The Battle Over Reference Prices
One of the big battles for the new Farm Bill is reference prices. Some are too high and some are too low, but it is hard to fix.
There are two major Title 1 programs in the Farm Bill - ARC and PLC. Both of these programs have a reference price that is set by Congress. For example, for corn, it is currently set at $3.70 per bushel. If prices stay high, this reference price can automatically go up to 115% of $3.70 or $4.25 per bushel. However, it can’t drop below $3.70.
ARC and PLC are paid based on “base” acres. These base acres have been set for many years and it does not matter what the farmer plants, the payment will be made on the base acres for that farm (an exception for ARC-IC, but this is a small segment of the program).
The reference price for some crops such as soybeans is very low, while other crops such as peanuts is fairly high. Peanuts almost always has a payment every year plus a peanut farmer has a separate payment limit from all of the other crops.
As an example, assume a farmer in Georgia has corn, soybeans, wheat and peanut base. This farmer can collect up to $125,000 for their corn, soybeans and wheat base plus another $125,000 for their peanut base.
There is a nice map of the US showing the estimated payments for this sample 1,000-acre farm by state. Four states would have over $100,000 of cumulative payments for 2019-2021 - Louisiana, Alabama, Georgia and Florida. Almost all of the corn belt and northern states would have less than $25,000 in cumulative payments.
Florida would top out at over $250,000 of payments while Georgia would be second at around $200,000. This is primarily due to the large peanut base in each of those states.
A simple thought is to raise the reference price for soybeans as an example and perhaps lower it for peanuts. However, the cost of doing this can be dramatic since there are a lot more soybean acres than peanut acres.
Another battle involves redoing the base acres. Many propose having an automatic base acre adjustment to reflect actual planted acres. The 2014 Farm Bill allowed for a voluntary adjustment. A required adjustment would see a lot of payments move from the South to the North and is there either enough funds to cover those increased payments or enough political capital.
We shall see and we will know soon.