Ag Policy Blog
Chris Clayton DTN Ag Policy Editor

Monday 08/11/14

2014 Corn Crop Could Gut Farm Bill Savings

The 2014 corn crop right looks to blow the projected budget savings from the Agricultural Act of 2014 out of the water.

As Marcia Taylor indicated in her article on Friday, the price collapse we're seeing in corn shouldn't panic farmers who will be buoyed somewhat by the Agricultural Risk Coverage program they will get a chance to enroll in later this year.

As Marcia's article states, "Farmers can't rule out the potential for $30- to $90-per-acre 2014 ARC corn payments in counties with average yields, said Ohio State University economist Carl Zulauf."

In providing such a revenue safety net, the authors of the Agricultural Act --- the Senate and House Agriculture Committees --- will likely see much, if not all, of their projected savings in commodity programs erode away as early as the Fiscal year 2016.

The Congressional Budget Office concluded last January that commodity programs in the new farm bill would save $14.3 billion from 2014-2023 compared to the 2008 legislation.

Commodity programs would cost little for FY 2015 because payments would actually start after Oct. 1, 2015. Thus, they would carry over to the 2016 fiscal year. CBO projected 2016 spending for farm programs at $4.8 billion.

The budget score for the farm bill projected $2.1 billion in spending for FY 2016 would be the high mark for the Agricultural Risk Coverage program. The Price Loss Coverage program would cost $1.65 billion for 2016.

But ARC will likely offer corn farmers at least a $5.30 average guarantee in the ARC calculation based on the way the five-year rolling Olympic average is structured using the national average market price.

2009-10 $3.55

2010-11 $5.18

2011-12 $6.22

2012-13 $6.89

2013-14 $4.35-$4.55 (estimate)

Marcia's article indicated commodity payments could be the highest in a decade. Looking back, commodity payments topped $21.8 billion in FY 2005 -- reflecting again low commodity prices for the 2004 marketing year. Farm-program payments fell to $17.4 billion in FY 2006 before the strong price run began. By 2007, commodity payments had fallen to $8.8 billion where they began to level off.

At no time over from 2014-2023 does the CBO score worked up in January reflect commodity spending would approach anything near the kind of government payments paid from 2004-2006. In fact, ARC and PLC combined were budgeted to cost $11.6 billion over the entire five-year length of the farm bill.

Obviously, a full marketing year has to play out before the full ramifications of farm-program costs come into focus. At the moment, analysts see far greater commodity payments than Congress imagined when lawmakers argued that the new farm bill will save billions by eliminating direct payments.

Such high commodity spending could blow back on the committees in coming budget debates over the next five years. It's likely the House Appropriations Committee down the line could call for other changes in mandatory program spending, known in congressional lingo as "Chimping." As we have seen in the past, congressional leaders have pushed the aggies to make cuts in other areas, notably conservation, to trim projected costs for USDA programs.

Time will tell.

The Agricultural Act of 2014 does have a $125,000 payment cap applying to ARC, PLC, marketing-loan gains and loan-deficiency payments. That amount doubles to $250,000 for married couples.

As far as income, 2014 Farm Act also stops payments for farmers with adjusted gross income above $900,000.

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Posted at 11:44AM CDT 08/11/14 by Chris Clayton
Comments (1)
Just goes to show the quality of work done by the CBO.
Posted by Michael Martin at 12:02PM CDT 08/11/14
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