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  • CBO’s February 2023 Baseline Update

    CBO’s February 2023 Baseline Update

    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 2018February 2023Change ($)Change (%)
    CCC Price Support & Related Activities 1/64,30571,806+7,501+11.7%
    Conservation 2/59,68972,610+12,921+21.6%
    SNAP 3/663,8281,205,440+541,612+81.6%
    Crop Insurance78,03796,974+18,937+24.3%
    Total865,8591,446,830+580,971+67.1%
    1/ This includes an estimated $10 billion in “Other Administrative CCC Spending” which accounts for CBO’s estimate of the amount that the Secretary may spend from the CCC using his/her discretionary authority. 2/ The total for the February 2023 update includes $15.1 billion in estimated outlays for conservation spending authorized in the Inflation Reduction Act (IRA) of 2022.  3/ 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).

    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

    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/

  • Financial State of Chapter 12 Bankruptcy Filings

    Financial State of Chapter 12 Bankruptcy Filings

    At the start of the Chapter 12 bankruptcy filing process, a filer (the individual or business entity unable to pay back their debts) submits several pieces of information to officially file for bankruptcy. Included in this information is data on their assets and liabilities. The Federal Judicial Center collects and compiles selected data into a database for each case as of September 30th of each year. Figure 1 below uses data from October 1st, 2012 to September 30th, 2022.

    When analyzing these data, there are two important things to keep in mind. First, a filer is not always the whole farm. A farm may have multiple partners, and several legal entities (e.g., a sole proprietor and an LLC) involved. Therefore, the statistics presented here are strictly per filing, not per farm. Second, the data are compiled at the time of the filing with updates if the initial data has been appended. Throughout the bankruptcy process, new assets may be obtained, or new liabilities may be taken on. These data may not fully incorporate these changes.

    Assets and liabilities listed on the debtor’s filing are placed into categories. Assets may be real property or personal property. Real property includes land, buildings, homes, and other such property. Personal property includes assets such as cash, vehicles, equipment, and tools.  Farm related inventory such as crops, animals, chemicals, feed, and machinery are included in personal property.

    Liabilities or debt are categorized as secured, priority unsecured, and nonpriority unsecured. Secured liabilities are those debts with an asset used as collateral, such as a loan with farmland as the collateral. Priority unsecured debt is debt that has no collateral but has special treatment and may not simply be discharged like other unsecured debt. This type of debt includes any legal judgments or unpaid taxes. Lastly, nonpriority unsecured debt is debt that has no collateral securing it and requires no special treatment. This type of debt includes credit card and medical debt that may be eligible for discharge during bankruptcy proceedings.

    Figure 1 shows the trend in average debtor assets and liabilities disclosed at filing over the last ten years. Following broader trends across the agricultural sector, assets and liabilities have increased, especially since 2016. Assets have had a smooth upward trend, likely following higher farmland and equipment values. Note that in all years, average liabilities exceed average assets. This is expected because debtors filing for bankruptcy are often insolvent.

    On average, real property accounted for approximately 60 percent of a debtor’s total asset value. This suggests that land is an important asset that may be shielded during the bankruptcy process. On the liabilities side, secured liabilities, on average, accounted for over 75 percent of a debtor’s total liabilities. Additionally, nonpriority unsecured debt made up about 20 percent of this total, on average. This suggests that the Chapter 12 bankruptcy process is beneficial in two ways. First, secured debt may be restructured (e.g., lower interest rates or longer payment terms) or crammed down (e.g., reduction in total liability to current market value), making the debt more workable for the debtor while the debtor is able to retain ownership of the collateral (e.g., land). Second, a significant portion of total debt in the form of nonpriority unsecured liabilities may be discharged at the successful completion of the bankruptcy process.

    This work is supported by the Agriculture and Food Research Initiative (AFRI) program, grant no. 2022-67023-36112/project accession no. 1028056, from the U.S. Department of Agriculture, National Institute of Food and Agriculture.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy.

    Secor, William, Adam Rabinowitz, and Paul Goeringer. “Financial State of Chapter 12 Bankruptcy Filings.” Southern Ag Today 3(7.3). February 15, 2023. Permalink

  • Calf Prices Jump

    Calf Prices Jump

    Calf prices bounced around in the first month of the year, but they rebounded significantly higher in the last couple of weeks.  Higher fed cattle prices, hitting $160 per cwt last week, and tighter supplies of calves and feeders are fueling this price run.  

    In the Southern Plains, 5-600 pound steers have increased from $203 per cwt to $214 in the last two weeks.  During the same period, the same weight calves in Georgia bounced from $181 to $188 per cwt.  Heavier feeders, (7-800 pounds) saw more modest gains in the Southern Plains, up about $4 per cwt to $182.  In Georgia, those heavier calves actually dropped about $2 per cwt to $163.  Calf prices tend to be lower the further South and East from feedlots in the Plains and Corn Belt.  Prices in both the Plains and Georgia were about $26 per cwt higher than last year.

    Fed cattle prices hit $160 in several markets last week.  Higher prices for fed cattle certainly boosted calf prices.  Fewer available feeder cattle are also working to boost prices.  Calculating feeder cattle supplies from information in USDA’s cattle inventory report indicated that 25.3 million head were outside of feedlots, about 270,000 head fewer than the prior year.  That is the fewest since the 24.6 million available in 2015.  

    Tight supplies of calves will keep prices higher than a year ago.  But, there is likely to be some volatility as feed prices and demand for cattle move throughout the year.  Prices for lighter weight calves and feeders tend to increase seasonally into March and April.  Heavier feeders are often pressured by winter pasture cattle coming to market in the Spring.

    Author: David Anderson

    Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy

    Anderson, David. “Calf Prices Jump.” Southern Ag Today 3(7.2). February 14, 2023. Permalink

  • Possible Extreme Outcomes for 2023 Cotton

    Possible Extreme Outcomes for 2023 Cotton

    U.S. cotton production is typically uncertain in any given year, in part because roughly half the acreage is in Texas.  Still, the 2023 season is starting off with a more than usual degree of uncertainty.

    First, the early season forecasts of U.S. cotton plantings vary by as much as two million acres, i.e., from 9.5 to 11.5 million acres.  Such a discrepancy puts a premium on the milestone planting intentions reports from the National Cotton Council (released February 12) and USDA (March 31 Prospective Plantings report and June 30 Acreage report).

    The weather is a second major source of variability.  The National Oceanic and Atmospheric Administration’s Climate Prediction Center (CPC) is forecasting a transition from the hotter/drier La Niña condition to a neutral influence by late Spring.  CPC further predicts the onset of the cooler/wetter El Niño condition by early Fall.  That’s all well and good, but there is uncertainty around all weather forecasts.  Will the beginning dryness lead to above average early season abandonment?  Or will neutral El Niño-Southern Oscillation (ENSO) conditions by planting time surprise us with timely planting rains and good growing conditions?

    The third consideration is whether the recent signs of improving cotton demand will continue.  There is plenty of uncertainty about whether the broader economy is recovering or entering a double dip recession.  

    These three variable situations outline some possible extremes.  If, for example, U.S. cotton growers plant a low level of acreage, and it continues dry, and abandonment is above average, and demand continues to recover, the result could be ending stocks below 3 million bales.  Historically, it suggests that Dec’23 futures might follow the seasonal path of the green line in Figure 1, strengthening as the growing season goes on.  In the context of this year’s price levels, it suggests a march back up through the 90s towards a dollar.

    On the other hand, what if 11+ million acres are planted and receive timely rains?  That could lead to three million more bales of production than the first scenario.  If demand doesn’t recover enough to absorb these bales, the carryover outcome could be five or six million bales.  In years of building excess stocks, the historical seasonal average of December ICE futures reflects weakening prices.  The pattern of the blue line in Figure 1 could push prices under 80 cents.

    Figure 1’s red line reflecting “Stable Carryover” years is simply the in between scenario, with middling implications for ending stocks and prices. The level of these seasonal averages isn’t as important as the pattern itself.  Time will tell how all these variables play out.  

    Figure 1. December Futures Seasonal Average Price in Stable, Larger and Smaller Carryover Years

    Author: John Robinson

    Professor and Extension Economist

    Cotton Photo by Mark Stebnicki: https://www.pexels.com/photo/plantation-of-cotton-in-a-cropland-10287687/

    Robinson, John. “Possible Extreme Outcomes for 2023 Cotton.” Southern Ag Today 3(7.1). February 13, 2023. Permalink

  • The Need for Equity Preparing for the 2023 Farm Bill

    The Need for Equity Preparing for the 2023 Farm Bill

    A central focus throughout the Biden-Harris Administration has been addressing the issue of racial equity. In January of 2021, the administration issued an executive order on advancing racial equity and support for underserved communities through the federal government citing disparities in laws, public policies, public, and private institutions. In response to the Racial Equity Executive Order, The United States Department of Agriculture has admitted that its programs have a flawed design, and because of that and the discriminatory behaviors of individuals over many decades, it recognizes that there are existing barriers for underserved producers. As organizations begin to navigate the 2023 Farm Bill, research has shown there is a need for equity to continue making changes for Socially Disadvantaged Farmers and Ranchers. 

    The Socially Disadvantaged Farmers and Ranchers Policy Research Center at Alcorn State University (The Policy Center) has developed several policy recommendations for the 2023 Farm Bill that aim to address the many years of systemic and historic discrimination. These recommendations range from the need to eliminate the use of the term “historically underserved producer” to the elimination of the FSA State and County Committee System, all supported by external research conducted on behalf of the policy center and listening sessions with the farmers and ranchers seeking equitable experiences in agriculture. 

    Also, at the center of Farm Bill discussions are the 1890 land-grant institutions (the 1890s), historically black universities established under the Second Morrill Act of 1890, that have been historically underfunded. The 1890s were not provided with research and extension funds until 1977, with inequities continuing between 1862 land-grant institutions (1862s) and 1890s since then. In “The Equity in Agricultural Production and Governance” drafted by The Farm Bill Enterprise, it states that NIFA’s 2016 Annual Review Report displayed a stark disparity of AFRI funding, with the 1862s receiving over 82% of the funding, and the 1890s receiving 1.2%. They further discuss that while all states provide 1862s with adequate funds 1890 Institutions, in 10 of the 18 states where they are present, have been continuously underfunded or receive no funding. While the direction of the 2023 Farm Bill is uncertain, there is still hope for equitable spaces to be carved out in agriculture. 

    Author: April Love

    Policy Analyst and Attorney

    Alcorn State University