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Farm bill ‘savings’ may not materialize

Farm bill ‘savings’ may not materialize
First ARC and PLC payments show this farm bill has its price tag.

The first round of farm safety net payments totaling nearly $4 billion were sent out at the end of October from the U.S. Department of Agriculture. However, high hopes of legislators that this farm bill would “save” money may not end up being the case. On the flip side, for producers, the hope is that is does provide some needed help during the current market downturn.

Nearly half of the 1.7 million farms that signed up for either the Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) programs will receive safety-net payments for the 2014 crop year.

Sources: USDA-reported historical outlays for Direct and Countercyclical Payments (DCP) and the Average Crop Revenue Election (ACRE) program. FAPRI estimated ARC and PLC expenditures based on averages of 500 stochastic outcomes utilizing actual election information and the market conditions underlying the FAPRI-MU March 2015 baseline.

Nationwide, 96% of soybean farms, 91% of corn farms, and 66% of wheat farms elected the ARC-County coverage option. Ninety-nine percent of long grain rice and peanut farms, and 94% of medium grain rice farms elected the PLC option. Overall, 76% of participating farm acres are protected by ARC-County, 23% by PLC, and 1% by ARC-Individual.

The days of direct payments are gone, but the new safety net does protect producers when market forces or adverse weather cause unexpected drops in crop prices or revenues. However, the price tag is more than estimated when the farm bill was finished in 2014.

In August of 2014, the U.S. Department of Agriculture forecast subsidies for the 2014 crop under the farm bill's ARC and PLC programs would be $762 million, using $4.20 per bushel for corn as an average market price for 2014. It put average annual payments over the lifetime of the bill at $5.7 billion.

The Congressional Budget Office, forecasting in January before the farm bill became law, put the 2014 payment for both ARC and PLC at $3.8 billion and the average annual figure at about $2.3 billion.

Over the six-year life of the 2008 farm bill, actual direct countercyclical payments and Average Crop Revenue Election (ACRE) payments averaged a little over $5 billion per year. The University of Missouri’s Food and Agricultural Policy Research Institute projected ARC and PLC payments will also average slightly over $5 billion per year for the 2014-2018 period.

FAPRI ran simulations and in 10% of their 500 outcomes, payments in 2015 could actually exceed $8.5 billion and in 10% they are less than $1.7 billion. By 2018, the average level of projected ARC payments is expected to decline to $1.7 billion, with 10% exceeding $4.6 billion, and 10% less than $132 million.

For the 2015 crop year, projected average PLC payments are $1.6 billion, with 10% of outcomes exceeding $3.2 billion and 10% with PLC payments of less than $392 million. Because the reference prices for PLC are fixed across time, PLC payments do not show the same sharply declining trend as did ARC payments.

“The path of projected payments shows an increase for the 2015 crop year, but then a sharp decline in subsequent years. This can be explained in part by a slight increase in projected average prices for several commodities after 2015, but primarily it is because of an important feature of the ARC program,” explained the FAPRI article.

“The revenue benchmark that triggers ARC payments depends on a moving average of past prices and yields. For most grains and oilseeds, prices currently are far below the levels of 2010 to 2012. That makes ARC payments for corn and some other crops especially likely in 2014 and 2015. By 2017, the moving averages no longer incorporate the high-price years earlier in this decade, so projected revenue benchmarks and payments also decline,” FAPRI added.

This week’s attempt to slash crop insurance funds to pay down the national debt should again show that agriculture continues to be seen as an area that can offer more savings. The attempts were thwarted but again reveals the bulls-eye on agriculture’s back.

Legislators aren’t looking to change the farm bill in the mid-term and leaders made that clear during the week, but we have seen that the promise of cheaper farm programs was not a reality just one year into the new programs and could make it more difficult in the future to get increased support.

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