Latest / Closing Market Report / One Big Beautiful Bill Act includes a Farm Bill

Transcript

One Big Beautiful Bill Act includes a Farm Bill · Closing Market Report

• 0:00
  Todd Gleason: I'm University of Illinois Extension's Todd Gleason. We're now joined by Gary Schnitke, agricultural economist here on the Urbana Champaign campus of the U of I'm to discuss the reconciliation bill or the big beautiful bill that contains essentially, Gary, as you related to me, a farm bill inside of it that's not getting a lot of attention. You, Nick Paulson, Jonathan Coppas, and Carl Zuloff have written an article about a particular portion of this. It's related to base acres for the FarmDoc Daily website. Can you tell me a little bit about the inclusion of a farm bill in the reconciliation bill.
• 0:44
  How unusual is this?
• 0:46
  Gary Schnitkey: The inclusion of the farm bill is a a relatively unusual thing. It's been a while. I it might have happened in the last time in the Bush administration, and I'm not even sure that that was a reconciliation bill. What makes this unusual is that bill includes changes to the commodity title program, PLC and ARC. It includes changes to crop insurance.
• 1:12
  It increases basic and optional units of premium subsidies and it also strengthens SCO, makes it such that every Illinois farmer will have to consider SCO. And it also includes provision for adding base acres. So, and that's what our article was about this time, but this is part of that reconciliation bill, it's in both the House and the Senate version. So both of which have passed and now they're moving to reconciliation between the two and we'll see where that process goes. But if these bills do pass, we will likely have a farm bill as part of that.
• 1:58
  Todd Gleason: The SCO subsidy would benefit farmers in Illinois, but also across the Corn Belt. Correct?
• 2:04
  Gary Schnitkey: Currently, SCO go it stops at 86% down to the coverage level of RP. The bill will increase that coverage level from 86% to 90%, and it will also increase the premium subsidy or premium support on it from 65% to 80%. So essentially the farmers will be paying 20% of the expected payments if it's rated properly, and we would argue that in the Midwest it probably is not. It's still 80% subsidy makes it a a gainer in most years.
• 2:42
  Todd Gleason: Yeah. And by rated properly in the Midwest, you mean it's underrated in the Midwest and right
• 2:47
  Gary Schnitkey: You pay too much in premium for the payouts that you get from it. And there's a couple reasons for that. That's that's a long standing problem with the Midwest crops, as well as the mechanism that RMA uses to calculate expected yields have slagged yields in the Midwest. We've had exceptional yields and their expected yields have been below our actual yields in eight out of ten years in most cases, and there's some counties where it's been below it ten out of ten years.
• 3:18
  Todd Gleason: Alright. Now let's turn your attention to the article that you and your co authors have penned. This one is about base acres.
• 3:29
  Gary Schnitkey: There
• 3:29
  Todd Gleason: are some things in the reconciliation bill that you find interesting and want to talk about as it's related to these base acres and how they could be updated if this bill passes.
• 3:41
  Gary Schnitkey: The bill includes a provision that would allow for each FSA farm, or landowners could add base acres to that farm. And the existing base acres on that farm would stay the same. But if three types of acres are above the base acres in the sum of those, you would add base acres. For Midwest and Illinois situations, the most likely one would be plantings from 2019 through 2023. The average of those plantings of corn, soybeans, and other program crops exceeds base acres.
• 4:27
  If they do, then that farm could add those base acres to that farm. That would benefit many producers in the Midwest, but the bigger benefits come from, the two other types that are added to it. The other two types are number one, up to 15% of tillable acres of non program crops could be added, and that there would be an eligibility requirement that would be specified by a farm service agency. But if you have crops in anything but pasture and grasses, it would likely be added to that. Most farms in the Midwest plant program crops, corn and soybeans, so they wouldn't benefit from that.
• 5:15
  And there's also a category called unassigned acres, which are old upland cotton acres that have never gotten back into the program, and those could be added through this process as well. And that will skew those acres outside the Midwest and other areas.
• 5:37
  Todd Gleason: What does it mean across the board going forward for the farm economy in your opinion?
• 5:44
  Gary Schnitkey: This bill adds up to 30,000,000 base acres, and that's an 11% increase. That 11% increase will, again, increase the cost commodity titles by about the same amount, maybe a little bit more depending on what what, where those base acres get added, but it'll increase the commodity title by 11%. For Midwest farmers, it will help those that have been planting more corn and soybeans than their base acres. They will get to add acres. It doesn't do anything to rectify the situation where you're underplanting.
• 6:24
  So anybody that's been underplanting, again, that happens mainly outside the Midwest, will be able to maintain those acres. It doesn't cause a fundamental matching of base acres to planted acres, but it does help those that are overplanting their base.
• 6:44
  Todd Gleason: Why would you want to match base acres to planted acres in this situation?
• 6:49
  Gary Schnitkey: The primary reason is that ARC and PLC or the commodity title programs should be countercyclical payments and offering countercyclical help. Therefore, the closer they match actual plantings, the better off that matching will occur.
• 7:07
  Todd Gleason: And so this then would push producers to do what because of the policies?
• 7:16
  Gary Schnitkey: So it's not going to produce produce producers in the Midwest to do anything, really. I mean, you you will choose to add base acres and keep going. Where the issues actually come in is where is rice, peanuts, and cotton which have many more acres above their planted acres so they're getting more program payments than they're planting.
• 7:42
  Todd Gleason: Wait Why why is that the case? Why do they have more acres in the programs than they actually plant? What what's happening? Are they double counting in some way?
• 7:51
  Gary Schnitkey: No. So over time, rice, peanuts, and cotton have decreased in acres, and the base acres are were set historically. So we have this historic basis and plantings now are below that. The other thing that happened was that most of the time when we've added acres in the past, landowners were given shots and they could often keep their current base acres or update them to new base acres. And they would choose the alternative that would maximize their payments, which was generally to keep as much cotton, rice, and peanut acres as you as you could.
• 8:33
  That also happened in the Midwest. When we were given choice between corn acres and bean acres, we always chose the corn acres because corn acres tended to pay more. So if you're looking at base acres relative to planted acres, there's several crops that have many more base acres than planted acres, and that would include wheat, cotton, rice, and peanuts. And there's some crops with more planted acres than base acres, and the big one there is soybeans.
• 9:03
  Todd Gleason: And what does that cause? I mean, let's just stay in the South because I think it I I think this is easier to understand, but I'm not certain that's the case. So if you're a farmer in the South and you have either had, historical cotton or or peanut base acres that's going to the Southeast, and now you don't plant as many of those, but you have replaced them with soybean, for instance, What does that mean?
• 9:28
  Gary Schnitkey: It means that you're getting the cotton, rice, and peanut payment rather than the soybean payment. Here is the difference in projected payments on a national basis if if this these bills pass. Corn would have a $31 average payment per base acre, soybeans $21 so less than corn, but seed cotton would have $91 peanuts would have $256 per base acre, and rice, $268 per base acre. So those three crops have more than at least triple because it's sometimes five to six times more payments per base acre than corn and soybeans.
• 10:13
  Todd Gleason: Does the that kind of disparity happen across much of the acreage outside of the Corn Belt? Meaning is that acreage, and it would shift how much that acreage is worth by a long shot. Right? And so I'm assuming the South is is really overpriced per acre, based on this.
• 10:36
  Gary Schnitkey: The South would have more seed, cotton, peanut, and rice payments, and that would be the big area. Western states probably have more wheat acres than are being planted right now, but that's a relatively small payment compared to what's happening in that cotton, peanut, and rice area.
• 10:56
  Todd Gleason: Yeah. And so it wouldn't have nearly as dramatic an impact.
• 10:59
  Gary Schnitkey: The point of this is is if you look at the projected payments, they're three times as much for seed cotton, eight times as much for peanuts and rice than corn or soybeans. And those are the sorts of subsidy differences that are going on those base acres when they're not being planted.
• 11:21
  Todd Gleason: Unwinding that is always very tricky, especially in rural areas because so much of the tax base is agriculture or farmland, and it has an impact on hospitals and rural fire protection and more importantly, school districts.
• 11:40
  Gary Schnitkey: Unwinding those is really hard, but we're making that unwinding harder by making those disparities wider. And I would argue that there's no reason why Southern rural communities are worse off than Midwest rural communities. And so why are we providing more subsidies there than here? I mean, we've all seen what's happened to many Midwestern communities, particularly those that are away from some of the population centers.
• 12:12
  Todd Gleason: Thank you very much.
• 12:14
  Gary Schnitkey: You're welcome, Todd.
• 12:15
  Todd Gleason: Gary Schnicki is a member of the PharmDoc team, an agricultural economist here at the Urbana Champaign campus at the University of Illinois. May read more from him on our website. Look for reconciliation bill proposals to add base acres at willag.org.