Ag Policy Blog

What's Lost by Extending the Farm Bill

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Policymakers are talking as though another extension of the 2018 is inevitable. Meanwhile, there is a growing risk of a steeper downturn in farm income while a lot of potential improvements to the farm-safety net would have to wait until at least 2026 to provide some relief. (DTN file image)

An analysis by Scott Irwin, an agricultural economist at the University of Illinois, got some notice on social media a couple of weeks ago when he highlighted projected income returns for "highly productive farmland" in central Illinois -- the kind of area that averages 230 bushels of corn and 75 bushels of soybeans.

Using prices that are higher than today -- $4.50 for corn instead of $4.05 and $11.30 for soybeans instead of $10.40 -- Irwin penciled out average losses of -$110 an acre for corn and -$57 an acre for soybeans. His numbers, he noted, were at a point where 85% crop insurance policies would trigger payments based on price alone.

"Regardless of the fine details of crop insurance payments and gov't payments, alarm bells should be going off about the scale of potential corn/soybean losses for the 2024 crop in the Corn Belt," @ScottIrwinUI noted on X.

The range of losses can change, and of course, prices could rebound, Irwin noted. Since that post, Irwin also pointed this week that October cash bids are significantly lower for corn and soybeans.

Analysts at DTN have pointed out the National Corn Index right now is at $3.90 a bushel. All the while, farmers are dealing with roughly 30% higher production costs than before covid. A $4 bushel of corn is roughly the same value as a $3 bushel used to be.

Chuck Abbott at the Food and Environment Reporting Network (FERN) on Thursday also highlighted some points raised by bankers in the Federal Reserve's Beige Book, which summarizes economic conditions around the country. The regional Fed banks in Chicago and Minneapolis noted outlook for farm income has weakened. The KC Fed, Abbott wrote, stated agricultural conditions "faced headwinds from weak crop prices."

USDA right now pegs Net Farm Income for 2024 at $116.1 billion, a drop of $80.3 billion from its record in 2022 of $196.4 billion. That's the largest two-year drop in the past 20 years. USDA will update its Net Farm Income data in September.

It's no fun to highlight these negative price and income forecasts. But they should force farmers to have a heart-to-heart with their congressman or senator over the upcoming August recess.

Should delaying the farm bill another year be on the table?

It seems right now almost inevitable. As DTN Political Correspondent Jerry Hagstrom reported, Sen. John Thune, R-S.D., said the Senate calendar is awfully full until the end of the year. Thune predicted an extension. Sen. John Boozman, R-Ark., said farmers would be "better off" if lawmakers passed an extension and allowed more time to improve farm programs rather than settle or compromise on program changes.

But I was talking to a Texas farmer about an extension as I asked damage from Hurricane Beryl. He noted if a farm bill doesn't get done this year, then there is no chance to have a better safety net in 2025. The earliest changes in reference prices would come in 2026. The next chance to buy up better insurance coverage would be delayed until 2026. If you were counting on some better loan terms from FSA or waiting to buy a farm until the FSA has increased loan limits, that would wait until 2026 as well.

PROSPECTS THAT COULD BE DELAYED

Under the House version of the farm bill right now changes to the commodity title begin with the 2025 crop. Pushing a new farm bill to completion potentially in 2025 effectively means changes to commodity programs would not go into effect until the 2026 crop year.

If delayed further, and the Agricultural Risk Coverage and Price Loss Coverage (ARC and PLC) program function as they do now, the first prospect of a stronger safety net paying out for farmers would not kick in until fall 2027.

The House bill would increase the statutory reference price for crops by 10% to 20%. Boosting the statutory reference price will then boost the calculation used to create the effective reference price.

Corn would go from $3.70 a bushel per acre to $4.10 bpa, nearly an 11% increase.

Soybeans would go from $8.40 bpa to $10 bpa, up 19%.

Wheat would increase from $5.50 bpa to $6.35 bpa, up 15%.

Rice reference prices would increase from $14 per cwt to $16.90 per cwt, up more than 20%.

In the Senate, Sen. Debbie Stabenow, D-Mich., also has proposed at least a 5% increase in reference prices, though her framework also suggests some crops would see 10-15% increases.

The ARC guarantee also would increase from 86% to 90% of benchmark revenue. The House bill and the Senate frameworks also increase the maximum payment rate for ARC-County and ARC-Individual to 12.5% of benchmark revenue.

The House's plan to update base acres also is "effective beginning with the 2025 crop year." That's an opportunity to add 30 million acres of safety net protection for farmers who right now cannot receive ARC and PLC. The Senate Democratic framework also points to expanding base acres.

For dairy farmers, the House bill also would increase Dairy Margin Coverage from 5 million pounds to 6 million pounds. And producers would see a 25% discount if they enroll in DMC for the life of the farm bill. The bill also restores the "higher-of" formula for Class I fluid milk until the Federal Milk Marketing Order changes are ratified.

CROP INSURANCE

Stabenow's Senate Democratic framework calls for authorizing a "permanent, emergency disaster assistance program to provide supplemental aid" to farmers. There are no details, but producers might not have to wait three years for Congress to pass a disaster package.

The Senate Republican framework proposes increasing insurance premium support to as high as 77% for 80% coverage levels and as much as 68% for 85% levels.

The House bill and Senate frameworks also expand premium subsidy support for beginning farmers and ranchers.

The House bill and Senate GOP framework increase premium support for the Supplemental Coverage Option (SCO) to 80% and the Senate GOP frame work would boost the coverage level to 90%.

The Democratic Senate framework has more improved options for specialty crops and a buy-up coverage option up to 75% in the Noninsured Crop Disaster Assistance Program. The House bill and Senate framework also highlight improvements in whole-farm insurance coverage as well.

Other insurance policy changes that would be delayed at least one more year would include the prospect of a policy for California grape growers who suffer smoke damage. The House Ag Committee also wants feasibility studies on hurricane polices, and frost or cold weather insurance as well as insuring certain double-cropped oilseed crops such as rapeseed, canola and camelina.

Then there are changes to Farm Service Agency (FSA) loan rates that also are on the table. Each proposal has plans to expand direct loans and loan guarantees and offer more loan options for beginning farmers. They expand the maximum loan levels for micro loans to farm ownership loans.

Not all of these proposed program changes would make it into a final bill. But none of these safety net improvements would be available to help farmers next year if Congress opts to just extend the old farm bill another year. What gets into the bill actually requires serious, extensive negotiations among the House, Senate and the Biden administration.

Remember, lawmakers extended the 2018 farm bill last year and insisted then that Congress could get a farm bill done in a presidential election year.

See, "Farm Bill, Extension Discussed at RNC," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on social platform X @ChrisClaytonDTN

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