WASHINGTON, March 9, 2015 – The new farm programs for grain and oilseed growers will pay them up to $7 billion annually over the next few years, surpassing what they would have received through the old system of direct payments, according to new forecasts released Monday.
Corn growers will receive the lion’s share of payments, especially this year, because of the sharp decline in market prices over the past two years, according to the projections.
The forecasts were prepared separately by the Congressional Budget Office and the University of Missouri’s Food and Agriculture Policy Research Institute (FAPRI), which provides analysis to the congressional agriculture committees.
Farmers were paid $4.7 billion in fixed, direct payments in fiscal 2014 under the system that Congress, through the 2014 farm bill, has now replaced with two new programs that tie subsidies to fluctuations in revenue or market prices.
The first payments under the new programs, called Agriculture Risk Coverage and Price Loss Coverage, will be paid out in fiscal 2016, which starts Oct. 1, for crops that were harvested in 2014.
Those payments are estimated at $3.9 billion under the FAPRI forecast and $4 billion under the CBO analysis.
The totals are expected to peak at $7.3 billion (CBO) or $6.5 billion (FAPRI) in fiscal 2017 and fall back to $6 billion (CBO) or $5.9 billion (FAPRI) in fiscal 2018.
The CBO estimates are higher in part because its analysts expect corn prices to be lower than the FAPRI economists do. For example, CBO expects the average price of this year’s corn crop to be $3.61 a bushel; FAPRI’s estimate is $3.89 a bushel.
Under PLC, farmers will receive payments when the average market price for a commodity falls below a level, or reference price, set by the farm bill.
Farmers who choose ARC will receive payments when their revenue for a crop falls below the previous five-year average. By pegging payments to revenue, the program takes into account fluctuations in yield as well as prices.
Sixty percent of corn growers, especially farmers in northern states such as Iowa, Wisconsin and Minnesota, are expected to select ARC because the region had relatively high yields from 2009 through 2013, leaving them with a relatively high average revenue from which the ARC payments are calculated, said FAPRI Director Patrick Westhoff.
“It’s a ton of money up front for people who choose ARC in those counties,” he said.
By contrast, the previous five years weren’t as good for farmers in Missouri, so ARC payments there are likely to be lower, and most growers will probably opt for PLC instead, he said.
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Farmers have until the end of this month to sign up for one of the programs.
Sixty percent of wheat growers nationwide also are expected to choose PLC, while most soybean growers will prefer ARC, according to FAPRI.
After 2018, ARC payments decline dramatically as the five-year moving average begins to reflect the drop in commodity prices. FAPRI economists estimate that ARC payments will drop from $3.1 billion in fiscal 2018 to $1.8 billion in 2019 and then to $1.2 billion the following year.
PLC payments, on the other hand are expected to peak at $2.8 billion in fiscal 2018 and drop to $2.4 billion the following year, according to FAPRI.
Both CBO and FAPRI estimate that the cost of the federal crop insurance program, which has been expanded with new products under the 2014 farm bill, including a new policy for cotton, will hover around $8 billion a year.
After the 2016-2017 marketing year, farmers are expected to begin receiving more from crop insurance than they get from the farm programs, according to FAPRI.
One of the big questions for farmers going forward is what will happen with the biofuel market, given the limits on how much ethanol can be sold as an additive in gasoline and uncertainty about how the EPA will implement the Renewable Fuel Standard.
The FAPRI economists think ethanol production will dip slightly in 2015 due to tighter profit margins in the industry but begin to grow modestly after that, in part because of increased exports.
Ethanol production is expected to rise from 14.2 billion gallons this year to 15.2 billion by 2020. Exports are expected to increase from 861 million gallons this year to 1.1 billion in 2020.
Biodiesel production is expected to fall from 1.6 billion gallons last year to less than 1.3 billion gallons this year, with the expiration of a $1-a-gallon federal tax credit. However, production should rise slowly to nearly 1.9 billion gallons in 2020, according to FAPRI.