The 2018 farm bill’s main commodity programs will probably provide little help to most farmers struggling this year with soaring costs for fuel, fertilizer and other inputs.
The prices that trigger payments under the Price Loss Coverage and Agriculture Risk Coverage programs are well below both the costs of production and the price levels that trigger payments to most producers.
But lawmakers included key provisions in the 2018 farm bill that could help growers significantly over the next few years, depending on what happens to commodity prices and production costs in 2023 and 2024, economists say.
For that reason, lawmakers should be able to avoid the mistake their predecessors made in the 1981 farm bill, when price-support prices were raised excessively on the mistaken assumption that crop demand and market prices would remain strong in the ensuing years, said Ohio State University economist Carl Zulauf. They didn’t. Then-President Ronald Reagan subsequently bailed out farmers in 1983 and lawmakers later fixed the support prices in 1985.
Because of the way the 2018 farm bill was written, lawmakers can now “afford to wait and see what’s happening and at least try to minimize the chance they make the same mistake,” Zulauf said.
ARC and PLC are both crafted to respond over time to changes in market prices. ARC provides payments to farmers when area crop revenue falls below a five-year Olympic average. Under an Olympic average, the highest and lowest years aren’t counted.
PLC triggers payments to growers when the average market price for a crop year falls below the commodity reference price. In the 2018 farm bill, a provision was added that would raise the commodity’s reference price as the five-year Olympic average price rises. Any increases in reference prices are capped at 15% above the statutory reference price.
That “escalator” provision means that PLC reference prices could begin rising in the coming years to reflect the recent run-up in commodity markets. For now, the increases in the escalator would be rather modest, according to an analysis by Zulauf and economists at the University of Illinois, but there could be larger increases if market prices remain elevated into 2023 and beyond.
ARC has a similar, but uncapped, escalator provision for the price used to determine area revenue.
The impact of the escalator provisions varies widely depending on the commodity, according to the analysis. As it stands now, for example, wheat growers will see little benefit, while corn and soybean growers will benefit from higher reference prices.
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Some results of the analysis:
Corn: The PLC reference price is estimated to rise to $3.99 a bushel by 2024, up from the minimum set in law of $3.70. The ARC price is expected to be $4.15 in 2024. Meanwhile, the cost of producing corn this year is $4.57 a bushel, according to the Agriculture Department.
Soybeans: The projected 2024 PLC reference price is $9.27 a bushel, which would be well above the statutory reference price of $8.40. The estimated ARC price is $9.35. The 2022 cost of production for soybeans is $11.31 a bushel.
Wheat: The 2022 cost of production far exceeds the projected PLC and ARC prices because market increases for wheat lagged well behind price rises for corn and soybeans, said Zulauf. The 2024 PLC reference is estimated to remain at $5.50, the statutory minimum, while the ARC price is estimated at $5.39 a bushel.
Sorghum: The projected 2024 PLC reference price is $4.06 a bushel, while the estimated ARC price is $4.34 for ARC. The 2022 cost of production for sorghum is $5.66 a bushel.
On the other hand, production costs for three commodities, cotton, peanuts and long grain rice, are in line with the projected PLC and ARC prices for 2024, according to the analysis.
Several farm groups already are calling on Congress to raise the statutory reference prices for PLC that are in the 2018 farm bill, and there is some support from lawmakers for doing that as well.
The National Association of Wheat Growers’ farm bill priorities recommend “increasing the statutory reference price for wheat to help cover the increased cost of production.”
At a House Agriculture Committee hearing on commodity programs in March, groups representing soybeans, sorghum and rice all said the reference prices are too low and should be increased. At a farm bill listening session the committee held in Fresno, Calif., last week, a cotton grower also said the “sharp increases” in production costs had resulted in “a significant decline in the effective safety net offered by the Price Loss Coverage reference price.”
Under congressional budget rules, lawmakers would have to find a way to pay for increasing the statutory reference prices, and it’s not clear where the money would come from to do that.
But Zulauf’s message is that Congress has time to see to wait and see how much the escalator provisions are going to raise the effective reference prices and also whether the cost of fertilizer, fuel and other inputs comes down. Based on history, farm bills are generally enacted during election years, which means the next bill likely won’t be passed until 2024.
“It’s possible (production) costs are higher next year. It's possible they're lower,” Zulauf said.
"Policymakers have the escalators in both ARC and PLC that they can afford to wait and look and see what's happening," he added.
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