Farm Bill Update: May 29, 2012

May 28, 2012 07:05 PM

via a special arrangement with Informa Economics, Inc.

Major change for SCO to meet CBO budget cost surprise | ACR vs SCO | Cotton's 2013 program | House action murky

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The following are major farm bill developments:

  • Senate farm bill (S 3240) will be up for floor debate shortly after the chamber returns June 4 and after the chamber votes on a gender pay equity bill. Key will be the number and scope of amendments allowed and whether or note farm bill supporters have 60 votes likely needed in the process. (Senate Ag Committee link to farm bill details).

  • Last-minute changes in Senate farm bill were noteworthy and controversial. After the Congressional Budget Office (CBO) was set to increase its costs estimate of the bill beyond initial forecasts following Senate Ag Committee approval of the bill April 26, Chairwoman Debbie Stabenow (D-Mich.) and a key staffer aligned with major support for the controversial Agricultural Risk Coverage (ARC) program revised the bill by "clarifying" that farmers would pay a 10 percent deductible for an increasingly popular option called Supplemental Coverage Option (SCO).

  • CBO said its updated cost estimate (link) reflected discussions with USDA about farmers' likely participation in the ARC and SCO programs. The ARC plan, totally paid for by taxpayers, would compensate farmers for "shallow losses" when prices decline by 11 to 21 percent. Crop insurance covers larger price/revenue declines, but opponents say the ARC would not be an effective safety net if commodity prices decline significantly and remain so for a few years. CBO said the SCO would be more beneficial to farmers who do not also sign up for ARC because the program has no payment limits, whereas the ARC imposes a $50,000 payment limit on producers (double for spouse). Also, some farmers may receive higher payments if they are enrolled only in supplemental coverage, instead of both SCO and ARC. As a result, CBO increased the percentage of farmers participating in the SCO and lowered the participation rate for ARC. As a result, the SCO program's projected cost surged from the prior estimate of $680 million to $3 billion, while the ARC's cost declined from $29.2 billion to $28.5 billion, brining a dilemma for Stabenow, staff and others pushing ARC. Others note that ARC would provide some support for several years under a low-price scenario, as the benchmark depends on a moving average of prices. In contrast, SCO and STAX provide no protection against a multi-year period of low prices -- their benefits only dpend on planting and harvest time futures pricesin a single crop year, just as with other crop insurance products. A proposed floor in the STAX cotton price benchmark was removed before the bill was voted on in the Senate Ag Committee. Note: The CBO's score assumes STAX and SCO would not operate until the 2014 crop of cotton for STAX and designated crops for SCO. 

  • US livestock producers get zapped by big cut in EQIP. The livestock industry also got zapped with reduced spending via a another $964 million in spending for the Environmental Quality Incentives Program (EQIP) over the 2013-2022 period.

  • Another controversial CBO assumption: The agency said cost and savings estimates assume the farm bill will become law in late 2012. But many observers expect that may not be the case and would peg continued action in 2013, and if so, forcing a vote on some type of current farm bill extension.

  • A cotton cost accounting trick? What program will be in place for 2013 crop cotton? The question arises because in CBO's estimates, it says based on information from USDA, CBO expects that STAX could not be offered before the 2014 crop of upland cotton has been produced. And sure enough, the CBO document shows 0 for STAX costs for FY 2014. Questions: What safety net program will be in place for cotton relative to the 2013 crop, and at what expense, and where does that show up in CBO estimates? Also, how can USDA have the ARC and SCO in place for 2013 and no cotton STAX? Still another... in CBO's STAX cost estimates, other than one year, they show rising cost estimates annually. Why is this, especially relative to the ups and downs of ARC? Some say the no-STAX for 2013 could be an "accounting trick." Note: Some observers say that while it could be a challenge to get ARC up and running in 2013, unlike STAX and SCO, ARC is not a crop insurance product where producers have to agree to buy premiums. Thus, that could mean that even if implementation is slow, payments could eventually be made for the 2013 crop.

  • Lots of changes for crop insurance sector in Senate farm bill. Of note, CBO assumes producers will reduce crop insurance coverage by $2.4 billion – due to the ARC. While CBO estimates over $5 billion in additional spending for crop insurance, that includes the likely conservatively pegged cost for STAX at $3.224 billion (STAX money really came over from Title I); the SCO is scored at a very likely conservative $3.001 billion; there is an $855 million cost for a farmer-friendly change in adjustment in APH yields; and there is a cost of $506 million in additional spending for farmer-friendly changes in enterprise units. Of note, CBO said that "Section 11001 also would authorize USDA to develop and offer profit-margin insurance policies, which would cover the difference between farmers’ receipts and costs of production. CBO estimates that implementing the supplemental coverage and margin insurance provisions would cost $3 billion over the 2013-2022 period." This is interesting because margin insurance has been pushed by wheat producers in North Dakota and the northern High Plains. It was going through the 508h approval process but some observers believed there was no authority to do so. Rice producers have also been interested in pursuing this program. Some $437 million in cost savings come due to reducing catastrophic (CAT) loss premiums due to the amounts paid by USDA to private insurance companies for delivering crop insurance since they are based on premiums.

  • Conservation program spending estimated to save $6.4 billion, but a new program boosts costs over $800 million for the programs it replaces The big savings in CBO budget savings for conservation program spending comes from phasing down the maximum Conservation Reserve Program (CRP) acres from the current 32 million acres maximum to 25 million acres by 2017, for a savings of $3.8 billion. Another $2 billion in savings comes from reducing maximum annual enrollment in the Conservation Stewardship Program from 12.769 million acres to 10.348 million acres. Another $964 million in spending cuts come from reduced spending for the Environmental Quality Incentives Program (EQIP) over the 2013-2022 period. But $809 million in additional spending comes from establishing a new Agricultural Conservation Easement Program to replace several other programs.

  • The House Ag Committee is expected to markup its farm bill version by the July Fourth recess, but its commodity title is widely expected to differ from the Senate in significant ways, including some type of price protection via target/reference prices or some other safety net option not included in the Senate approach, which eliminates the use of target prices. A farm bill analyst said that a reference price scenario as discussed by the House would provide continued support in the case of a multi-year period of low prices. "Of course, the potential taxpayer cost is great," according to a farm bill analyst. "CBO's score of reference price options are even more sensitive to the agency's projected price path than is its projection of ARC expenditures. If prices fall to very low levels and stay there, ARC payments would be capped at 8 percent of the benchmark value of the crop (10% times the 80% of planted acreage eligible under the county option), while reference price payments could be far larger if prices are low enough. If CBO gives a fairly modest score to reference price options, it's because they judge the probability of prices low enough to trigger large payments to be quite low."

  • House GOP leaders did not put the farm bill in its summer legislative agenda (link). But Senate farm bill proponents and farm bill lobbyists wanting a farm bill passed as soon as possible think that if the Senate floor can clear a farm bill, that would put pressure on House GOP leaders for a similar debate – a view not share by some key House contacts.

  • Rep. Collin Peterson (D-Minn.), Ranking Member on the House Ag Committee, sums up the farm bill debate simply: "Should the farm program be about maximizing your profit, or should it be about making sure the farm program is going to get you through if everything goes to hell?" he asked Thursday at a meeting in Fergus Falls, Minnesota. "I believe in the latter more than the former."




NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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