Ask the man who has completed six farm bill cycles when a new bill will be pushed through and Joe Outlaw will tell you this year.
Outlaw, Texas A&M AgriLife Extension Service economist and co-director of the Agricultural and Food Policy Center at Texas A&M University in College Station, told the crowd at the High Plains Dairy Conference that a year ago he would have bet it would be 2019 before producers saw a new farm bill.
“The smart person says it will be next year; but I think it has to happen this year or we could have completely new leadership,” he said. “It won’t be easy. Every member of the House and a third of the Senate has to go campaign, and they want to get this bill done before the current bill expires Sept. 30.”
Squeezing in a farm bill will be difficult, but Outlaw said he believes it will happen because the Bipartisan Budget Act of 2018 fixed cotton and dairy—and that was a big deal.
Equally important, he said, is “the Republicans and president realize they need some sort of victory coming up. It’s all about the politics and trade that have me changing my mind about it being done this year.”
He said the 2014 bill got it wrong when it came to estimating low crop prices and the dairy program. The bill created the Margin Protection Program, or MPP, which triggered assistance at different margin levels based on the all-milk price and a calculated feed cost. But he thinks the developers of the program were too influenced by the margin data from the years just before the 2014 bill was passed.
“I think we spent too much time focusing on the margins right before the program started,” Outlaw said. “If those margins had happened, those of you who bought any levels other than $4 would have been paid right off the bat. What happened is the margins were a lot higher than that for the first few years of the farm bill.”
Producers now can select margins between $4 and $8 per hundredweight, he said. The Bipartisan Budget Act reduced premium costs substantially below 5 million pounds of production.
While these different premium costs for different levels of coverage don’t seem like much, Outlaw said, “when you multiply them by a whole bunch of cows and a whole bunch of production, it can get to be a big deal. And you don’t want to pay for insurance you don’t have any hope of ever getting anything back from. It’s supposed to be insurance.”
So what happened? Outlaw said comparing coverage levels in 2015, there were producers who purchased all kinds of buy-up levels. Last year, almost no one purchased at buy-up levels and everyone was at the $4 minimum.
“It wasn’t paying,” he said. “You have to have people buying at different levels. So they decided to change the premium costs at the different levels.”
The program was projected to pay out $80 million in insurance in 2016, Outlaw said. Instead, it only paid $10 million.
“What happened is you (dairy producers) paid in more than the government paid out in indemnities,” he said. “It was an insurance program that wasn’t paying. The only reason there is money now for dairy is because they messed up so bad on how much this program was expected to cost, otherwise there wouldn’t be any money for them to do anything for dairy in the farm bill.”
The Bipartisan Budget Act on dairy enacted a monthly margin calculation and allowed producers to insure 5 million pounds at lower rates. Outlaw said the difference between calculating bi-monthly and monthly payments along with lower premium rates will have even the bigger dairies looking at participating with at least part of their milk because of all the uncertainty.
“The dairies in this region traditionally have pretty much taken care of things with marketing and haven’t done much with the dairy program in some time, but that may change,” he said.
Under the new program, the monthly MPP margins will provide some opportunities at the $6 level, but there’s a push to move the top level to buy in up to $9.50, Outlaw said.
“If that happens, that is right through the middle of the projected average margin,” he said. “It’s likely going to be in the money more often than not. That could cost quite a bit of money and if Agriculture Committee leadership wants to do this $9.50, they are going to have to get the money from somewhere else.”
Commodities, conservation, nutrition and crop insurance are where people generally want to take money from, Outlaw said. They won’t touch the nutrition title this year, so an option could be to just extend the current farm bill with the cotton and dairy fixes to prevent anything being added.
“There is no new money. And they already want to raise conservation acres from 22 million to 30 million, and we don’t know where that money will come from,” he said. “There is only so much money and quite a few competing demands for program improvement.”
Outlaw said there are enough factors coming into play to keep the farm bill from ever happening.
“Now, would that be the worst thing in the world?” he said. “No, and there are some people in Washington who say now that we have cotton and dairy fixed, we don’t need a new farm bill. We can extend the current one and keep going.”
Leaving the farm bill alone might not be good for the corn and soybean programs, which were really good before and paid substantially early. Those producers aren’t expecting to get paid again anytime soon unless there is a new farm bill.
“But if somebody introduces a bill to put payment limits on crop insurance—it only failed by nine votes the last time—and if producers were to run up against a binding payment limit on an insurance program, people would stop using it and it effectively kills the program,” Outlaw said. “So, to avoid those kind of stupid fights, an extension would make sense.”
He said the other issues that could impact the timing of and/or derail the farm bill this year are immigration reform, welfare reform, infrastructure, trade wars—North American Free Trade Act, China, Trans-Pacific Partnership; and the elections due to a crowded Congressional calendar.
“The most likely problem is a trade war,” Outlaw said. “There is no good outcome in messing around with NAFTA in my opinion. These people will take it seriously and they will find other customers. That is not good for the dairy industry and it is not good for a lot of other industries.
“I haven’t ever seen a trade dispute that didn’t hurt the farmer. Why? Because that is the one thing all these other countries need to have is food. And one out of every three acres of production goes to exports. Because food is a big deal in all these other countries, they always want to impose restrictions on our agricultural exports in a trade dispute.”