Farmers' Farm Bill Decisions Will Influence Price Tag

Feb 11, 2015

When farmers lose 15 to 25 percent of their crop, it hurts. And it’s not likely to be covered by crop insurance, which covers greater losses.

So that’s where government support programs funded by the farm bill come in, to help keep farmers afloat when prices or profits are down. The programs are free for farmers.

But American taxpayers spend billions of dollars on them. Right now it’s looking like the price tag may be significantly more than government economists predicted a year ago, when the farm bill became law. That’s because corn and soybean prices have plummeted.

“This drop in prices has definitely meant that we're looking at an increase in expenditures on these farm bill programs,” said Chad Hart, an Iowa State University economist.

When lawmakers drafted the farm bill, they planned on relatively stable corn and soybean prices. Hart says estimates reflect the present, which is why today’s lower prices make the long term projections calculated now significantly higher than last year’s.

“Usually if you average them out, they do a pretty good job,” Hart said. “But, yeah, there're going to be years like this where they're going to, if you will, miss.”

By how much? Originally, lawmakers planned to spend $3.5 billion annually on Agriculture Risk Coverage and Price Loss Coverage. But now, they’re looking at a billion and a half dollars more per year than those predictions. Farmers are just signing up for these programs now—and which ones they choose also will impact the price tag for taxpayers.

“Usually a farm bill is a take it or leave it type of thing. Here's the program, you can take it, or you can just not use the program at all," Hart said. “This time around it's more like a menu, I get to pick and choose how I want to participate in the farm bill.”

Farmers essentially have to decide whether they want some protection only when prices tank, or if they prefer a calculation that considers their revenue. And they have to sign up with USDA by March 31st.

The Iowa Power Farming Show in Des Moines recently attracted 20,000 farmers, who checked out new precision agriculture tools and talked with equipment and seed dealers. Even with the farm bill deadline looming, many had not yet figured out which program they wanted to sign up for. Some said they had not yet educated themselves, others found the options confusing.

Across the Corn Belt, extension services have been holding farm bill program informational meetings for months, and several farm groups offer tools so individuals can get estimates based on their own historic yields to help them decide.

The selection farmers make commits them for the life of the law—at least five years, possibly more if Congress again drags its feet getting a new farm bill implemented.

John Paper of State Center is one farmer who has made his decision.

“I, mainly, went through my crop insurance man and he had a program and kind of went through my yields and base and [I] kind of went with his recommendations,” Paper said. “And so I’m probably going with the [Agriculture Risk Coverage] for my farm.”

Michael Johnson, who grows corn and beans in Kanawha, has made the same choice.

Just because for our operation, that’s the best fit,” he said.

With Agriculture Risk Coverage they will get a government payout if their revenue is lower than a historical average, regardless of what the commodity price is. Price Loss Coverage only pays out when prices drop below a certain threshold. Corn has already done that this year, though soybeans have not.

Since a bad year can cripple farmers, their decisions now are critical. Agriculture Secretary Tom Vilsack has noted the pressure farmers are feeling to make the right choice.

“We recognize that this is an important decision,” Vilsack said, “because it will govern activities for the life of the farm bill.”

More immediately, it will help economists improve their estimates of just how many billions of dollars taxpayers are on the hook for. And then everyone will wait to see what really happens with prices.