With years of low commodity prices ahead, U.S. corn and wheat growers will stick to traditional crop subsidies, forecasts the Congressional Budget Office. In its annual economic forecast, CBO estimates only 37.5 percent of corn land and 28 percent of wheat land will be enrolled in the new Agriculture Risk Coverage subsidy offered by the 2014 farm law; the bulk will be put into the Price Loss Coverage program, which has the familiar structure of price guarantees.
Of the three most widely planted U.S. crops, only soybeans will have most of its plantings – 62.5 percent – in ARC, which operates like a revenue insurance program, says CBO.
Grain and soybean farmers have until March 31 to choose between ARC and PLC for their 2014-18 crops.
Revenue programs such as ARC rose in popularity during the agricultural boom that began in 2006, when analysts said the greatest risks to farmers were high and volatile prices and rising production costs. The major policy battle of the 2014 farm law was whether to replace the traditonal farm program with a revenue plan.
Corn and soybean groups backed the revenue approach; rice and peanut growers said the approach would not work for their crops. In the end, Congress offered both options. Analysts and growers have spent weeks in trying to identify which offers the best protection for the next few years.
CBO forecasts that the season-average price for corn and wheat will be lower than the reference price in the 2014 farm law of $3.70 a bushel for corn and $5.50 for wheat in four of the five years covered by the law, which means subsidy payments are likely in most years with PLC.
Soybean prices will be higher in four of the five years than its reference price, $8.40 a bushel, says CBO, so ARC would offer better protection. ARC makes payments when revenue from a crop is lower than average.
With corn and wheat land heavily enrolled in PLC, its costs will be much higher than for ARC, says CBO. It says crop subsidies will average $5.6 billion a year over the next decade. Crop insurance would average $8.9 billion annually and conservation would average $11 billion. For conservation, CBO combined mandatory spending and amounts authorized by the new farm law.
Like other forecasters, CBO expects U.S. farmers to plant more soybean area this year and curtail corn plantings. Wheat would hold steady.
Agri-Pulse said the farm program would cost $18 billion more than previously estimated for the decade due to the downturn in commodity prices and to revival of livestock disaster relief programs. Mandatory spending on agriculture totaled $19 billion in fiscal 2014, said CBO. “The relatively high spending last year included significant payments for livestock disaster assistance for drought-related losses since 2012 and crop insurance payments for crop losses in 2013,” it said in its “Budget and Economic Outlook: 2015 to 2025.”