Low commodity prices testing producer safety net programs

Safety Net payments will be an issue with new farm program

The downturn in prices over the past few years for major program crops —corn, soybeans, wheat, grain sorghum, rice, and peanuts — has provided an early test for the 2014 farm bill’s producer safety net. 

In most cases, market prices have declined by more than one-third from where they were when the farm bill was being debated. Lower producer prices have resulted in declining net incomes and greater financial stress. The government safety net was designed to alleviate at least some of this financial stress.  

Regardless of a producer’s program choice, Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC), marketing year prices for each crop are used to determine whether payments are triggered. Marketing years do not begin until harvest for the current year’s crop (fall 2015) and end at the next harvest (fall 2016).

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Consequently, producers began receiving program payments for their 2014 crop in October 2015.  Since payments for the first year of the 5-year farm bill have started dispersing to producers, this is a good time to reflect on how well the safety net has performed.

COUNTER-CYCLICAL PAYMENTS

Implementation of the new farm bill programs by the Farm Service Agency (FSA) moved at a relatively quick pace, and 2014 crop year payments have been made on time. The payments are counter-cyclical, meaning they provide help when help is needed, and less help when prices rise. In this regard, the safety net programs are working as planned. 

Thus far, most of the negatives expressed by producers in the Southwest region have been associated with implementation of the ARC county program. Local disparities in county yields used by FSA for the ARC program have created a situation where a producer in one county may receive a significant ARC payment for a crop, while a producer farming the same crop in a neighboring county receives considerably less or nothing. 

Producers, commodity groups, and others are all wondering exactly how these yields were determined and where the data came from. These potential problems were discussed at length during the education process across the region. Now that actual payments are being made, the discrepancies are more obvious.

A second problem arises from the choice, or selection, of the FSA administrative county by the producer. While FSA has recently provided some relief in this regard, there is still a significant chance of receiving a lower safety net payment than would have been calculated if payments were based entirely on the county where a producer’s farms are located rather than administrative counties.

SUFFICIENT SAFETY NET?

Any time there are significant changes to farm programs there are opportunities for producers to feel they are not getting a fair deal — this farm bill is no different.  What is likely to be more concerning over the next few years is the adequacy of safety net payments relative to the reduction in crop receipts. 

This is a significant issue due to the projection of persistently low prices for commodities over the next few years. The reality of the 2014 Farm Bill being developed with lower spending levels than previous bills means that the safety net, while substantial, may not be sufficient to prevent major financial problems for many Southwest crop producers.

Another concern with ARC county is the possibility of declining support levels over time. Two or more years of low prices and/or yields will result in lower revenue guarantees. So, following two difficult years for producers, the safety net declines at a time when producers may be in serious financial distress. This prospect will be realized with another year of low prices in 2016

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