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Farm bills should be designed for times of low prices

Farm bills should be designed for times of low prices
Farmers will operate under the 2008 law through 2013. DCP and ACRE remain intact, for now. More budget cuts are likely.

Among all the unanswered questions about the farm bill, one thing is certain: farmers will operate under the 2008 law through 2013. That means they get a direct payment on eligible crops.

Farmers have an opportunity to sign up for the direct and countercyclical payment (DCP) or the Average Crop Revenue Election (ACRE) program beginning Feb. 19. Signup for ACRE ends June 3, and DCP signup ends Aug. 2.

But a lot remains uncertain. For one, how much will budget cuts take from farm support programs?

Joe Outlaw, professor and Extension economist and co-director of the Texas A&M Agriculture Food and Policy Center (AFPC) at College Station, believes the direct payment level, after a round of expected March budget cuts, will be about 85 percent of what farmers get now.

He also thinks the farm bill that is currently not being discussed, but exists in both a Senate and House version, most likely will be the last of its kind. Future farm programs and the safety nets that have been part and parcel of farm law for decades will become insurance-based and the safety net will be smaller, “but manageable,” he says.

Outlaw discussed farm policy during both the grain and cotton commodity sessions of the Blackland Income Growth conference at Waco.

The farm bill extension Congress agreed on back in January, primarily to prevent milk prices from spiking, was passed “with language that did not come from the ag committees,” Outlaw says.

And many programs that were included in the 2008 bill have not been funded in the extension. They include organics, specialty crops, beginning farmer and rancher programs, Supplemental Revenue Assistance Payments (SURE), as well as funding for several bio-energy programs.

Farmers will need to take a close look at the ACRE program to see how it compares with DCP, Outlaw says. “We have a lot of questions about how it will work this time. Farmers should look at the lower level of payment with ACRE and evaluate the advantages. For cotton, with a support price of about 71 cents a pound, farmers need to consider the 20 percent loss of the direct payment with ACRE and ask if the ACRE benefits can make that up. We can help farmers determine the best option.” 

The AFPC website,, is a good starting point for assistance, but Outlaw says if farmers need further help, staff at the AFPC will walk them through the process of deciding best options for specific farms.

He has concern about across-the-board cuts in farm programs. “Policy decisions should help farmers stay in business,” he says. “There is no way to make producers better off by cutting billions of dollars out of support every year.”

Farm bills “are not developed for good times, like now when prices are good — we need to know how they will work when prices are low.”

Reference price

A reference price, a floor, in support programs is designed to keep farmers on the farm during times of low prices. Currently, the House version of the farm bill includes a reference price; the Senate version does not. Based on that and other differences, including difference in adjusted gross income limits, Outlaw says, the House version would work best for southern producers.

“The Senate version was designed mostly for Midwest farmers, who have less production risk and can afford to buy up more crop insurance coverage.”

Outlaw also commented on the Stacked Insurance Protection Plan (STAX), developed by the National Cotton Council. The program would be insurance-based and he points out that cotton, because of rulings against the industry in the Brazil Case, is giving up substantial support to bring the program into WTO compliance. STAX would be subsidized 80 percent by the program, with 20 percent paid by the grower.

A reference price included in STAX could mean as much as $27,000 to moderate-sized cotton farms (2,000 acres) during periods of low price years. Its value to larger farms would be greater.

Analysis of the STAX program shows that it will work, he says. “It’s an insurance program, so it will not pay every year.”

The reference price and the 80 percent subsidy could be in jeopardy in an expected budget-cutting frenzy, Outlaw says. “The insurance subsidy, overall, has attracted a lot of attention. And Brazil doesn’t like the reference price for cotton.”

When a farm bill is finally done, he says, the farm safety net will be “less than before and the direct payment will be gone. The direct payment was something a farmer could take to the bank — it was a banker’s best friend. Farmers could sign the direct payment over to the bank. An insurance program is different.”

But insurance programs appear to be the direction in which farm bill negations are heading, and likely will be the primary safety net for farmers in the future, he says.

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