Farm groups push for higher reference prices in next farm bill

When members of Congress finally get around to writing a new farm bill later this year, they’ll have a long “wish list” of changes advocated by various farm groups, environmental advocates, liberals and conservatives. Finding consensus won’t be easy, even within the farm community. Some conservative groups are already pushing back against anything that will require additional funding.

Major commodity groups generally agree that price support programs need to be updated to reflect higher costs of production, but they are not united on how and they haven’t asked for a specific increase.

There are currently two major price support programs: Price Loss Coverage and Agriculture Risk Coverage. PLC triggers payments to growers for years in which the average market price for a commodity falls below its reference price. ARC provides payments when the revenue in a farmer’s county falls below the previous 5-year average.

The 2018 farm bill added an escalator provision that allows the reference prices to rise based on a 5-year rolling average of market prices, but the increase is capped at 15% above the base reference price. 

During recent House and Senate agricultural committee hearings, various groups made their case for changes.

American Farm Bureau President Zippy Duvall pointed out in recent testimony that “current policies were developed in the 2014 farm bill utilizing 2012 cost of production data. He said the combination of spiking input costs and this outdated policy has “rendered the commodity title ineffective.

“Considering the four crops that represent the largest acreage in the U.S.: corn, soybeans, wheat, and cotton, the forecast season average farm price of each commodity would need to fall by roughly 23, 30, 21, and 52%, respectively in 2023 to trigger any support under current law.

“If left unchanged, with challenging production costs, many producers would be bankrupt before Title I support provides assistance,” Duvall noted in his written testimony. AFBF called for increasing baseline funding for farm programs, with priority given to crop insurance and Title One commodity programs.

The National Corn Growers Association has called for modifying an escalator provision that allows the PLC reference price to rise as much as 15% following several years of elevated market prices. The statutory reference price for corn is $3.70 per bushel, but the escalator provision is expected to push the effective rate to $4.01 in 2024 because of the higher market prices farmers have seen in recent years. The 15% limit caps the effective reference price at $4.26.

Harold Wolle, a Minnesota farmer and first vice president of the National Corn Growers Association, told senators that Congress should either increase the 15% cap or otherwise modify the escalator provision so that the effective reference price can go higher.

NCGA also wants Congress to increase both the maximum payment rate in ARC, currently capped at 10% of a county’s benchmark revenue, and the program’s maximum coverage level, which is now capped at 86% of the county revenue benchmark.

Other commodity groups also signaled their support for increases in the statutory reference prices.

“I’m not sure when that safety net is 2 inches above the concrete that it’s doing much good,” said Texas farmer Kody Carson, who represented the National Sorghum Producers at the Senate hearing.

Rich Hillman, an Arkansas farmer representing the USA Rice Federation, said, “Right now the costs are out of control, certainly fertilizer. A lot of the inputs rice and cotton (rely on) have exceeded anybody’s guess.” 

Patrick Johnson, a partner in Cypress Brake Planting Co., and a member of the National Cotton Council’s board of directors, also pointed to higher production costs and the need to update reference prices in his written testimony.

“When calculated based on seed cotton, the total costs to produce a pound of seed cotton have risen nearly 9 cents since the 2018 farm bill, with current costs of production of almost 48 cents, far above the seed cotton reference price of 36.7 cents per pound,” he noted. “The current costs facing producers are diminishing the effectiveness of the current PLC statutory reference price, which should be increased in the new farm bill.”

The committee’s top Republican, John Boozman of Arkansas, said he will only vote in favor of a farm bill that addresses reference prices used in the Price Loss Coverage program.

“I won’t support a farm bill—I won’t vote for a farm bill—that doesn’t take care of our reference prices and our crop insurance,” the Arkansas Republican said on Agri-Pulse Newsmakers.

Yet, Senate Agriculture Committee Chairwoman Debbie Stabenow seemed to downplay the arguments about high production costs. She told farm groups testifying before the committee that costs for fertilizer and diesel fuel have dropped sharply since last year.

Stabenow also pushed back on the idea that the organizations were united in what changes Congress should make to the Agriculture Risk Coverage and Price Loss Coverage programs.

“There’s no consensus on how to address all of the programs because different regions have different responses,” she told the groups. “This is always the challenge of the farm bill … It’s less of a partisan exercise and more of a regional exercise based on what we grow where you are.”

Ahead of the hearing, a collection of conservative and progressive groups released a joint letter urging the Senate committee not to support an increase in reference prices.

“Overall, net farm income set records in 2021 and is expected to remain high, according to USDA,” the groups said. “While some farm groups cite rising input and land costs in support of these proposals, gross farm income has outpaced and will likely continue to outpace the cost of farm production. Farm bankruptcies have recently fallen to their lowest level in recent memory.”

The groups that signed the letter included the Council for Citizens Against Government Waste, Environmental Working Group, FreedomWorks, Independent Women’s Forum, Land Stewardship Project, National Sustainable Agriculture Coalition, Taxpayers for Common Sense and U.S. PIRG.

Editor’s note: Sara Wyant is publisher of Agri-Pulse Communications, Inc., www.Agri-Pulse.