Reconciliation bill includes enhanced safety net

WASHINGTON — Budget reconciliation legislation that includes farm safety net enhancements, higher reference prices and biofuel tax credits was approved by Congress and signed into law by President Donald Trump on July 4.

While the budget reconciliation bill includes reauthorization of the farm bill with changes to the primary mandatory programs, it does not replace a five-year farm bill, and the ag industry continues to operate under the 2018 farm bill which has been extended several times by Congress. The current farm bill expires on Sept. 30.

The reconciliation bill, known as the “One Big Beautiful Bill Act,” provides a stronger safety net in lieu of a new farm bill in part by increasing reference prices.

The bill raises reference prices under the Price Loss Coverage program and the Agricultural Risk Coverage program. For the current crop year, the U.S. Department of Agriculture will provide producers with the higher calculate payment rates for ARC or PLC.

This legislation changed commodity title programs and has the potential to increase commodity title payments.

Gary Schnitkey and Nick Paulson of the University of Illinois Department of Agricultural and Consumer Economics and Carl Zulauf of the Ohio State University Department of Agricultural, Environmental and Development Economics authored details of the new law in a farmdoc daily article, noting that the changes include:

• Price Loss Coverage: Increases the statutory reference price for 2025 crop year corn from $3.70 to $4.10 and for 2025 crop year soybeans from $8.40 to $10.00.

• The effective reference price is now 88% of the five-year Olympic average, lagging one year. The percentage was 85% for the 2018 farm bill.

• Agricultural Risk Coverage-County Option: The coverage level was increased from 86% to 90%. The maximum payment was increased from 10% of benchmark revenue to 12% of benchmark revenue.

• Farmers will receive the higher of the PLC or ARC-CO payment for 2025, recognizing the fact that farmers signed up for the programs under the 2018 farm bill. Farmers will make yearly choices for the 2026 crop year and thereafter.

Using McLean County in east-central Illinois as an example, the authors estimated the impacts of those changes on PLC and ARC-CO payments for both corn and soybeans.

“Our estimates use market-year prices of $4.10 for corn and $10.20 for soybeans. The 2025 yields were set at ARC-CO benchmark levels,” the agricultural economists said.

Changes in estimated payments using the new 2025 commodity program parameters are:

• PLC — Corn: PLC payments for corn increase from $24 per base acre under the 2018 farm bill to $50 per base acre under the new legislation. Effective reference prices increase due to the rise in cap. Under the 2018 farm bill, the effective reference price was capped at $4.26, 15% of the $3.70 reference price. The effective reference price is now capped at $4.72, 15% of the $4.10 statutory reference price. The effective reference price under the new bill is $4.42, or 88% of the five-year Olympic average. The effective reference price under the 2018 farm bill was at $4.26.

• PLC — Soybeans: PLC payments are projected to increase from $0 to $24 per base acre. The 2025 effective reference price is $10.71, a 37-cent increase over the 2018 effective reference price of $10.34.

• ARC-CO — Corn: ARC-CO payments increase from $44 per base acre to $82 per base acre. Both the higher 90% coverage level and wider maximum payment range lead to higher expected payments.

• ARC-CO — Soybeans: ARC-CO payments increase from $16 per base acre to $45 per base acre. As with corn, the larger expected payment is due to the increased coverage level and payment range.

“Our estimate of average ARC-CO payments under the reconciliation bill is $65 per base acre, given that 55% of base acres are in corn and 45% are in soybeans. The $65 per base acre payment is $34 higher than the average $31 per base acre payment under the 2018 farm bill,” the economists said.

“Importantly, the 2025 commodity title payments, if any, will not be paid until October 2026. Any PLC/ARC payment that will be received this year in October 2025 are associated with the 2024 crop.

“For McLean County, a major production area in central Illinois, commodity title payments for 2024 are estimated to be $0 per base acre for both corn and soybeans. ARC/PLC payments are generally not expected to be large for most central Illinois counties for the 2024 crops.”

Payment limits would increase from $125,000 to $155,000 for individuals and $310,000 for married couples and then the payment limit would increase based on adjustments for inflation. The bill also eliminates income caps for farmers or entities that draw at least 75% of their income from agriculture or forestry.

New Base Acres

The bill also authorizes up to 30 million new base acres to be allocated across farms using a modernized eligibility formula based on recent planting history, starting with the 2026 crop year.

The increased base acres provision compares the five-year average planting history from 2019 to 2023 of covered commodities to existing base acres. If planted acres exceed the current base, a farm may qualify for an additional base allocation.

A new base acre formula in the bill covers the 2019-2023 average planted or prevented plant acreage due to a disaster.

Crop Insurance

Crop insurance programs would see about $6.3 billion in increased spending over 10 years with higher premium subsidy levels for some supplemental area-based plans and other improvements to premium support.

Provisions also boost crop insurance premium support for beginning farmers.

Livestock Provisions

The Livestock Forage Disaster Program was expanded. Producers now qualify after four consecutive weeks of drought, reduced from eight weeks, and may received two monthly payments.

Livestock producers will receive 100% indemnities for livestock lost to predation and 75% compensation for animals lost to weather events or disease. Indemnities also will be available for losses involving unborn livestock.

The bill also extends Dairy Margin Coverage through 2031 and allows for an update of production history to the highest annual milk marketings during any one of the 2021, 2022 or 2023 calendar years.

Lawmakers enhanced resources for foreign animal disease prevention by increasing funding to $233 million annually. Funding included $153 million per year to the National Animal Vaccine and Veterinary Countermeasures Banks, $70 million for the National Animal Health Laboratory Network and $10 million per year to the National Animal Disease Preparedness and Response Program.

Renewable Fuels

An extension of the 45Z, the clean fuels production credit was termed a big win for biofuels and it also saw some key improvements.

It extended 45Z through 2029 and restricted it to North American feedstocks and eliminated the indirect land use change components, making many more ethanol plants and biofuel producers eligible.

The Indirect Land Use Change components, which relates to theoretical consequences of releasing more carbon emissions due to land-use changes caused by increased growing of crops for ethanol or biodiesel production, restores transferability of the credit.

The Solid Recovered Fuel credit was lowered from $1.75 to $1 to equalize it with other biofuels.

Tax Provisions

The estate tax exemption was made permanent under the new law and increased to $15 million for individuals and $30 million for married couples beginning next year.

The Section 199A small business tax deduction, including those for family farms and ranches, was made permanent at 20%.

Under Section 179 that allows small businesses to deduct the cost of equipment, farmers and ranchers will now be able to deduct up to $2.5 million in qualified equipment expenses.

A bonus depreciation provision allows small business owners to deduct the cost of equipment upfront, rather than deduct depreciation over several years. Under the new bill, 100% bonus depreciation was made permanent.