If U.S. farmers believe commodity prices will stay strong for the next five years, the Senate’s farm bill proposal could be a good choice, say Texas AgriLife Extension economists.
But if markets tank, farmers have no deep-loss protection in the Senate’s proposal, say Joe Outlaw, professor and extension economist, and James Richardson, regents professor.
“Every commodity with high revenue rates in recent years wants a revenue-based program,” Outlaw says. “The five-year benchmark will be high, but what happens if markets tank?”
He says commodities supporting the Senate farm bill proposal are trading off deep-loss protection for a high benchmark. “It’s not good for all parts of the country.”
He says the House version offers something similar to a counter-cyclical payment, now called a reference price. “Both proposals also have supplemental coverage farmers may buy.” Outlaw says both proposals have revenue plans to pay “a little on deep losses. But the Senate bill is not as deep.”
Richardson says if markets stay high, the Senate proposal could be “the best program some farmers can get,” in a new farm law. “But they will no longer have (adequate) support if the market turns south.”
In fact, support would get increasingly worse as markets fall. The base would erode. At some point the program “would become just yield protection. This program does not provide a true safety net,” Richardson says.
He says history shows that high prices turn to low prices. “We can overproduce any good commodity,” he says.
He points to the 1996 farm bill that took away a lot of the market protections farmers had used before. At the time that bill was signed into law, commodity prices were high. “Two weeks after it was signed market prices began to go down,” he recalls. “Within a year, commodity prices were at record lows.”
But in 1996 farmers also had the Agricultural Market Transition Act (AMTA) to bolster income. Richardson says eligible farmers received an added AMTA payment in 1998-2001. There are no provisions now for a similar program. “And there is no reference price,” he says. “In an insurance type program, when the value of the crop goes down, the base goes down and losses are then paid on a smaller base.”
The current cotton market provides a good example with prices well below $1 per pound just months after historical highs saw cotton climb to $2.
No real safety net
“Without a reference price, the long-term could be a problem (with the Senate bill),” Richardson says. “It’s nothing like the old days when we had a real safety net. If prices go down, the Senate bill provides no safety net. Farmers have to consider whether they believe commodity prices will stay high for five years.”
He says the House is still trying to address a safety net.
Outlaw says both the House and Senate versions will adhere to budget constraints that will take as much as $15 billion out of commodity programs. “Congress has to make money go as far as it can.” He also foresees proposed cuts in nutrition programs, favored by the House, as problematic in the Senate.
Rodney Mosier, executive vice-president, Texas Wheat Producers Association, agrees that Texas producers need a viable safety net. TWPA “recognizes the need for a multi-faceted farm bill which will protect producers when they need it most,” he says. “We support farm policy that creates a true safety net for farmers, one that will allow them to continue operating when crop prices plunge or disasters occur.”
The Southwest climate creates unique challenges to wheat growers. “Due to the extremely variable growing conditions in the Southwest, crop insurance coverage levels are lower in our region and policies are often more expensive, leaving our growers exposed to more risk,” Mosier says.
Grouping all regions and all commodities under one “shallow-loss program would be a mistake and it would put the entire domestic wheat supply at risk,” Mosier says. “As we work to make the most of each dollar invested in farm policy, providing producers with options is the financially responsible decision. When we look at the programs that are forecast to (disappear) with the 2008 farm bill, we see that farmers are already relinquishing their fair share of support. Congress cannot balance the national budget on the backs of production agriculture, nor should they.”
Mosier says the Senate could have added adequate reference prices in its mark-up without compromising the savings goal of the Senate Agricultural Committee.
National Association of Wheat Growers (NAWG) president Erik Younggren says a new farm bill should include “a multi-legged farm safety net with crop insurance as its foundation. Younggren testified last week to members of the House Committee on Agriculture’s Subcommittee on General Farm Commodities and Risk Management.
He said crop insurance remains a top priority in the 2012 farm bill for wheat farmers’ risk management plans but added that crop insurance alone is not a fully-functioning safety net. He voiced support for a revenue-based Title I program modeled on ACRE and SURE with an on- farm trigger and coverage by commodity.
“As a farmer, I … recognize the risks of changing the existing safety net so dramatically that it removes the price protection currently available in Title I,” Younggren said.
He also strongly reiterated calls for Congress to complete its work on the 2012 farm bill quickly, before the current farm and food law expires on Sept. 30. This is more critical for wheat growers, who will be planting winter wheat early this fall.
That may be a tall order, Outlaw says. “Conference (between House and Senate members) will not be easy. They are trying hard, but it will be difficult in an election year.”
He says one possibility may be that both the Senate and the House versions are offered to farmers, giving them a choice of programs. “If I were a farmer I think I’d like a choice,” he says.