The Farm Bill enacted earlier this year was supposed to save taxpayers money, in part by reducing subsidy payments to farmers.
But a massive drop in prices for the nation’s largest crops means that many farmers may rely on the farm safety net this year and could herald large government payouts.
Farmers in tough times today rely mainly on two government supports: subsidized crop insurance and federal commodity supports.
The current Farm Bill cut out direct payments to farmers just for owning farmland. The number crunchers at the Congressional Budget Office predicted changes to the commodity programs would save taxpayers more than $6 billion over five years. But the new farm safety net is still pricey and varies with crop and market conditions.
The prices farmers get for corn and soybeans plummeted this year, thanks to expectations of a record-breaking harvest. The prices are so lowmany worry a hefty round of government payments looms. That could curb those projected savings.
There are two commodity support programs: one is tied to price alone, called Price Loss Coverage (PLC). The other, known as Agricultural Risk Coverage (ARC), considers price and yield. Farmers are still deciding which one they want, so we don’t yet know this year’s price tag, but many economists expect it to be large.
“For the 2014 crop year, we’re definitely going to be making larger ARC or PLC payments than we had anticipated,” said Pat Westhoff, director of the Food and Agriculture Policy Research Institute at the University of Missouri. “That’s almost certainly going to be the case. What is far less certain is what’s going to happen in subsequent years.”
Depending on enrollment and on crop prices over the length of the five-year Farm Bill, taxpayers may still see savings. But this year’s payments will eat into the projections.
Crop insurance remains the most important government support program for farmers. It is a lot like car or homeowner’s insurance in most ways. Subscribers pay a premium and then if something bad happens, the insurance company gives the policyholders money—up to the amount they’re insured for.
But here’s where it’s different: taxpayers subsidize crop insurance.
“I’m not aware of any other program that works quite this way,” Westhoff said. “The premiums are set so that they just cover the expected losses and then they’re subsidized by the government as well, so that the farmer’s only paying a fraction of the overall cost of those premiums.”
In bad years, higher premiums and higher payouts cost taxpayers more. When prices are lower and premiums are lower, the public is not out as much.
Despite largely favorable conditions across much of the Corn Belt, some farmers will invariable have to rely on crop insurance.
Farmer Robert Lynch of Gilmore City, Iowa, had a tough year. His crop didn’t produce as well as many other Corn Belt farms.
“It’s not going to be a good season for us,” Lynch said. “I thought we should have [done] better according to everybody’s forecast. But this is what we got. So it will be crop insurance, basically.”
Lynch says his lower-than-average yields won’t be too hard on his bottom line, even with the low prices, because he’s insured his crop against this kind of hardship.
“We’re going to get whatever we insured our level at,” he said, “80-85 percent crop insurance.”
For now, farmers are wrapping-up the corn and soybean harvest. Semis and tractors pulling grain wagons unloaded corn at the Heartland Co-op in Alleman, Iowa, on a busy afternoon. Location manager Larry Mitchell says it’s been a good year for growing corn and soybeans—even a bit better than he expected. But he says most farmers are doing their best not to sell their corn right now.
“Probably most of it this year, with the prices the way they are,” Mitchell said, “[farmers] are storing it right now and then they’ll wait and see what happens.”
They’re hoping they can get a better price later. If they do, the public may yet see those promised Farm Bill savings. But even if this year’s a drain on taxpayers, as farmers well know—there’s always next year.