DEKALB, Ill. — Since the U.S. Congress extended the 2018 farm bill for 2024, farmers will have the option to enroll their base acres in either the Agriculture Risk Coverage or Price Loss Coverage programs for the upcoming growing season.
“ARC is a revenue program, with a five-year look-back and it uses the Olympic moving average of prices and yields,” said Jonathan Coppess, associate professor and director of the Gardner Agriculture Policy Program in the College of Agricultural, Consumer and Environmental Sciences at the University of Illinois.
“It drops the high and low, so it moves up slowly and adjusts downward slowly to smooth out some of the volatility to get to the revenue benchmark,” said Coppess during a presentation at the Illinois Farm Economic Summit, hosted by farmdoc and U of I Extension.
“Your guarantee is 86% of that, so if actual revenue in the crop year is below 86%, that triggers a payment on the difference,” he said. “The revenue has been really high the last couple of years, so that should pull it up some and carry through for a few years.”
PLC is a fixed-price program.
“It is going on 50 years in operation in one form or another,” Coppess said. “It’s built around the statutory reference price, which is $3.70 for corn, $8.40 for soybeans and $5.50 for wheat.”
In the 2018 farm bill, the U of I associate professor said, Congress added a provision that affects the reference price.
“It uses the five-year moving average, drop the high and low, and if 85% of that is above the statutory reference price, we can increase the statutory reference price automatically,” Coppess said.
“Now that we’ve had a couple of years of high prices, we’re pulling it up and in 2024 it should be $4.01 for corn, $9.26 for soybeans and wheat will still be $5.50,” he said.
For the conservation programs in the farm bill, Congress authorizes fixed amounts of funding.
“It is about $2 billion for the Environmental Quality Incentives Program and $1 billion for the Conservation Stewardship Program,” Coppess said.
“We’re seeing more demand for these programs than funding available,” he said. “In Illinois, about 40% of projects approved are not able to be funded for EQIP.”
For the Conservation Reserve Program, farmers receive annual rental payments to take acres out of production.
“The program is limited on acres so only 27 million acres can be enrolled,” the associate professor said.
Coppess provided information about the net farmer benefit of crop insurance, which equals the total indemnities paid out minus what farmers pay in.
“Farmers in Iowa, Illinois and Indiana pay more into the crop insurance program than they typically receive in indemnities,” the associate professor said.
“This plays into the policy discussion because if you make changes to the program that alters this, we can get into challenges around how it operates and what the premium cost is,” he said. “The Midwestern states have very low loss ratios in the last five years which is a measure of the performance of the program.”
Coppess said it is unclear what to expect in a farm bill debate this year.
“My outlook is exceptionally cloudy,” he said. “It doesn’t look good in 2024 because there are three fundamental problems in the way of getting a farm bill completed in this Congress.”
The first problem is the reference prices for corn and soybeans.
“They are already going to automatically increase for 2024 and for wheat will likely increase next year,” Coppess said.
“One of the major hurdles of getting a farm bill done has been a demand that Congress increase the statutory reference price,” he said.
However, under budget law, Congress can’t increase the statutory reference price.
“Any change to the statute has to be scored by the Congressional Budget Office against the existing projection for spending, otherwise known as the baseline,” Coppess said. “That cost projection is over 10 years into the unknown future.”
Depending on how much the reference prices are increased, the associate professor said, that could cost from $20 billion to $50 billion over 10 years.
“The problem is that has to be offset so under budget rules you have to cut something else to cover that cost,” Coppess said.
“There are really three places you can take it — crop insurance, which is pretty much off the table,” he said. “Some are reporting that the House is looking at cutting the Supplemental Nutrition Assistance Program or conservation spending.”
The second problem involves money for conservation and the Inflation Reduction Act.
“In 2022, Congress passed this act which is a massive piece of legislation that includes roughly $18 billion for conservation,” Coppess said. “Cutting this comes with consequences and using it as an offset is challenging at best.
“One thing it would mean is that funding which is available for farmers now to do conservation would go away and be gambled on whether it would increase prices,” he said. “The act was passed by Democrats in Congress without a single Republican vote, so the biggest defenders are Democrats.”
“Problem No. 3 is the 118th Congress has not been the most productive and one of the reasons is it is a divided Congress,” the associate professor said. “The Republicans control the House, the Democrats control the Senate, there’s not a lot of agreement and the majorities are narrow.”
If the House Agricultural Committee cuts SNAP and conservation funding, Coppess said, it is unlikely to have any Democratic support for that bill.
“Also, that bill has no chance in the Senate, so cutting these programs to increase subsidy payments is not a strategy for success,” he said.
Coppess is not optimistic for a 2024 farm bill.
“If there is a path, the key time frame for the House Agricultural Committee is March and April in terms of getting a bill produced,” he said. “But to our public knowledge, there is no progress on getting this done.”
The CBO will reforecast all of its spending and projections sometime in April, Coppess said.
“And the Senate Agriculture Committee could get something done in May to June,” he said.
But since the election is in November, Coppess said, it is likely nothing will happen with a new farm bill from July to November.
“We’re unlikely to see progress,” he said. “The last window of opportunity is the lame-duck (session) after the election, but it’s incredibly hard to see the farm bill getting done this year.”