Cost of the 2014 Farm Bill Commodity Programs

Introduction

Payments by the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs for the 2014 crop year have totaled $5.2 billion so far. Intense criticism has accompanied them, in part because the Congressional Budget Office projected payments of $3.8 billion for the first year of ARC ($2.1 billion) and PLC ($1.7 billion). However, the criticism has not considered potential payments that the 2008 farm bill revenue program would have made for the 2014 crop year. In particular, the Average Crop Revenue Election (ACRE) program would have made larger per acre payments than ARC for the 2014 crops of corn, soybeans, and wheat. For 2015, per acre payments are essentially the same for soybeans and wheat while ARC payments are somewhat larger for corn.

2014 Crop Year Payments

Using U.S. Department of Agriculture (USDA), Farm Service Agency (FSA) data as of February 22, 2016, ARC payment per program base acres for the U.S. for the 2014 crop is estimated to be $45 for corn, $7 for soybeans, and $10 for wheat (see Figure 1). In contrast, per acre payment by ACRE is estimated to be $76, $20, and $11 for corn, soybeans, and wheat, respectively. ACRE payments exceed ARC payments by 69%, 186%, and 10%, respectively. For a discussion of potential ACRE payments for earlier crop years, see the October 22, 2015 farmdoc daily article by Zulauf and Kim.

2015 Crop Year Payments

Using the ARC-CO PLC Payment Estimator at farmdoc (see March 8, 2016 farmdoc daily article by Schnitkey, Paulson, Coppess, and Zulauf), per acre payments by ARC are estimated to be higher for the 2015 crops, especially for soybeans (see Figure 2). Per acre payments for 2015 are less for ACRE than ARC for corn and approximately the same for soybeans and wheat. Weighting payments across crops suggest that total ARC payments is likely to exceed total ACRE payments to these 3 crops for the 2015 crop year, but the difference is likely not large.

Summary Observations

• Objective of this article is to call attention to the importance of comparing payments under the 2008 and 2014 farm bill commodity programs, in particular ACRE, when assessing cost of the 2014 farm bill.
• It is impossible to know what the participation rate for ACRE would have been in the 2014 and 2015 crop year. Given the low target prices in the 2008 Farm Bill for corn, soybeans, and wheat and the decline in their prices since 2012; it seems reasonable that participation would have likely been much higher than during the 2008 farm bill period if an enrollment option had been given. Moreover, based on the 2014 farm bill debate, direct payments likely would have been eliminated, thus eliminating the 20% reduction in direct payments imposed in the ACRE program, further increasing the incentive to choose ACRE.
• Nevertheless, the analysis clearly illustrates that the ACRE program would have made large per acre payments to 2014 and 2015 corn, soybeans, and wheat. Depending on participation rates, payments by ACRE may have exceeded payments by ARC, particularly in 2014.
• Assuming normal yields, ACRE payments will decline faster than ARC payments because ACRE used average price for the 2 prior crops while ARC uses an Olympic average for the 5 prior crops. Thus, ARC payments are likely to exceed ACRE payments in the 2016 through 2018 crop years. However, actual payments will depend on the price and yield situations that occur; hence, it cannot be ruled out that ACRE could pay more than ARC in these crop years.
• In conclusion, performance assessment of the 2014 farm bill should include potential payments under the 2008 farm bill ACRE program. Otherwise, it is incomplete and thus potentially misleading.