Higher Reference Prices Are Critical… But So Is Increasing Payment Limits

In a recent Southern Ag Today article we highlighted the overwhelming need to increase commodity reference prices in the next farm bill based on hearing testimony from the commodity groups.  While we continue to believe that this is the first and most important step in making meaningful changes to our country’s farm safety net, a very close second would be to increase the payment limit to account for the impact of inflation.  Actually, we would argue that payment limits should be eliminated completely because they are implemented for social engineering not economic reasons…but that is a discussion for another day.

Why do we think payment limits should be increased?  Using data from the Agricultural and Food Policy Center’s (AFPC) database of representative farms—and illustrated for crop year 2025—the 3,400-acre Iowa corn/soybean farm is projected to be facing much lower commodity prices.  In 2025, market receipts are projected to be $2.5 million with corn and soybean prices at $4.30 and $10.46/bu.  Costs in 2025 are projected to be lower at $2.7 million, resulting in a $200,000 loss without government assistance (of course, the loss could also be much larger if prices fall more than expected).  Assuming ARC and/or PLC are improved to the point that they would trigger assistance in 2025, the support would be limited to $125,000, leaving the farm with a loss of $75,000.  Even though Congress will have spent hundreds of hours conducting hearings and debating how to help farmers stay in business… payment limits will reduce the effectiveness of the improved safety net.  Said another way, the producer puts $2.7 million at risk through borrowing or self-financing, and if there is a price or production problem, the Federal government will help with up to $125,000, or 4.6% of what the producer has at risk in this example. [READ MORE]

Leave a Reply

Your email address will not be published. Required fields are marked *