Category: Policy

The Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs are vital components of the farm safety net for many producers, helping them manage the considerable risks they face. Eligible commodities for these programs include wheat, corn, sorghum, barley, oats, seed cotton, long- and medium-grain rice, certain pulses, soybeans/other oilseeds, and peanuts. Given the importance of these programs, we are often asked why the payments are made so late, generally well over a year after harvest. This article illustrates the timeline for the ARC and PLC programs, explains the reasons behind the one-year delay in payments, and examines the impact on current farm bill discussions.

Typically, prior to planting a crop, producers must make a decision (i.e., an election) between ARC and PLC on a crop-by-crop and farm-by-farm basis. They generally have until March 15 to notify USDA’s Farm Service Agency (FSA) of their election decision and to enroll in an annual ARC/PLC contract for the covered commodities for which they have base acres. Because ARC and PLC are decoupled from production, a producer’s individual production, harvesting, and marketing decisions have no bearing on ARC and PLC payments. In fact, the marketing year is standardized and does not depend on when a farmer harvests their crops on individual farms. Instead, it is based on a fixed start date specific to each commodity, which generally aligns with the typical harvest period for that crop and lasts for 12 months from this standardized start date. For example, the marketing year for cotton and peanuts starts on August 1^st and lasts until the following July 31^st. The national average price over this “marketing year” is then used to calculate any required ARC or PLC payments. Farmers can then expect the processing of ARC and PLC payments to occur after October 1 following the end of the marketing year, in accordance with the farm bill. 

Figure 1 illustrates the timeline of the ARC and PLC programs using cotton and peanuts as examples. For the 2024 crop year, producers signed up for ARC/PLC and planted the crop this past spring. The marketing year started on August 1, 2024. Some producers (e.g., South Texas) have already harvested, and the remainder will be harvested this fall. The marketing year will continue into next year, concluding on July 31, 2025. USDA will then calculate marketing year average prices and county yields, and they will make any ARC/PLC payments after October 1, 2025. In other words, more than 18 months will have transpired between the time a producer enrolled in ARC/PLC and the time when assistance was eventually paid.

Interestingly, it hasn’t always been this way. Using the Counter-Cyclical Payments (CCP) program – the predecessor to PLC – from the 2002 Farm Bill as an illustration: the 2002 Farm Bill required USDA to make payments “as soon as practicable after the end of the 12-month marketing year for the covered commodity.” To help lessen the impact of the lagged payment timing, if the Secretary estimated that a CCP payment would be required, the 2002 Farm Bill required the Secretary to “give producers on a farm the option to receive partial payments of the [CCP] projected to be made for that crop of the covered commodity.” This all changed in the 2008 Farm Bill. The 2008 Farm Bill required any CCP payments to be made “beginning October 1, or as soon as practicable thereafter, after the end of the marketing year for the covered commodity.” In other words, payments were further delayed – until after October 1 following the end of the marketing year – and no partial/advance payments were allowed. The payment timing introduced in the 2008 Farm Bill was maintained with the creation of ARC and PLC in the 2014 Farm Bill, and it is still in place today. This all naturally leads to the question: why? 

First, both ARC and PLC use the marketing year average price to determine if assistance is warranted. That necessarily means waiting until the end of the marketing year before final ARC and PLC payments can be made. While some attempts have been made to reduce the wait time – such as utilizing prices based on the first few months of the marketing year – those haven’t taken hold. Regardless, that doesn’t explain the further delay introduced in 2008. When the drafters of the 2008 Farm Bill delayed payments until after October 1, they effectively pushed payments into a subsequent fiscal year, as the federal fiscal year starts on October 1 each year. In so doing, this “timing shift” resulted in one less year of assistance that had to be funded by the 2008 Farm Bill, freeing up those resources to be used on other priorities. The problem: reversing this would result in another fiscal year of ARC/PLC assistance having to be provided by the existing farm bill budget. While complicated, it is simply a matter of policymakers deciding if it is better to use scarce resources to (1) accelerate the timing of payments or (2) make programmatic improvements like increasing reference prices. Over the last two farm bill cycles, policymakers have opted for leaving the timing alone and making programmatic improvements instead.

The more acute concern is this: even if Congress passes a new farm bill this fall (in time for the 2025 crop year), under current ARC and PLC payment timelines, producers will not see any assistance until after October 1, 2026 (the first month of fiscal year 2027). Given growing concerns about the state of the farm economy, even with a new farm bill in place, there undoubtedly will be tremendous pressure on Congress to provide ad hoc assistance for the 2024 crop year this fall, as was highlighted in a recent Southern Ag Today article, to help fill in the gap.

Figure 1. Two-Year Timeline for Key Dates of ARC and PLC Payments Using Cotton and Peanuts as an Example

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Li, Yangxuan, Bart L. Fischer, and John Lai. “Timeline of the ARC and PLC Programs: Why Are Payments Received a Year Later?” Southern Ag Today 4(35.4). August 29, 2024. Permalink

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Over the past three years, we have written a lot of articles for Southern Ag Today about the need for a new farm bill that increases the support provided by the farm safety net.  While it was important three years ago, it is much more important now.  The steady decline in market prices has continued, with current price projections from USDA below the average cost of production for some crops (Table 1).  Why?  While costs for some inputs have decreased from their 2022 highs… commodity prices have fallen more.  While Marketing Year Average (MYA) prices in Table 1 don’t look very good, current futures prices at harvest look even worse.

Some producers still have their 2023 crop in storage, holding on and not wanting to sell below their cost of production.  The 2024 harvest is not far away.  Using corn as an example, the USDA projected marketing year average price is $4.40/bu for the 2024/25 marketing year which is right around the U.S. average cost of production.  That would mean producers still holding their 2023 crop would be looking at two crops in a row not making any money.  Reports from Federal Reserve banks around farm country indicate loan delinquencies are on the rise.  What does all this mean?

Either we see a farm bill this year or there will be loud calls for financial assistance for farmers.  Recall, in the last presidential election year (2020), record amounts of assistance were provided to agricultural producers due to short-term price declines when the pandemic almost broke the supply chain.  A strong farm bill would be much better than ad hoc assistance, but if Congress can’t come to an agreement… there will be pressure to help producers endure the current financial downturn. And, even if a new farm bill is put in place this Fall, the fact that it is not slated to kick in until the 2025 crop year – with support not arriving until Fall 2026 – will undoubtedly put tremendous pressure on Congress to help bridge the gap. 

Table 1. Historical and Projected Marketing Year Average Prices for Major Commodities.

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Outlaw, Joe, Bart L. Fischer, and Natalie Graff. “If It’s Not Time to Hit the Panic Button… We Are Getting Close.” Southern Ag Today 4(33.4). August 15, 2024. Permalink

The U.S. House of Representatives departed Washington, DC, for the August recess last week, and the Senate is currently wrapping up its business. When Congress returns in September, most of the legislative agenda prior to the Presidential election will be focused on funding the government past September 30, 2024. This naturally raises the question: will we see a new farm bill this year?

We can look to the past 10 farm bills (over the course of the last 50 years) for guidance. As noted in Table 1, only 2 of the last 10 farm bills were enacted during presidential election years (1996 and 2008 Farm Bills), and both of those were signed into law before Congress left town for the August recess. The remaining 8 farm bills were enacted in the Congress following the Presidential election, with 2 of those (1990 and 2018 Farm Bills) coming in the lame duck session following the midterm elections.

Table 1. Enactment of the Past 10 Farm Bills

Enacted during a…	Farm Bill (Month Enacted)
Year Following Presidential Election:	1996 Farm Bill (April) 2008 Farm Bill (June)
Year Following Presidential Election:	1973 Farm Bill (August) 1977 Farm Bill (September) 1981 Farm Bill (December) 1985 Farm Bill (December)
Midterm Election Year:	1990 Farm Bill (November*) 2002 Farm Bill (May) 2014 Farm Bill (February) 2018 Farm Bill (December*)
Year Following Midterm Election:	None

While history does not bode well for wrapping up a farm bill this year (i.e., none of the last 10 farm bills were completed immediately prior to or following a presidential election), it’s not out of the realm of possibility. So, what would it take to get it wrapped up? Following are the key issues holding up completion: 

• Improving the farm safety net. As we’ve said for the last two years – and there seems to be growing agreement on this point – there is no point in doing a farm bill absent improvements to the farm safety net, namely improving the Reference Prices in the Price Loss Coverage (PLC) program and the loss thresholds in the Agriculture Risk Coverage (ARC) program. With that said, there is still disagreement on the extent of the improvements and how to pay for them.

• Commodity Credit Corporation (CCC). Discretionary use of the CCC has long been a sticking point for lawmakers, but that concern has grown dramatically over the course of the last two Administrations, where the CCC has been used to deliver tens of billions in aid to agricultural producers and, more recently, climate-smart programming. Many in Congress would like to restrict the Secretary’s use of the CCC, returning decisions about funding to Congress. Doing so would save money that could be used to offset improvements to the farm safety net. While we discussed CCC funding in detail last Fall, the Congressional Budget Office (CBO) will officially weigh in on this topic tomorrow when they release the cost estimate for the House Agriculture Committee-passed farm bill. 

• Inflation Reduction Act (IRA). While there seems to be growing consensus over bringing the IRA conservation funding inside of the farm bill, there are ongoing disagreements about whether that funding should continue to be restricted to climate-smart practices. Some lawmakers would like to put those decisions – like most other conservation decisions – in the hands of local decisionmakers.

• Thrifty Food Plan (TFP). There is still considerable frustration among most Republican lawmakers over the Biden Administration’s roughly $250 billion unilateral increase to the Supplemental Nutrition Assistance Program (SNAP) via adjustments to the TFP in 2021. Similar to the discussion on the CCC, many lawmakers would like to return decisions about future increases in SNAP spending to Congress.

While there are certainly disagreements, in our view, the list above is by no means insurmountable. While there is very little legislative runway prior to the election, we do think it’s possible to wrap up the farm bill during the lame duck session, perhaps as part of a supplemental. Why?

A recent hearing before the House Agriculture Committee highlighted the mounting concerns about financial conditions in the countryside. With sustained high input costs and prices that continue to collapse, growers are facing a precarious situation as they plan for the 2025 crop year. That dynamic – coupled with natural disasters like the wildfires in the Texas panhandle – are triggering alarm bells and resulting in calls for additional disaster assistance.

Congress has a lot on its plate going into a new Congress. For example, the debt limit – which dominated much of the conversation in the first half of the current Congress – is currently suspended through January 1, 2025. In addition, several major provisions from the Tax Cuts and Jobs Act of 2017 – including several that are important to the agricultural community – are set to expire at the end of next year. Rather than punting the farm bill into the new Congress and relying on another year of disaster assistance, Congress could choose to reauthorize the farm bill in the lame duck session – improving the farm safety net and side-stepping the need for disaster assistance – all the while keeping the farm bill out of what will already be a very crowded legislative calendar in 2025.

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Fischer, Bart L., and Joe Outlaw. “Will We See a New Farm Bill This Year?” Southern Ag Today 4(31.4). August 1, 2024. Permalink

A transition plan outlines the process of transferring an agricultural operation from one generation to the next and includes details regarding transfer of both management (succession plan) and assets (estate plan).  Surveys and anecdotal evidence report low success rates for farm transitions and argue inadequate transfer plans or lack of a transfer plan explain the low success rates of agricultural operation survival, despite most producers’ desire to keep their farm or ranch in one piece and in the family.  Transition planning is difficult for many reasons, both logistical (requires time and resources such as accounting and/or legal help) and psychological (brings up thoughts of mortality and often involves tough decisions and conversations); therefore, producers tend to delay planning altogether.  

We surveyed U.S. ranchers regarding plans to transition their ranch to the next generation and received a total of 148 responses, mostly from Texas (66.9%) producers.  Survey participants shared information about their operational structure, family dynamics, and details of their ranch transition plans or roadblocks preventing them from developing a plan.  Less than 40% of survey participants have a transition plan in place.  

Chi-square tests for independence revealed relationships between some characteristics and the presence of a transition plan.  Results indicate a positive relationship between operational structure and succession planning, i.e., producers who have put in time and effort to organize their operation beyond a sole proprietorship are more likely to have a succession plan.  Results also indicate age and net worth each have a positive relationship with succession planning – we observed an increasing percent of respondents with a succession plan as net worth increased, until net worth reached $15,000,000.  

Survey participants answered open-ended questions regarding their transition plans and roadblocks to planning – responses are summarized in Table 1.  Operational longevity in agriculture depends on the ability of farms and ranches to survive from one generation to the next.  Since evidence shows this process has proven difficult for producers, is there a role for the government to play in incentivizing the generational transfer of agricultural operations? 

Table 1. Survey Results – Transition Planning Themes and Roadblocks

Transition Planning Themes	Roadblocks to Transition Planning
Utilizing a trust to protect and transfer control of assets	Resistance from senior generation
Plans to transfer ranch assets and management to on-farm heirs and personal assets of off-farm heirs	Lack of time or making time to plan
Utilizing an LLC, corporation, or partnership to facilitate lifetime transfer of operation	Lack of knowledge/education in transition planning
Utilizing an LLC, corporation, or partnership to create membership agreements and set restrictions	Finding professional legal/accounting help
Lifetime, or inter vivos, transfer of shares (or interest) in the operation to heirs, whether purchased or gifted to the upcoming generation	Legal fees
	Equitably dividing assets between on-farm and off-farm heirs
	Lack of a successor
	Difficulty managing lots of owners
	Difficult family dynamics/communication
	Difficult land or asset structure
	Estate tax considerations

Graff, Natalie. “Is there a role for the government in incentivizing the generational transfer of agricultural operations?” Southern Ag Today 4(25.4). June 20, 2024. Permalink