Almost every farm in the country will benefit from a more generous trigger for crop subsidy payments in the years ahead if Congress does nothing more than extend the current farm law, said associate professor Jonathan Coppess of the University of Illinois on Thursday. Corn and soybean growers would see the maximum 15 percent increase possible from an escalator provision built into the 2018 farm law for so-called reference prices, the trigger for payments.
“What might be most surprising is how little attention the ERP [effective reference price] has received compared to the amount of attention focused on (or distracted by) political disputes about raising the SRP [statutory reference price],” wrote Coppess at the farmdoc daily blog. “Almost every farm in the country will experience a reference price increase through the ERP for at least one crop … without Congress needing to do anything more than extend those provisions.”
An increase in reference prices would be an expensive step that could potentially add billions of dollars to the cost of crop supports. Farm groups have called for higher reference prices for months, arguing the levels in the 2018 farm law are inadequate considering today’s high production expenses. The 2018 law included an escalator provision to increase reference prices by up to 15 percent if there was an extended run of high market prices, which began in 2020 with the end of the Sino-U.S. trade war and was amplified by Russia’s invasion of Ukraine in 2022.
The effective reference price for corn would rise to the maximum $4.26 a bushel in three of the next five marketing years, said Coppess. Soybeans would hit the maximum $9.66 a bushel in marketing years 2025, 2026, and 2027, and have an elevated reference price through 2031. Wheat would peak at an effective reference price of $6.01 a bushel in marketing year 2027, a 9 percent increase from the statutory rate.
By comparison, the statutory reference price is $3.70 a bushel for corn, $8.40 a bushel for soybeans, and $5.50 a bushel for wheat. Corn, soybeans, and wheat are the three most widely planted U.S. crops, accounting for seven of every 10 acres of principal U.S. crops.
Cotton, rice, and peanuts would not benefit from the reference price escalator, said Coppess, though the Congressional Budget Office said sorghum, oats, barley, flaxseed, rapeseed, and sunflowers would in some years. “Of these, the ERP is most notable for oats, as it will increase the price trigger beginning with marketing year 2024 and carry the increase to marketing year 2033,” said Coppess. The price of oats would reach the maximum of $2.76 a bushel in three years, he said.
Altogether, nine of 19 crops in the farm program will benefit from the reference price escalator, and they account for 92 percent of land enrolled in the Price Loss Coverage (PLC) and Agriculture Risk Coverage subsidies at the USDA. They also take up 86 percent of the land eligible for PLC subsidies, which are paid when crop prices are below the reference price.
Much of the public discussion over raising reference prices glosses over the question of how to offset the cost, wrote Coppess. “The basic decision point is whether to take the funding from” the $20 billion earmarked for USDA land stewardship programs in the 2022 climate, health and tax law and “gamble it on crop prices and the Price Loss Coverage baseline.”
The Environmental Working Group, which favors conservation programs over crop subsidies, said valuable climate mitigation work would be lost if Congress moves the money. “The plan, pushed by some agriculture groups and House and Senate Republicans, would boost farm subsidy payments to farmers through the increased price guarantees. But fewer farmers would benefit, because subsidy programs are limited to those growing a small number of crops,” said the EWG. By contrast, “they are all eligible” to enroll in soil and water conservation programs.
Leaders of the House and Senate Agriculture committees aim to enact the new farm bill by the end of December, notwithstanding the turmoil in the House following the ouster of California Rep. Kevin McCarthy as Speaker.
“As with every farm bill, there are forces and circumstances out of our control,” said House Agriculture chair Glenn Thompson. “What is always a complicated process has become a little more complicated, but our work continues to produce an effective farm bill.”