For farmers, decisions from new farm bill will be taxing
02/21/2014 1:08 PM
02/24/2014 3:43 AM
All the jawboning about the big farm bill was over two weeks ago, when Congress finally passed the $956 billion package.
But for America’s farmers, the decisions are just beginning. And they could get complicated.
“The tricky thing for farmers is that they are being asked to pull out their crystal balls,” said Jonathan Coppess, an agriculture policy professor at the University of Illinois. “Where do you think prices will be for the next five years?”
If farmers think prices will go one way, they might choose the program behind Door No. 1. If they think they’ll go another way – or that they’ll drop, but not that much – they might choose the program behind Door No. 2. And, well, there’s also Door No. 3 to consider.
“They’ve got to sort it all out – and I hate to use the word gamble, but it’s hard to know exactly what the prices will do,” Coppess said.
This is the result of the farm bill signed by the president earlier this month after months of delays and wrangling.
“I think Illinois farmers are very happy that there is a farm bill,” said Richard Guebert Jr., president of the Illinois Farm Bureau, who grows corn, soybeans and wheat in Randolph County in the southwestern part of the state. “We’d rather get our income from the marketplace, but we need assurance that if there is another drought beyond our control – like there was in 2012 – that we won’t lose the whole farming operation.”
The farm bill is the massive piece of legislation that is customarily revamped and passed every five years to lay out the structure of agriculture spending. It directs activities of the Department of Agriculture but doesn’t deal solely with traditional farm programs. The politics of the bill, for example, were wrapped up in the food stamp program, which has historically been part of the legislation and is its largest financial driver.
But traditional farm programs played an important role – and a lot of money was at stake.
The biggest change is that direct payments are being eliminated. Those paid farmers regardless of need and had long been criticized.
In Illinois, for example, data from the Environmental Working Group – an advocacy organization that collects and analyzes farm subsidy information – show that such payments were worth nearly $317 million to Illinois corn, soybean, wheat and other crops in 2012. Illinois ranked only behind Iowa and Texas in the total amount of direct payments.
But although direct payments are going away, subsidies aren’t.
Craig Cox, a senior vice president for the Environmental Working Group, said the old system is merely being replaced by a new one, which he said also distorts the marketplace. The risk that farmers themselves have to assume, Cox said after the bill passed the Senate, is going to be less – “and in some cases substantially less, depending on which choices farmers make.”
But those choices will be difficult.
Coppess, the University of Illinois ag professor, said farmers have a pretty big decision to make.
The first choice is whether to enroll in the “price loss coverage” program or one of the versions of the “agriculture risk coverage” program.
The price loss coverage program will pay a farmer if the average price during the marketing year falls below a specified target. So, for example: If corn prices are above the corn target of $3.70 a bushel, no payments would be made; if they fall below that, the farmer would get the difference between the going prices and $3.70.
The agriculture risk coverage program is even more complicated. It factors in the county-level yield history for the commodity from the most recent five crop years and produces the “Olympic average” – meaning, dropping the high and low figure. It then factors in average prices, but replaces ones that are below certain levels.
And then the five-year Olympic average of the yields is multiplied by the five-year Olympic average of the prices to come up with the “benchmark revenue” – and from that, county revenue is guaranteed at 86 percent.
Oh, and if farmers opt for the agriculture risk coverage program, they have to decide if they want the county program as just described, or the individual program, which has its own calculations.
Bottom line: It’s not a simple decision. In some cases, that decision can be made commodity by commodity, so a farmer can have corn in one program but soybeans in another. In other cases, a farm is all in or all out of a program.
Coppess and Nick Paulson, an agricultural economist at the University of Illinois, just completed an analysis of the choices, focusing on a hypothetical farmer in McLean County, in the center of their state.
Their conclusions show how difficult the decision will be: If prices for corn are above $3.70 over the next five years, the agriculture risk coverage program will provide better protection, since the price loss coverage program wouldn’t trigger payments. But if prices are expected to be very low, price-loss may arguably provide better support, they wrote.
Prices in the middle “make the comparison and decision more difficult.”
Beyond that, the analysis might be different whether you’re looking at the early years of the farm bill or later years.
“I think it’s safe to say that price forecasts have probably never been more relevant to the farm programs,” Coppess said. “Once you decide, you cannot change for the life of this farm bill. There is no going back and forth.”
Allen Olson, an attorney who specializes in farm issues in southern Georgia, has been meeting with the cotton, peanut and corn farmers who are his clients.
“It’s taking a couple hours, explaining how these programs work,” said Olson, from Albany, Ga.
“There’s a lot of chatter going on – and a lot of misinformation,” he said. His farmers will need to see Department of Agriculture data, county by county and crop by crop, before they make their decisions. And there’s no indication yet when that will be.
He said the decision for peanut farmers is pretty clear-cut: The price loss coverage option will be the most beneficial. But farmers of other commodities will need to wait and see.
“Until we get the rest of the information, those decisions will be difficult to make,” he said. “All my clients are farmers, and virtually all are interested in this. But we’re only able to give them partial answers. These policy issues got discussed ad nauseam for three or four years, but nobody talks about, ‘Can we implement this? How does it work at the county level?’”
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