CBO Jan. Baseline Update Shows Expanded Payments to Farmers

Shift in CBO projections includes assumption of producers shifting toward PLC program after 2018 crop year

Government payments to crop producers are forecast to expand over the Fiscal 2017-2027 period compared to the March 2016 baseline update for the Fiscal 2016-2026 period, with higher payouts forecast for the Price Loss Coverage (PLC) program based on a change in assumptions by the Congressional Budget Office (CBO).

Previous CBO baselines and baseline updates have assumed continuation of current policies and that is the case in the January update. However, in the Fiscal 2017-2027 update, CBO now assumes and even greater shift toward the PLC program and away from Agriculture Risk Coverage-County (ARC-CO) programs for corn and soybeans.

For corn, CBO now assumes that just over 82 percent of corn farmers would choose PLC for 2019 crop year and beyond with those choosing ARC-CO at just 17.6 percent. For the 2016-2018 crop years, CBO assumes the current election levels – 6.6 percent for PLC and 93.1 percent for ARC-CO. In the March baseline update, CBO only detailed a shift in ARC to 52.4 percent from 93.4 percent through the 2018 crop year – there was no PLC percentage offered.

Under prior baselines from CBO, their long-term projections assumed that ARC-CO payments would fall under $1 billion in Fiscal 2020 ($748 million) and then be under $500 million annually through Fiscal 2025 before edging up to $571 million in Fiscal 2026. That put total ARC-CO payments at $15.339 billion over the Fiscal 2016-2026 period. They also assumed that PLC payments would rise to $948 million in Fiscal 2021 and remain at $722 million or more over the period for a total of $5.496 billion.

In the January baseline update, ARC-CO payment are now forecast to fall under $1 billion in Fiscal 2020 ($990 million) and then drop to $158 million in Fiscal 2021 and remain under $200 million in all but two of the subsequent years for a total of $11.254 billion over the Fiscal 2017-2027 period. PLC payments, however, surge from $208 million in Fiscal 2020 to $2.229 billion in Fiscal 2021 and remain in a range from $1.491 billion to $2.009 billion over the balance of the period. Total PLC payouts are forecast at $13.671 billion.

As for soybeans, CBO does not forecast as big of a shift in program participation. Current ARC-CO elections are at 96.6 percent with 3.1 percent in PLC, with those levels shifting for the 2019 crop year to 50.9 percent for ARC-CO and 48.7 percent for PLC. In the August baseline, CBO predicted the ARC participation percentage would fall to 51.0 percent in crop year 2019 from 96.9 percent.

On wheat, CBO sees a greater shift to PLC compared to current participation where 55.6 percent are in ARC-CO and 42.5 percent are in PLC — those shift to 16.0 percent for ARC-CO in crop year 2019 and 82.1 percent for PLC. The August baseline assumed that ARC would shift from 57.5 percent in the 2018 crop to 49.4 percent for the 2019 crop year and beyond.

For the 2017 crop year, CBO assumes 94.8 million corn planted acres and 91.5 million harvested acres with a national average yield of 170.0 bushels per acre for production of 14.219 billion bushels. With total domestic use of 12.329 billion bushels and exports of 1.995 billion bushels, CBO projection corn carryover at 2.563 billion bushels and a season average price of $3.41.

On soybeans, CBO projects 86.5 million acres planted and 85.6 million acres harvested with an average yield of 46.5 bushels per acre for production of 4.024 billion bushels. Based on total use of 4.038 billion bushels (including 1.950 billion bushels of exports), CBO forecasts soybean ending stocks of 436 million bushels with a season average price of $9.43 per bushel.

For wheat, CBO assumes wheat plantings fall to 47.8 million acres with harvested area of 40.5 million acres and a national average yield of 39.4 bushels per acre for a crop of 1.882 billion. With domestic use of 1.224 billion bushels and exports of 950 million, CBO expects carryover of 967 million bushels and a season average price of $4 per bushel.

CBO also included a new table in the January update – total payments on generic base acres. Those are former cotton base acres that were converted to generic base in the 2014 Farm Bill, allowing producers to collect payments based on the crop planted on those acres.

CBO projects for Fiscal 2018-2027, $3.261 billion will be paid out on generic base acres, with the biggest share – $1.588 billion – going for peanuts. CBO assumes payments would total $786 million for feedgrains, including $427 million for corn and $348 million for sorghum, and $527 million would be paid on wheat with $284 million on soybeans. The payments would amount to 31.3 percent of all payouts for peanuts under the PLC and ARC-CO programs, 10.7 percent on wheat, 15.2 percent on sorghum and 2.1 percent on corn and 2.3 percent on soybeans.

Comments: This updated outlook from CBO underscores some of the issues that producers have signaled on ARC-CO – there are issues with the program and the nature of the program with its averaging of revenue was likely to reduce future payouts in the program. But CBO is now seeing an even greater shift in the move away from ARC-CO in particular for corn and wheat and to a lesser degree for soybeans. But even the shift on soybeans is even greater than CBO forecast in their March baseline update.

The shift from ARC to PLC clearly shows that the ARC is not an effective safety net under continued low-price years and shows how the ARC formula worked to ARC participants advantage in the early years of the 2014 Farm Bill but then would be unable to be an effective safety net as time elapsed. There could be an attempt by ARC proponents to “change the formula” more to their liking.

The inclusion of the payouts on generic base acres also gives lawmakers some idea of what this program shift for cotton has meant to payouts under the various programs and puts a potential “price tag” for lawmakers to consider as they begin the discussions for the next farm bill. Look for a change in generic base acres in the new farm bill.

The CBO report also notes that savings from the 2014 Farm Bill exceeded $100 billion — far above the level the Agriculture panels were told to save. The bulk of those savings came from less than expected food stamp expenditures.

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