New Farm Bill Stalled – For Now

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In mid-November it appeared that we may be heading for a quick resolution toward adopting a new farm bill. U.S. Senate Ag Committee Chair, Sen. Debbie Stabenow (D-MI), and U.S. House Ag Committee Chair, Representative Frank Lucas (R-OK), drafted potential new farm bill language to be included in a proposed Congressional Super Committee agreement to reduce the Federal Budget deficit by $1.2 trillion. The Super Committee did not reach agreement, so there was never an opportunity to have the new Farm Bill proposal included in any final agreement.

So, the question now is what will happen to the potential new farm bill agreement that was reached in November? Will this proposal become a starting point for final development of a new farm bill or will other proposals be brought forward? Another key question is whether or not serious discussions on a new farm bill will continue after Congress goes back in session in 2012, or will farm bill discussions be delayed until later in the year, or possibly until 2013, after the 2012 election? The current farm bill, the Food, Conservation, and Energy Act of 2008,will govern farm commodity, conservation, food and nutrition and other USDA administered programs through Sept. 30, 2012, which will be the final crop year under the current farm bill.

Full details of the new farm bill proposal that was agreed upon by Sen. Stabenow and Rep. Lucas are still somewhat limited; however, there were some specifics released regarding the Commodity Title of the potential new farm bill. The Commodity Title determines the payment level, calculations, and other specifics relative to farm program payments. Under the proposal, direct payments, the ACRE program, and the SURE program would be eliminated. These payments and programs would be replaced by higher target prices and crop loan rates, and a new farm safety net program called the Ag Risk Coverage (ARC) program. There would also be a special program for cotton producers called STAX, with enhanced crop insurance coverage for cotton only.

Most commonly mentioned proposals for a new farm bill would either eliminate or significantly cut direct payments to farm operators. Direct payments – which became part of government farm programs with the so-called Freedom-to-Farm farm bill in 1996 – have been portrayed quite negatively by public interest groups, the media and some farm groups. The direct payments were implemented to replace the more “open-ended” farm program payments, which existed prior to the 1996 legislation. Direct payments are fixed payments per crop base acre, and are paid to eligible farm operators each year, regardless of the actual crop yields, crop prices, or farm income. The direct payment levels and formulas have been modified slightly by the 2002 and 2008 Farm Bills. Estimated current annual Federal spending on direct payments is approximately $4.9 billion/year.

The decision to eliminate direct payments is not likely to occur without a battle, as there is a big difference in the amount of direct payments that producers currently receive for various farm crops. Southern rice producers receive an average of $96/crop base acre and cotton growers receive approximately $34/base acre in direct payments annually, compared to an average of about $24/acre for Midwest corn producers. Farm operators in the South received an average 30-40% of their net income in 2010 from government farm program payments, while Midwest farmers averaged less than 20% of net income from those payments. The direct payments are calculated on the historical crop base acres rather than actual planted acres. This accounts for some of the regional differences regarding proposals for the continuation or elimination of direct payments.

The Ag Risk Coverage (ARC) program proposal that was forwarded for the new farm bill attempts to address some of the issues and shortcomings with the ACRE and SURE programs. The ARC program is intended to cover the so-called shallow losses from 75-90% of the guaranteed revenue for a given crop. These are crop losses below expected crop revenues (average yield x expected price), but above the crop insurance revenue protection. Farm operators can purchase revenue protection (RP) crop insurance policies from 60-85% coverage levels; however, there are no options to protect losses above those levels. The proposed ARC program actually functions somewhat similarly to the SURE program, with a more simplified calculation procedure, and a much faster timetable for potential payments.

The ARC program would be a crop specific (ex.: corn, soybean, wheat) RP program that is based on farm-level losses and payments. The current SURE requirement for a disaster declaration, or a 50% on-farm revenue loss for a given year, would be eliminated. The ARC program would be based on planted acres for each crop, rather than historically established crop base acres. A base revenue level for each crop would be determined, using an olympic average farm yield times a two-year national average price (somewhat similar to the ACRE program). The actual crop revenue in a given year would be the actual farm yield times the national average price, which would be based on the average price during the first four months of the crop marketing year (September, October, November and December for corn and soybeans), rather than the 12-month marketing year. ARC payments would occur within six months from the start of the marketing year, rather than the current 12-15 months after the start on the crop marketing year for ACRE and SURE.

The maximum total ARC payment for all crops would be $100,000/eligible individual, which will depend on any possible changes in payment eligibility in a new farm bill. Sign-up for ARC program and other farm program alternatives would be by farm operator, with no signatures or approval needed from landlords or owners on cash rented farmland. Landowners would still need to enroll on farms under share-rental agreements. Since ARC program enrollment is based on planted acres, rather than crop base acres, it will be much easier to adjust farm program acres from year-to-year, as crop acreage changes.

There were about a dozen different proposals for a new farm bill offered this fall by farm organizations, commodity groups and other organizations, with a variety of methods to provide a safety net for farm operators. Many, but not all, of those proposals included some type of shallow loss crop revenue protection at a farm, county, crop reporting district, state or national basis, based on losses below a certain level from an established base revenue. There will likely be many meetings and hearings on the coming months regarding a potential new farm bill. It is a good time for farm operators to take part in farm organization and commodity group meetings to find out more about various farm bill proposals, and to have input into the process.

 

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.

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