvalho, Mckenzie, Amy D. Hagerman, and Brian Whitacre. 2022. “Telework and COVID-19 Resiliency in the Southeastern United States.” Journal of Regional Analysis & Policy, https://jrap.scholasticahq.com/article/36123-telework-and-covid-19-resiliency-in-the-southeastern-united-states
This morning I testified before the U.S. House Agriculture Committee Subcommittee on General Farm Commodities and Risk Management at a hearing titled “A 2022 Review of the Farm Bill: Economic Perspectives in Title I Commodities and Title XI Crop Insurance”.
At the Agricultural and Food Policy Center (AFPC) at Texas A&M University, our work with 675 commercial producers located across the United States has provided our group with a unique perspective on agricultural policy. Currently, we maintain the information to describe and simulate 94 representative crop and livestock operations in 30 states.
In order to provide perspective on Titles I and XI, I wanted to briefly summarize a recent AFPC report that looks at farm profitability in 2022 relative to 2021 for our 64 representative crop farms in the face of higher input and output prices[1]. For this report, we asked our panel members to provide their costs per acre for 2022 versus 2021 for the major input categories. The average for each category across all respondents is presented in Table 1. Updated commodity prices for the 2021/22 and 2022/23 marketing years and policy variables were obtained from the FAPRI-MU Bulletin #01-22 entitled U.S. Agricultural Market Snapshot, April 2022 (Table 2). While some producers were able to benefit by locking in input prices early in 2021 for this year’s crop, most indicated very little ability to lock in these prices even when using their normal tax management strategy of prepaying inputs. Simply, the input suppliers would not lock in a price until the producers agreed to take delivery. Almost every respondent stated they were going to do their best to reduce input usage in the face of the highest costs of production they had ever experienced.
Table 1. Average Percentage Change in Representative Farm Input Costs/Acre from 2021 to 2022.
Seed
Nitrogen Fertilizer
Phosphorus & Potassium Fertilizer
Herbicide
Insecticide
Fungicide
Fuel & Lube
Percentage Change 2021 to 2022
16.58%
133.62%
92.75%
64.23%
40.25%
36.02%
86.63%
Table 2. Projected Commodity Prices Reported in FAPRI April 2022 Update, Marketing Years 2021/22 and 2022/23.
2021/22
2022/23
Percentage Change
Corn ($/bu)
$5.78
$6.06
4.84%
Wheat ($/bu)
$7.60
$8.08
6.32%
Soybean ($/bu)
$13.27
$14.22
7.16%
Grain Sorghum ($/bu)
$5.87
$6.14
4.60%
Barley ($/bu)
$5.27
$5.60
6.26%
Oats ($/bu)
$4.30
$4.00
-6.98%
Upland Cotton ($/lb)
$0.910
$0.871
-4.29%
Seed Cotton ($/lb)
$0.464
$0.443
-4.53%
Peanuts ($/lb)
$0.238
$0.240
0.84%
Sunflower Seed ($/lb)
$0.318
$0.324
1.89%
Canola ($/lb)
$0.318
$0.295
-7.23%
All Rice ($/cwt)
$15.80
$15.84
0.25%
Long Grain Rice ($/cwt)
$13.75
$14.03
2.04%
The news is full of stories about inflation that is averaging 8.5 percent so far this year for the average American. The lowest year-over-year inflation farmers are seeing is twice that on seed with most categories many times higher. Commodity prices, while generally higher in 2022, are up less than 8 percent. If not for the incredible productivity of the U.S. farmer, there would be a major financial crisis in agriculture. Following are the key highlights of our report:
Net cash farm income in 2021 included a significant amount of ad hoc assistance. Absent another infusion of assistance in 2022, we estimate that significant increases in input prices will result in a huge decline in net cash farm income in 2022 (compared to 2021).
Despite the significant reduction from 2021, higher commodity prices for most crops will likely still result in positive net cash farm income for most of AFPC’s representative crop farms. The noticeable outlier is rice – two-thirds of the rice farms are facing losses in 2022.
The analysis hinges on producers receiving the higher commodity prices forecasted by FAPRI with average yields. With drought being experienced across a significant portion of the country and many other areas facing excess moisture, this assumption may be overly optimistic.
Having worked with farmers located across the U.S over the last 30 years, I want to make sure you understand we are talking about historic amounts of capital that farmers are putting at risk
Throughout my career, I have referred to the programs in Title I and Title XI as the three-legged stool that serves as the safety net for U.S. producers. The current programs, agriculture risk coverage (ARC) and price loss coverage (PLC) and the nonrecourse commodity loan program, serve as two of the legs while the federal crop insurance program serves as the third leg. The following are what I believe to be the most significant shortcomings of all three legs of the stool. Most of my suggestions require additional resources that may be difficult to secure but are necessary.
Price loss coverage (PLC) reference prices worked fine while inflation was fairly low; however, the reference prices set in the 2014 Farm Bill and continued in the 2018 Farm Bill are in dire need of increases to remain relevant. Producers’ costs have increased substantially, and the current reference prices are not providing a relevant amount of protection.
Agriculture risk coverage (ARC) was also established in the 2014 Farm Bill as a second attempt at providing producers a revenue-based safety net program to replace the overly complicated and not widely used average crop revenue election (ACRE) program first used in the 2008 Farm Bill. While good when coming off of relatively high prices, ARC proved worthless when prices declined and remained relatively flat, providing little protection to producers. This is why that while widely chosen over PLC early in the 2014 Farm Bill, ARC was largely abandoned as a choice of safety net program in recent years. Since ARC has the reference price embedded in the calculations, raising reference prices will make ARC more attractive as a revenue protection safety net alternative.
Assuming these two alternatives are used going forward, instead of forcing producers to pick the tool (ARC or PLC) they want, I would suggest allowing them to receive the benefits of whichever is higher in a given year. This would cost nothing more than if the producers have chosen wisely and selected the appropriate tool and would take a major decision away that only serves as a major distraction to their work in trying to grow a crop.
The nonrecourse marketing loan program works as it was designed more than four decades ago; however, despite modest increases for some commodities in the 2018 Farm Bill, the rates have largely remained unchanged over the past 30 years, losing ground to inflation. Providing producers the ability to take out a storage loan or receive a loan deficiency payment on a crop is a very useful marketing tool. The rates need to be raised to increase the amount of the crop that is being protected which will cost money but is significantly less expensive to do at current price levels.
Federal crop insurance is an enormously successful public-private partnership that today stands as the primary safety net tool for U.S. producers. This is due to the program largely using futures prices to annually adjust the amount of protection producers can select. While crop insurance is popular with producers, the little-known secret in the farming community is that bankers “encourage” producers to purchase buy-up levels of crop insurance as a means of protecting the producer and the operating loan banks make to producers. As I have said many times in front of Congress… do no harm to crop insurance and stop outside interest groups from tying provisions of their pet projects to crop insurance – for example, linking climate change practice adoption to insurance program subsidy levels. This runs the risk of creating an unlevel playing field for producers by distorting protection levels and leaving some producers with less protection due to their lack of feasible climate change mitigation alternatives.
While this morning’s hearing focused on Title 1 and crop insurance, I believe the upcoming farm bill provides a clear opportunity to help address some of the shortcomings ad hoc assistance was designed to address as well. In the case of WHIP, WHIP+, and ERP, they all essentially are designed to help cover the large deductibles producers face in their crop insurance policies. While the ad hoc assistance over the last 5 years has been vital, it comes LONG after the disaster has come and gone and has been limited to specific causes of loss. Perhaps most important, ad hoc assistance is, by definition, not guaranteed. Farmers already face enough risks and uncertainty – ideally, they wouldn’t have to guess at what the safety net might look like as they struggle to put a crop in the ground.
So far, 2022 has been a stressful weather year with large portions of the country suffering from first severe cold and then severe drought. Spring storms and tornados have destroyed farm equipment, buildings, and fence lines. Weather risk is something all producers think about and should manage in some way. This could mean diversification of crops, adoption of production practices to mitigate the impacts of extreme weather, and participation in crop insurance.
Weather risk management is more critical than ever. The number of extreme weather events has increased since the turn of the century. Between 1980 and 2019, states in the southern climate region (AR, KS, LA, MS, OK and TX) were affected by 182 weather-related disasters with multi-state impacts totaling $660B (NOAA). The average number of events per year increased to 6.6 disasters per year from 2000 to 2019 compared to 2.6 disasters per year from 1980 to 1999. These types of extreme weather events affect households and agricultural producers years into the future.
Ad hoc disaster assistance has been reported by USDA-Economic Research Service since 1998. From 2000 to 2019, ad hoc disaster programs resulted in $46B in payments to agricultural producers and averaged $2B per year. Ad hoc payments were about 15% of the total direct payments to producers on average but varied widely by year. Nationally, these programs have addressed damages due to hurricanes, drought, extreme heat and cold, flooding, blizzards, and severe weather. Programs include
Crop Insurance
Noninsured Crop Disaster Assistance Program
Tree Assistance Program
Livestock Indemnity Program
Emergency Assistance for Livestock, Honeybees and Farm-Raised Fish
Livestock Forage Program
Emergency Conservation Program
In September 2021, as part of the continuing resolution to fund the Federal government, Congress provided an additional $10 billion in disaster assistance for crop and livestock producers. In response, USDA launched a new Emergency Livestock Relief Program and Emergency Relief Program for producers affected by qualifying weather disasters in 2020 (ERP) and 2021 (ELRP and ERP). Like the recent Wildfire and Hurricane Indemnity Program-Plus (WHIP+), ERP is tied to risk management decisions. Row crop producers eligible for a Phase I ERP must have participated in crop insurance and received an indemnity in a qualifying event on their crop. Payment factors are tied to the level of coverage producers participated in, like WHIP+, as shown in the table. It is also tied to future risk management. To receive the Phase I ERP payment producers will also agree to purchase crop insurance for the next two crop years. Producers who participated in NAP will be addressed in additional phases of the ERP but no details are available at this time. As we draw closer to the 2023 Farm Bill discussions, these ad hoc disaster programs and the increased tie between risk management and program payments may be a point of further discussion.
In 2017 Extension Economists from across the South worked on a major producer education effort that resulted in a book titled Surviving the Farm Economy Downturn[1]. The 1980s is second only to the Great Depression in terms of really bad financial outcomes for agricultural producers in the United States. In the 1980s, the sustained decline in farm incomes and corresponding drop in land values triggered a large number of loan defaults leading to a significant number of farm bankruptcies. The chapter I worked on was titled “Are We Headed Toward Another Farm Financial Crisis as Severe as the 1980s?” The chapter evaluated six of the variables often cited as contributing in some way to the 1980s downturn such as high interest and exchange rates, collapsing land values, and rising debt to asset ratios. At that time the conclusion was that while the late 2016-2017 period had a few caution signs, only the strong exchange rate was similar to the 1980s and that U.S. agriculture was not going into another major downturn.
The Federal Reserve recently increased interest rates by one-half point with strong signals that more increases are on the way. This triggered my thinking about what happens when our current near record crop prices decline to their new normal along with inputs prices that are sticky on the way down. According to USDA survey data, U.S. agricultural producers, on average, have relatively low debt and many are in quite strong cash flow positions. Low debt makes farmers much less vulnerable to a collapse in land values. But, I think the biggest reason the U.S. won’t see a crisis like the 1980s again is the federal crop insurance program. Crop insurance had very low participation during the 1980s with less than 50 million acres covered generally at low levels of buy-up on yield policies (Figure 1). Over time, a lot of innovation has occurred in crop insurance policies. Now, around 225 million acres are covered generally by revenue insurance policies bought up to at least the 70 percent coverage level. With virtually all cropland covered by some type of policy, significant within year price declines will be covered by revenue insurance. Due to this, there wouldn’t be the tremendous pressure on farm incomes contributing to lower land values and increased loan defaults. What about a sustained price decline scenario? That is where crop insurance coupled with price loss coverage provides significant protection.
Figure 1. Planted Acres for Major Crops in Crop Insurance, 1981-2021.
