Senator Stabenow (D-MI) released a summary of the Senate’s current Farm Bill proposal. A detailed Section by Section summary can be accessed here.
In this post we will review some of the key details in the proposal and also review where the House proposal may be different. Currently, we believe the House proposal is of more value to production ag, but the Senate proposal does have some extras, but not to the extent of the House bill. There is a lot of details in the summary that we will provide in additional posts. Today’s post primarily deals with ARC, PLC, AGI and payment limits.
Effective Reference Prices will be increased to reflect the recent high prices. However, no details are provided on the amount of increase, other than seed cotton, rice and peanuts will see an automatic 5% increase. The summary indicates most commodities will see a 10-15% increase, however, no details on how it operates.
The House bill also increases the Effective Reference Price, but further details are needed.
Limited opportunity for underserved producers to establish new base acres if recent plantings exceed current base acres. The House would allow all producers to establish new base acres.
As an aside, it appears that if females are still considered to be underserved, most married couples should consider transferring a majority of ownership from the husband to the wife. USDA appears to be continuing a trend of “rewarding” female farmers while “penalizing” most husbands and it appears this trend will continue.
Payment yields would be established for these new base acres, likely at the 90% of recent yields (could be Olympic average yields or some other average).
It appears that if land is owned by someone whose AGI is greater than $700,000, then no ARC or PLC payment is allowed on this land. This is to discourage investors from purchasing land, however, it appears this would simply penalize the farmer who is farming that ground. Further clarity is needed on this since the wording is vague at best on the summary.
The $700,000 AGI limit is then applied to most farm programs; however, the limit is increased to $1.5 million for specialty and high-value crop producers. This appears to be a penalty on most farm producers in the country and a reward to specialty and high-value producers.
The proposal “Closes a loophole that allows some farmers to avoid average AGI requirements”. Will this proposal be similar to the Farm Program Integrity Act of 2023 that Senator Grassley and Brown introduced last year. If this is part of the proposal, then all general partnerships will essentially now be treated as an entity and only two payment limits will be allowed even if the general partnership has four active farmers. However, the actual proposal may be different, but something similar to this is in the proposal.
The House leaves the AGI limits at $900,000 and has no further restrictions on payment limits and actually increases them and indexes them to inflation.
The House increases the ARC-CO guarantee to 90% from the current 86%. The Senate proposal only increases this to 88%. It appears the Senate keeps the maximum ARC payment at 10% of benchmark revenue while the House increases it to 12.5%.
Price Loss Coverage will now have a maximum payment equal to 20% of the Effective Reference Price. As an example, assume that the corn price is $4.00, the maximum payment would be 80 cents times their PLC yield. This appears to penalize certain crop producers such as rice, cotton, peanuts and wheat who have seen prices drop below the loan rate in the past or greater than this 20% limit.
Under current PLC rules, the payment limit is the difference between the Effective Reference Price and Loan Rate. In many cases this much higher than 20% of the Effective Reference Price as this chart shows:
However, in some cases it may not matter if they are bumping up against the payment limit anyway. The House does not limit the PLC payment.
Loan rates may increase based upon the five-year average cost of production; however, this is capped at 110% of current loan rates. Does this have much value when inputs have increase more than 10% in a year and this is a five-year average. That lag would drastically minimize the effect of inflation farmers have faced over the last three years.
Enhancements to the Dairy Margin Coverage include increasing the quantity of milk for Tier I coverage by 20% to 6 million pounds.
It authorizes a permanent standing disaster program. This appears to mean that we will have ERP for the next five years or something similar. Perhaps the Senate will eliminate the “progressive” portion of ERP but since base acres are only for underserved farmers, we highly doubt it.
We will provide additional details in other posts, but as you can see the House proposal favors production Ag that provides the bulk of our food supply while the Senate proposal appears to favor other producers.
