The importance of strengthening the commodity provisions in the next farm bill has been discussed on multiple Thursdays in Southern Ag Today. The steady decline in the U.S. share of exports of major commodities (Figure 1) along with projected prices and the realities of high input costs are expected to exacerbate the current cost-price squeeze producers are enduring. In addition to meaningful enhancements in commodity programs, many stakeholders are calling for increased funding for trade promotion programs that stimulate the demand for and reduce barriers to imports of U.S. products, specifically, the Foreign Market Development Program (FMD) and the Market Access Program (MAP).
Both programs help to develop foreign markets for agricultural commodities. MAP offers cost-sharing for a variety of consumer-oriented activities designed to increase demand for U.S. agricultural commodities. The FMD program partners with organizations that represent the broader agricultural industry with projects that aim to reduce trade barriers and expand export opportunities by identifying new markets or uses for a commodity or improving processing capabilities.
The last increase in FMD and MAP trade promotion programs was included in the 2002 Farm Bill with MAP at $200 million and FMD at $34.5 million. Thus far in this farm bill process, the bill passed by the House Agriculture Committee on May 24th (the Farm, Food, and National Security Act of 2024) as well as the Senate Republican-drafted farm bill framework, would double MAP and FMD funding. While farm bills tend to focus on commodity programs, market development activities are also important because they can stimulate demand for U.S. agricultural products, helping all of U.S. agriculture in the process.
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
On May 30, 2024, we compared the farm safety net features of the House Ag Committee-passed version of the 2024 Farm Bill (Farm, Food, and National Security Act of 2024) with the Senate majority proposal (Rural Prosperity and Food Security Act of 2024). In today’s article, we focus on one of those provisions: the addition of base acres. While the Senate majority proposal would provide a “limited opportunity” to update base for “underserved producers”– and it remains to be seen exactly what that would entail – the House Ag Committee-passed bill would add up to an additional 30 million acres of base for farms where planted acres exceed base acres on the farm. While base is a wonky, often overlooked provision, is has the potential to be one of the more consequential in the farm bill, particularly as proposed by the House.
Previous Southern Ag Today articles (for example, see here) have explored the issue of base. While a seemingly straightforward issue, it’s actually quite complicated. First, base acres were established decades ago and there have been very few opportunities to update/add base. Second, because base acres are decoupled from planting history, what a producer was planting in the mid-1980s when base was established is not necessarily reflective of what is being planted on the farm today. Third, while the 2014 Farm Bill allowed for a “reallocation” of base acres – which did provide an opportunity for the base acres to be more aligned with what was planted on the farm, on average, from 2009-2013 – that “reallocation” did not allow new base acres to be added to the farm. In fact, the last real opportunity to add base acres occurred in the 2002 Farm Bill as soybeans were being added as a covered commodity. Consequently, land with no base (or with plantings that exceed base) have had virtually no opportunity to add base in the last several decades. Fourth, there are severe data limitations preventing thorough analysis, which means it’s difficult for policymakers to know the scope of the problem. Fifth, because of those data limitations, it’s difficult to advise policymakers on the implications of various proposals to change base acres. For example, one popular option adopted by the National Corn Growers Association would be for Congress to simply mandate a base acre update to recent plantings, but ascertaining who would add/lose base is almost impossible to determine, which puts Congress in a precarious position. Despite all of these challenges, based on our collective decades of experience in working on farm policy, just about every farmer we know has land without base (or that is “under-based”) and would be very interested in being able to add new base acres.
It is this last point that makes the House Ag Committee proposal particularly intriguing. It is entirely optional and, apart from the 2002 Farm Bill making soybeans a covered commodity, it would represent the single largest opportunity to add base acres since their initial creation in the mid-1980s. Under the House Ag Committee proposal, a farm would be eligible for additional base acres equal to the amount by which (1) the average number of acres from 2019 through 2023 that were planted or prevented from being planted to covered commodities (including “eligible non-covered commodities”) exceeds (2) the existing base acres on the farm. In other words, if you have a farm with plantings that exceed base (including farms where you have no base at all), you can add the missing base. There are a few key limitations/provisions of which to be mindful:
To avoid penalizing producers who may be in a crop rotation that contains certain non-covered commodities, the number of eligible acres may include the number of acres planted or prevented from being planted to non-covered commodities (i.e., the “eligible non-covered commodities” referenced above) other than trees, bushes, vines, and pasture. The acres of non-covered commodities that can count toward the eligible acres on the farm would be limited and may not exceed 15% of the total acres on the farm.
New base acres added under this provision would be assigned to covered commodities using a formula like that utilized for the base reallocation opportunity in the 2014 Farm Bill. The assignment would reflect the ratio of covered commodities planted on the farm from 2019 through 2023.
Following sign-up, if the total number of eligible acres across the country exceeds 30 million acres, the Secretary would be required to apply a pro-rata reduction to all farms to reduce the number of eligible acres to equal 30 million. For example, if USDA receives applications to add 60 million acres of base, everyone will see a 50% factor applied to their application (i.e., 30 million divided by 60 million). Regardless, assuming there are sufficient applications, this would result in a minimum of 30 million new base acres being added to the program.
Bottom line: this is a significant change from previous law that we expect to be extraordinarily popular among agricultural producers.
On May 1, 2024, Rep. G.T. Thompson, Chairman of the House Committee on Agriculture, and Sen. Debbie Stabenow (D-MI), Chairwoman of the Senate Committee on Agriculture, Nutrition, and Forestry, released summaries of their respective farm bill proposals (see here and here).
On May 17, 2024, Chairman Thompson released text of his bill. Very early this morning, the House Committee on Agriculture finished marking up its version of the 2024 Farm Bill – the Farm, Food, and National Security Act of 2024 – and passed it out of Committee on a bipartisan vote of 33 to 21.
While there will be a lot of chatter about the path forward in the full House, attention is now turning to the Senate. To help set the stage, we have compiled a side-by-side comparison of the major farm safety net features of the House Ag Committee-passed bill and the Senate majority proposal – the Rural Prosperity and Food Security Act of 2024. Importantly, no bill text has been released for the Senate proposal, so the comparison is compiled from the summary materials linked above. Further, while Table 1 compares the proposals currently on the table, we leave it to the reader to draw their own conclusions about which approach they prefer. It is also important to note that Sen. John Boozman (R-AR), Ranking Member of the Senate Committee on Agriculture, Nutrition, and Forestry, announced earlier this morning that he will weigh in with his own framework “in the coming weeks” but highlighted that the House Ag Committee-passed bill “mirrors much of what Senate Republicans are seeking to accomplish with our framework.”
Key Features
House Ag Committee-Passed Bill
Senate Majority Proposal
Title 1 Provisions
Statutory Reference Prices (SRPs)
Increases ranging from 10-20%…
Corn: $3.70/bu to $4.10/bu Sorghum: $3.95/bu to $4.40/bu Barley: $4.95/bu to $5.45/bu Oats: $2.40/bu to $2.65/bu Soybeans: $8.40/bu to $10.00/bu Wheat: $5.50/bu to $6.35/bu Seed Cotton: $0.367/lb to $0.42/lb Rice: $14.00/cwt to $16.90/cwt Peanuts: $535/ton to $630/ton Other Oilseeds: $20.15/cwt to $23.75/cwt Dry Peas: $11.00/cwt to $13.10/cwt Lentils: $19.97/cwt to $23.75/cwt Small Chickpeas: $19.04/cwt to $22.65/cwt Large Chickpeas: $21.54/cwt to $25.65/cwt
5% increase “for commodities such as seed cotton, rice, and peanuts”… Corn: unchanged at $3.70/bu Sorghum: unchanged at $3.95/bu Barley: unchanged at $4.95/bu Oats: unchanged at $2.40/bu Soybeans: unchanged at $8.40/bu Wheat: unchanged at $5.50/bu Seed Cotton: from $0.367/lb to $0.385/lb Rice: $14.00/cwt to $14.70/cwt Peanuts: $535/ton to $562/ton Other Oilseeds: unchanged at $20.15/cwt Dry Peas: unchanged at $11.00/cwt Lentils: unchanged at $19.97/cwt Small Chickpeas: unchanged at $19.04/cwt Large Chickpeas: unchanged at $21.54/cwt
Effective Reference Prices (ERPs)
No change from current law.
“Changes the definition” of ERPs by “updating the formula…” Details TBD.
Maximum PLC Payment NOTE: these estimates illustrate the maximum possible PLC payment (assuming the ERP is at 115% of the SRP).
Except for seed cotton and corn, the maximum possible PLC payment is the difference between the Effective Reference Price and the Loan Rate: —Corn: $1.42/bu —Sorghum: $2.64/bu —Barley: $3.52/bu —Oats: $0.85/bu —Soybeans: $4.68/bu —Wheat: $3.58/bu —Seed Cotton: $0.183/lb —Rice: $11.74/cwt —Peanuts: $335/ton —Other Oilseeds: $16.21/cwt —Dry Peas: $8.20/cwt —Lentils: $13.01/cwt —Small Chickpeas: $15.05/cwt —Large Chickpeas: $14.10/cwt
The maximum possible PLC payment is equal to 20% of the Effective Reference Price. —Corn: $0.85/bu —Sorghum: $0.91/bu —Barley: $1.14/bu —Oats: $0.55/bu —Soybeans: $1.93/bu —Wheat: $1.27/bu —Seed Cotton: $0.089/lb —Rice: $3.38/cwt —Peanuts: $129/ton —Other Oilseeds: $4.63/cwt —Dry Peas: $2.53/cwt —Lentils: $4.59/cwt —Small Chickpeas: $4.38/cwt —Large Chickpeas: $4.95/cwt
Loan Rates
Cotton: 0.45-$0.52/lb to $0.55/lb Dry Peas: $6.15/cwt to $6.87/cwt ELS Cotton: $0.95/lb to $1.00/lb Graded Wool: $1.15/lb to $1.60/lb Non-Graded Wool: $0.40/lb to $0.55/lb Mohair: $4.20/lb to $5.00/lb Honey: $0.69/lb to $1.50/lb Corn: $2.20/bu to $2.42/bu Sorghum: $2.20/bu to $2.42/bu Barley: $2.50/bu to $2.75/bu Oats: $2.00/bu to $2.20/bu Soybeans: $6.20/bu to $6.82/bu Wheat: $3.38/bu to $3.72/bu Rice: $7.00/cwt to $7.70/cwt Peanuts: $355/ton to $390/ton Other Oilseeds: $10.09/cwt to $11.10/cwt Lentils: $13.00/cwt to $14.30/cwt Small Chickpeas: $10/cwt to $11/cwt Large Chickpeas: $14/cwt to $15.40/cwt Sugar (Raw): $0.1975/lb to $0.24/lb
No change to statutory Loan Rates from current law but potential to increase (up to 10%) if estimated cost of production in a given year (from 2025 to 2029) is higher than the 5-year average cost of production from USDA’s Economic Research Service. For sugar producers, “increases sugar loan rates and adjusts the relationship between raw sugar and refined sugar to reflect more recent production and transportation costs.”
ARC Guarantee
Increase from 86% to 90%.
Increase from 86% to 88%.
Maximum ARC Payment
Increase from 10% to 12.5%, raising the maximum possible payment by 25%.
No change from current law of 10%.
Base Acres
Adds up to an additional 30 million acres for farms where planted acres exceed base acres on the farm.
“Limited opportunity” to update base for “underserved producers” only.
Payment Limit Amounts
Increase from $125,000 to $155,000 for producers with >75% of income from farming/ranching/silviculture.
No change from current law.
Payment Limit Indexing
For producers with >75% of income from farming/ranching/silviculture, payment limits indexed for inflation (CPI-U) going forward.
No comparable provision.
Legal Entities
Eliminates the LLC penalty. Pass-thru LLCs would join General Partnerships and Joint Ventures in having the number of payment limits parallel the number of stakeholders in the entity.
No comparable provision.
Means Testing
No change from current law of $900,000, except that means testing would not apply to disaster programs in Title 1 and the Noninsured Crop Disaster Assistance Program (NAP) for producers with >75% of income from farming/ranching/silviculture. NOTE: this is consistent with the original means testing requirements from the 2002 Farm Bill.
Reduces AGI threshold from $900,000 to $700,000 for row-crop producers and makes tenants ineligible if landowners do not meet AGI threshold. Increases allowable AGI from $900,000 to $1,500,000 for specialty crop and “high-value” crop producers.
There was a time when agricultural economists who focus on farm policy didn’t take a position on a farm bill proposal. At least the authors of this article were taught by our mentors…just describe what’s in a policy proposal and don’t take a position…that’s not your job. Good and bad was for others to decide…primarily elected officials since it is, in fact, their job. Those days are over. In the last two weeks since the House Agriculture Committee majority released details of their bill, there has been a steady stream of articles talking about the proposal’s reference price increases as being tilted to the South and Southern crops.
We thought we would instead try to provide facts and information that you can use to help decide whether any proposed bill—House or Senate—is providing a safety net for all U.S. farmers.
Fact #1
During the development of every farm bill, there are people who say unequivocally that one or more commodities are advantaged relative to others. In the current environment – with ARC and PLC as the Title I safety net programs – since they are both countercyclical, producing a map that shows payments are higher in one area really means very little. It very likely means that prices for those crops are lower and triggering payments, not that the farm bill was titled toward producers of those crops.
Fact #2
While farm bills encompass a broad range of topics, producers rely on the programs in Title I and Title XI to provide a minimal safety net so they can endure economic downturns like we are currently in. Without meaningfully bolstering the safety net provided in Title I and Title XI, the producers we encounter all over the country see little benefit in passing a new farm bill.
Fact #3
Statutory reference prices were established in the 2014 Farm Bill and have not kept up with increases in the cost of production. Using USDA cost of production data, the average increase in costs from 2014 to 2023 (the most current) for corn, cotton, grain sorghum, peanuts, rice, soybeans, and wheat was 31 percent.
Fact #4
The effective reference price (ERP) provisions included in the 2018 Farm Bill allow individual crop reference prices to increase based on the 5-year Olympic average of market prices (lagged one year) multiplied by 85%. ERPs are capped at 115% of statutory reference prices. Of the 23 covered commodities with reference prices, only 10 (corn, oats, soybeans, grain sorghum, large chickpeas, small chickpeas, mustard seed, crambe, sesame seed and temperate japonica rice) had market prices increase enough to result in a 2024 ERP greater than the statutory reference prices in the 2018 Farm Bill. Of these 10, only corn, soybeans and grain sorghum represent significant base acreages. Based on realized market prices and CBO projections, corn and soybean ERPs are expected to increase each year and hit the 115% cap in each year through 2027. Based on hearing testimony in both the House and Senate, commodities not in that position were seeking reference price increases in the next farm bill.
Fact #5
Statutory reference prices are set by Congress. In past farm bills, at least since the 1970s, reference prices and their predecessor (i.e., target prices) have been established with the commodity’s cost of production in mind. Looking at major crop cost of production for 2023 indicates that current reference prices are not covering much of major commodity costs (Table 1). This happens for two reasons: (1) costs are higher than reference prices and (2) the payment calculations use an 85% payment factor to reduce payments. Based on USDA data, wheat and grain sorghum appear to have the strongest case for significant reference price increases, but USDA data is just one resource the Committees use in establishing support levels.
Table 1. Major Crop Cost of Production, Effective Reference Prices and Percent of Costs Covered by the Effective Reference Price.
1The 85% payment factor is included in this calculation. 2The majority of rice acres are planted to medium or long grain. The reference price for these rice types was included in the table.
