The Farm Bill passed by the Senate Agriculture Committee has commodity program payments tied to risk management through such program as Agricultural Risk Coverage (ARC) and cotton STAX. This emphasis differs from the 2008 Farm Bill where most commodity title payments are direct payments. The emphasis shift from direct payments to risk management changes the mix in spending across crops. Wheat, cotton, rice and peanuts have larger proportional spending reductions than corn and soybeans. Given a risk-management focus, it will be difficult to avoid having some crops taking larger spending reductions.
2012 Per-Acre Spending
The narrowing of the per-acre payment range is more pronounced when viewed from the perspective of either gross revenue or total costs. On a percent of projected crop revenue basis, projected 2012 spending as a percent of revenue is 2.1% for corn, 2.3% for soybeans, 2.5% for wheat, 5.4% for cotton, 3.5% for rice and 3.7% for peanuts.
These projections suggest that these programs will make payments on all crops. While the source of risk may vary across crops, the relatively tight range suggests that all crops face the same magnitude of risks relative to gross revenue.
Summary and Commentary
Moving away from base acres will cause wheat, cotton, rice, and peanuts to have higher proportional losses than corn and soybeans. In some respects this should be expected. As a crop loses acres over time to other crops, one would expect its share of commodity program payments to decrease. When acres are changing, evaluating spending changes at a crop level has limitations.
It will be difficult to have a farm bill with a risk-management focus to maintain the historical proportion of payments across crops. Since wheat has a 39% decline in planted relative to base acres, cotton a 40% decline, and rice a 31% decline, these three crops would have to have much higher projected payments per acre than corn or soybeans to keep historic shares. This would likely result in wheat, cotton, and rice having more risk protection than the other crops. Having difference in risk protection could then have unintended impacts on planting decisions in the future.
Elimination of direct payments and a move to a risk management program will cause financial adjustments for producers with large per acre payments. In particular, rice producers with near $100 per acre direct payments will have adjustments. These direct payments likely have become built into farmland rents and prices. Hence, loss of these payments likely will lead to adjustments in land markets, which will not occur instantaneously, but will occur with lagged relationships over time. Dealing with this issue presents policy challenges.