Thursday, January 26, 2023

Risk Management Tools Must be a Farm Bill Priority

by Colter Brown

In a time of volatility, managing risk remains a priority for farmers and ranchers, and new analysis from the American Farm Bureau Federation examines several farm bill risk management tools included in Title I, explaining their impact and importance to farmers. The analysis is part of a Market Intel series dedicated to farm bill programs, designed to inform discussions about renewing the farm bill.

“Title I of the farm bill, known as the commodity title, has provided certainty and predictability to eligible producers by reauthorizing and improving commodity, marketing loan, sugar, dairy and disaster programs,” economist Shelby Myers explains in this analysis, which is the third Market Intel focused on Title I. This article breaks down the Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs, which provide risk management coverage based on price and revenue targets for farmers and ranchers growing commodities.

The below figure illustrates the total number of base acres enrolled in the PLC and ARC programs from 2015, the first year the programs were available, through 2022.

Farmers enrolling in ARC or PLC must make a one-time election on a commodity-by-commodity basis in either ARC-County Option or PLC, or they may enroll all covered commodities in ARC-Individual Coverage. The farm bill also establishes statutory reference prices, which are the published prices for all covered commodities set in statute. PLC uses the statutory reference price as the price floor to trigger a payment. ARC uses the statutory reference price in the guaranteed benchmark revenue calculation.

This next figure breaks down how the total base acres are distributed to each program election for PLC, ARC-CO and ARC-IC from 2015 through 2022. Data for the 2017 program year is not publicly available from the USDA Farm Service Agency. Notice the shift farmers make between the 2018 and 2019 program years. When the 2018 farm bill passed, producers had the opportunity to make a program election in 2019 that remained through 2020, then annually elected a program option in 2021, 2022 and 2023, as stated above. As producers prepared to make their program decisions for the 2019 year, the farm economy at the time indicated low prices for a majority of commodities and producers made the shift from ARC-CO to PLC to protect against the low-price expectations on the horizon. As market changes occurred, producers evaluated their program election decisions accordingly for the 2021 and 2022 program years, which allowed them to pick the program that suits their risk management needs.

The covered commodities eligible for ARC and PLC include corn, wheat, soybeans, seed cotton, grain sorghum, barley, rice-long grain, peanuts, oats, sunflowers, canola, rice-temperate japonica, dry peas, lentils, flaxseed, rice-medium grain, safflower, large chickpeas, mustard, small chickpeas, sesame, crambe and rapeseed.

“Farmers and ranchers face risk every day,” said AFBF President Zippy Duvall. “It’s just part of the job. And we’re price takers, not price makers, so we can’t adjust prices to absorb losses. That’s why Congress authorized tools to help manage that risk, so the folks who keep our country fed, clothed and fueled can focus on growing their crops, taking care of their livestock, and being good stewards of the land and water we are entrusted with.”

The analysis provides historical perspective, including changes made in the 2018 farm bill to reauthorize and strengthen the PLC and ARC price and revenue programs for crop years 2019-2023. These programs were created in the 2014 farm bill to provide shallow-loss risk management coverage to producers of covered commodities.

Myers concludes in the analysis that one factor remains consistent as farmers and ranchers faced unprecedented circumstances in recent years: the need for a variety of risk management options, such as ARC and PLC, that fit farmers’ and ranchers’ unique situations. Risk management tools like these are vital to farmers and ranchers being able to mitigate the unpredictable nature of farming.

To read the complete Farm Bill Title I Commodity Programs Market Intel, click here.

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AFBF

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