College of Agriculture & Natural Resources
Agricultural & Resource Economics

AREC's 2018 Farm Bill Guides: Commodity Program Details

by Howard Leathers

 

The commodity program provisions in the 2018 are in most respects identical to or similar to those in place under previous legislation. 

The crop commodity programs continue to give farmers the option of choosing (crop-by-crop, and farm-by-farm) between the Price Loss Coverage program (PLC) and the County-level  Agricultural Risk Coverage program (ARC-CO).    (The option of the individual-farm level ARC program – an option that very few farmers chose in the last farm bill sign-up period --  has been eliminated in the 2018 farm bill.

The PLC program makes a payment to participating farmers when the national average price for commodity falls below the “reference price”.  The size of the payment depends on the base acres and program yields for the crop on the specific farm. 

Two changes make the PLC program more attractive under the 2018 farm bill, compared to the 2014 farm bill. 

In the 2014 bill, the reference price (for example, the reference price for corn was $3.70/ bushel) was fixed for the term of the farm bill.  Under the 2018 farm bill, it is possible for the reference price to increase when national prices are high for extended period.   For example, if the (Olympic) average corn price over the 5 year period 2016-2019 were to be $4.70, the corn reference price in 2020 would increase from $3.70 to 85% of that 5-year average,  or $4.00.  (The maximum increase in the reference price is 15% --  to $4.25 in our corn example.)    Therefore, if the national average corn price were to be $3.80,  that would have meant a zero PLC payment under the 2014 farm bill,  but a $0.20 PLC payment under the 2018 farm bill.

The second way that the 2018 farm bill makes the PLC program more attractive is that it gives farmers the option to update their program yields.    If actual yields on a farm increased between 2008-12 and 2013-17, the farmer might find it advantageous to update program yields.  The farmer can update program yields to a specified percentage of the 2013-17 yields.  For corn and soybeans,  the percentage is (likely to be) 81%, and for wheat the percentage is (likely to be) 90%.    So if the farmer’s current program yield for corn is 120 bushels,  but the farmer’s corn yield in 2013-17 was 160 bushels, the farmer could increase the program yield to 130 bushels (160 x .81).   In a period when the PLC payment for corn was 0.20 per bushel,  this farmer would have received a PLC payment of $24 an acre under the 2014 farm bill,  but a PLC payment of $25 an acre under the 2018 farm (with updated program yield).    The decision to update program yields is optional,  so farmers can only benefit from this provision.

The ARC-CO program is unchanged from the previous farm bill.   Farmers participating in ARC-CO for a commodity receive  a payment when the county average revenue for the commodity (county average yield times national average price) falls below 86% of “normal” (the product of a five year Olympic average of yields in the county times a five year Olympic average of national prices). 

One additional important change is the farmers will choose between PLC and ARC-CO for each of the commodities for which they have base acres in 2019 and that choice will bind them for 2019 and 2020.  Then they will be able to revisit the choice for the remaining 3 years – choosing to continue with their previous choices or switch to the other program.    Farmers who planted base acres to grass or pasture will also want to pay attention to the base acres provisions of the 2018 farm bill.

On dairy,  the Bipartisan Budget Act passed in February 2018 made significant changes to the 2014 farm bill provisions for the Margin Protection Program.    Premiums for “buy up” above the $4 free margin coverage were cut substantially for the first 5 million pounds of milk (the approximate annual production of a 220 cow herd).  And the maximum buy-up was extended from $8 in the 2014 farm bill to $9.   Those changes are continued in  2018 farm bill.   (The program name is changed from MPP to the Dairy Risk Management Program (DRMP),  and farmers are now permitted to use both DRMP and a subsidized crop insurance product such as LGM-Dairy, but not to cover the same milk production.

Perhaps the most contentious issue related to commodity programs in the 2018 farm debate was whether to tighten the restrictions on payment limitations.   Serious proposals were made intending to make it more difficult to add relatives to the list of “farm managers” eligible to count against the $125,000 per person limit.   However, those proposals were defeated.   These limits only are binding for extremely large farms.  For example,  a corn-only farm with program yield of 150 bushels per acre and in a year when PLC payments were 50 cents a bushel (corn price of $3.20) would receive $75 per acre in payments,  and would need almost 4000 corn base acres before bumping up against the $250,000 limit for a farmer plus spouse.

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