Higher farm bill payouts could bring bigger bulls’ eye

Higher farm bill payouts could bring bigger bulls’ eye

As Budget Committees look to trim spending, CBO and FAPRI’s higher farm spending projections could require more cuts in farm bill.

During the farm bill debate, much of the focus was on the $23 billion in “savings” that would come from changes to the farm programs. The biggest ticket savings line item was the elimination of the direct payments worth $6 billion a year, but those savings could never be realized and budget committees may again ask for cuts from the agricultural industry.

New forecasts by the Congressional Budget Office and the University of Missouri’s Food and Agriculture Policy Research Institute predicted that the new farm programs will surpass payouts seen under the old system of direct payments, potentially reaching $7 billion annually over the next few years.

With the new farm bill in place, PLC and ARC replace direct payments and ACRE for grain and oilseed producers. Projected ARC and PLC payments peak in 2015-16 and then adjust downward in later years.

A revised farm baseline prepared by FAPRI has program costs jumping by nearly $1.7 billion, or 81%, from their previous prediction for the 2015-16 marketing year. CBO’s new estimates reveal that costs would reach $36 billion over the decade spanning 2014 to 2023. The new CBO baseline updates that figure by a nearly 50% increase to $52.7 billion over the same time period.

Direct payments were replaced with the Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC) safety nets, and as prices have turned lower, the potential payouts of the programs could see short-term spikes before moderating as increases from year-over-year flatten out.

CBO projects that total payments to corn and soybean producers from ARC alone will be $3.37 billion in fiscal year 2017, when the government will have to payout on the safety net. That is 38% higher than what this sector collected last year under the old system of direct cash payments to producers.

Farmers still have until March 31 to make final ARC or PLC election determinations, so it isn’t guaranteed how many will sign up for each. FAPRI projects ARC and PLC payments to peak in the 2015-16 marketing year, but after this year program rules force ARC revenue benchmarks to adjust downward for many crops and counties.

In contrast to the commodity programs, CBO estimates for the federal crop insurance program will be very close to what was projected a year ago. At that time, CBO estimated the 10-year cost at $90 billion and in the new baseline for this year has declined slightly to $89.1 billion.

With the new CBO projections as backdrop, the House and Senate Budget Committees plan to markup their respective version of the congressional budget resolution for fiscal year 2016 this week. The budget resolutions will then go to the House and Senate floor, and if passed, will be negotiated into a final budget resolution to guide spending decisions for fiscal year 2016.

The National Sustainable Agriculture Coalition said there is a “strong possibility that the draft budget resolutions to be introduced by the Budget Committee chairman will include reconciliation instructions and that those instructions may include a directive to the Agriculture Committees to cut farm bill spending by a designated amount.”

Even though the farm bill was just signed into law, it’s not unprecedented for a budget reconciliation bill to reopen farm bills. In 1987 Congress enacted downward adjustments to the government support prices for commodities, and another one in 1989 made slightly more cuts. The 1990 version made cuts in tandem with the farm bill passed that year. The budget reconciliation act in 1996 made major cuts in the food stamp program which was reauthorized in the farm bill that year. Most recently, the 2005 Deficit Reduction Act modified the terms of the 2002 Farm Bill, not just lowering commodities subsidies, but also making cuts in conservation, rural development, ag research and renewable energy programs, NASC said.

There’s already been a unified front in ag committees and commodity groups to prevent any cuts with nearly 400 groups writing leaders asking for them to “reject calls for additional cuts to programs” within the jurisdiction of the Senate and House Agriculture Committees.

But with these higher projected layouts it will be a harder case to make.

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