Farm Bill 2018: Guide to Proposed Changes to Commodity Program

 

Howard Leathers

 

 

University of Maryland 

 

 

Department of Agricultural and Resource Economics

 

 

University of Maryland Extension

 

 

As this is written – in early August 2018 --  both and House of Representatives and the Senate have passed versions of the 2018 farm bill and a conference committee has been appointed to work out the differences in the two versions.  So we cannot say with certainty what the final version of the 2018 farm bill will look like;  but we can describe the two versions and from that get a sense of where the final bill will land.

 

In commodity programs we can be certain that the 2018 farm bill will be quite similar to the 2014 farm bill.   The commodity programs will include the price loss coverage program and the county agricultural risk coverage program (PLC and ARC-CO) in the same basic form as the 2014 farm bill, but with some possible changes in the details.   The agricultural risk coverage – individual coverage (ARC-IC) program -- which protected whole farm income, but which was used by only a very few farmers in the 2014 bill – has been eliminated in both the House and Senate versions.

 

As in the 2014 farm bill, programs will calculate payments crop by crop and year by year using the same procedures as the 2014 farm bill. 

·         Farmers will make a decision about whether to participate in PLC or ARC-CO crop by crop.   So a farmer might put soybeans into the ARC-CO program and wheat into the PLC program.  These decisions about program choices will be binding for the five year life of the farm bill.

·         Payments in these programs are made according to a farm’s base crop acres (PLC and ARC-CO) and program yields (PLC).  (Both of these measures are based on past or historical cropping patterns and yields;  therefore payments under the programs are not effected by current year decisions about cropping patterns and yields.) Neither the House nor Senate version has any provision for updating base acres or program yields.

·         The PLC program makes a payment based on the amount by which the current year price falls below a reference price established in the farm bill.  The reference price are established in the farm bill.

·         The ARC-CO program makes a payment based on the amount by which county average revenue per acre falls below a reference level of income which is determined based on historical county yields and historical national prices.

 

So in these respects, the 2018 farm bill will include familiar (from the 2014 farm bill) commodity program aspects.

 

There are differences in the House and Senate versions as to the details of the two programs. 

 

·         The Senate version keeps the PLC program unchanged from the 2014 bill,  but makes the ARC-CO program more generous.

·         The House version keeps the ARC-CO program unchanged from the 2014 bill,  but makes the PLC program more generous.

 

The Senate version makes the ARC-CO program more generous by using higher yields in calculating the benchmark revenues (compared to the 2014 farm bill, or the 2018 House version).  (1) The 2014 farm bill replaced low yields  with 70% of the transitional yield, or T-yield) but 2018 Senate version replaces low yields with 75% of the t-yield.  (2) The 2014 farm bill used actual county yields in the calculations (except for the replacements described in the previous sentence) but the 2018 Senate version calls for actual yields to be “trend adjusted” upwards.    The actual details of this “trend adjustment” process would be based on USDA rules developed and announced after the farm bill has been passed and signed into law.

 

The House version makes the PLC program more generous by allowing the reference price to rise up to 15% when 5-year average prices are higher.    For corn, as an example,  the PLC reference price was $3.70 in the 2014 farm bill – meaning PLC payments would be made when the national average corn price fell below $3.70.  In the House version,  the PLC reference price would be between $3.70 and $4.26.

 

To get a clearer idea of how the House and Senate version would affect Maryland farmers, consider the following example of corn in Queen Anne’s county in 2015.  (Corn is an important crop in Maryland; Queen Anne’s county is an important agricultural county;  and 2015 is a year when both the PLC and ARC-CO  programs made payments in that county.)   In this, we assume a farm that has a program yield of 107 bushels per acre, which was the average program yield for the county under the countercyclical payments program.

 

Table 1.  Payments per base acre for Corn in 2015 in Queen Anne’s County under alternative assumptions.

 

If….

PLC payments per base  acre

ARC-CO payments per base acre

2014 farm bill (actual)

$8.19

$6.60

Senate version (hypothetical)

$8.19

$29.34

House version. (hypothetical)  

$60.10

$6.60

 

Under the House version, the corn PLC reference price would have been $4.26 instead of $3.70.  Under the Senate version,  benchmark average yield in the county would have been 135 instead of 130 bushels/acre because of the trend adjustment.  (The change of the minimum yield to 75% of t-yield had no impact in this example.)

 

https://www.the-farmer.com/farm-bill/farm-bill-clears-another-hurdle

https://farmdocdaily.illinois.edu/2018/07/alternatives-for-arc-co-and-plc-in-2018-farm-bill-negotiations-the-case-of-corn.html