Farm Safety-Net Payments Under the 2014 Farm Bill: Comparison by Program Crop
Released: 2017-08-11T00:00:00

Introduction

The U.S. Department of Agriculture (USDA) operates several programs that supplement the incomes of farmers and ranchers in times of low farm prices and helps them to manage risks associated with natural disasters and with variability in crop and pasture yields and commodity prices. These programs—referred to as the "farm safety net"—include three components: federal crop insurance, farm revenue support programs, and agricultural disaster assistance.

Over the years substantial federal resources have been spent in support of the farm safety net. Much of this spending has gone to a small group of field crops. Within this group of field crops, there has been significant variation in both absolute and relative levels of historical farm support. The 2014 farm bill (Agricultural Act of 2014, P.L. 113-79 ) changed the structure of several safety-net programs; however, important differences in commodity-specific funding persist.

In their June 2017 baseline projections of USDA program outlays through 2027, the Congressional Budget Office (CBO) projects disparities in payments and relative support levels across program crops. CBO's June projections are described in a lay-friendly study released by f armdoc d aily on July 14, 2017. In the farmdocdaily study, when combined farm safety-net payments (excluding federal crop insurance premium subsidies) are expressed on a per-acre basis, peanuts receive the highest support rate with an average of $288 per acre. Rice receives the second-highest per-acre rate at $135 per acre. The average annual payment rate for all other program crops is below $30 per acre.

The CBO projections are looking forward in years yet to come. In contrast, this report uses actual historical data to construct a series of charts and tables that provide information on the distribution of commodity-specific outlays under the farm safety-net programs of the 2014 farm bill during its first three years of operation (2014 through 2016). This information is intended to provide statistical context for evaluating the distribution of current farm program payments. This report does not assess the merit or fairness of this distribution, nor does it evaluate the social welfare outcome of federal farm payments.

The first section of this report briefly describes the U.S. agricultural sector relative to USDA farm programs. The second section discusses why an understanding of commodity-specific support has merit. The third section summarizes the specific federal programs involved in the farm safety net—which crops are eligible for payments and whether payments are coupled with, or decoupled from, actual production. The fourth section of this report uses a series of charts to compare commodity-specific outlays that have occurred during the first three years of the 2014 farm bill using several different measures. The final section compares the relative levels of market price protection provided by marketing assistance loan rates and Price Loss Coverage (PLC) reference prices—all of which are fixed in statute—among program crops and relative to recent market conditions. Although significant differences in support across program crops are revealed, this report does not assess the merit or fairness of such differences. Several supplementary data tables are included at the end of the report and referenced throughout the text.

Overview of U.S. Agricultural Sector

U.S. agricultural production value has averaged $385.1 billion during the first three years (2014 through 2016) of the 2014 farm bill ( Table 1 ). Field crops eligible for USDA revenue support programs (discussed later in this report) have accounted for $115.7 billion, or 30% of the total. When combined with milk production—milk is eligible for potential federal payments under the Margin Protection Program (MPP)—the average value of program commodity production is $155.5 billion and represents 40.3% of U.S. agricultural production. The remaining nearly 60% of U.S. agricultural production is not eligible for USDA revenue support programs but is potentially eligible for either disaster assistance or crop insurance.

Why Examine Commodity-Specific Support?

While federal agricultural policy may have specific national goals—such as ensuring abundant agricultural output and safeguarding America's agricultural resources—when the supporting program outlays vary significantly across eligible crops, there is potential for unintended policy consequences. In particular, when farm program payments are linked to specific crops, they can influence relative market incentives and resource allocations. The stronger the payment-to-crop linkage, the greater the potential for producers to alter their crop choices based on the relative likelihood of program payments. Also, significant differences in support levels across program crops may have strong regional or geographic implications, because not all agricultural activities may be undertaken successfully in all agro-climatic settings, as these vary widely across the United States. Finally, the size of annual U.S. farm program outlays increases the potential severity of any unintended consequences.

Substantial Funding Has Supported the Farm Safety Net

Over the years, substantial federal resources have been spent under federal commodity programs. Since U.S. farm support programs were first authorized in the 1930s, USDA's Commodity Credit Corporation (CCC) has provided over $500 billion in taxpayer dollars in support of farm programs. Nearly $303 billion (or about 60%) of total CCC commodity support payments have occurred since the 1996 farm bill (Federal Agriculture Improvement and Reform Act of 1996, commonly referred to as the Freedom to Farm Act; P.L. 104-127 ) was signed into law, including over $188 billion in payments to a select group of major field crops—feed grains (corn, sorghum, barley, and oats), cotton, wheat, rice, soybeans, and peanuts.

The Federal Crop Insurance Act of 1980 ( P.L. 96-365 ) created the current public-private partnership between the federal government and private insurance companies and established federal support for crop insurance that includes substantial premium subsidies. Under this framework, private insurance companies deliver and service crop insurance policies that are regulated and supported by USDA's Federal Crop Insurance Corporation (FCIC). Since 1980, the FCIC has paid over $80 billion in premium subsidies to support federal crop insurance policies. The traditional CCC farm program crops (cited in the previous paragraph) have been the beneficiaries of over 85% of federal crop insurance premium subsidies.

Prior to the 2014 farm bill, agricultural disaster assistance programs were usually ad hoc (meaning both unanticipated and off-budget) and often targeted to the same set of crops covered by farm programs and crop insurance. From 1978 through 2013, USDA spent nearly $45 billion on various agricultural disaster assistance programs. The 2014 farm bill changed this approach and created a set of permanent agricultural disaster assistance programs that focus assistance on livestock, orchards, and vineyards rather than on the traditional farm program crops.

Public vs. Private Resource Allocation

Market prices—determined by the intersection of supply and demand—are the primary signal by which a market-based economy allocates resources. U.S. farm commodity programs were intended to provide a safety net under, rather than supersede, market forces. However, USDA's combined CCC and FCIC outlays represent a substantial investment in the U.S. agricultural sector, particularly for a subset of commodities. The magnitude of federal support payments may have kept some resources in the agricultural sector that would have otherwise moved to other sectors of the economy.

Proponents of farm support programs have argued that producer vulnerability to seasonal weather uncertainty and global market conditions—particularly when substantial land and capital resources are invested in a single year's crop activity—merits public intervention. They contend that a single bad weather event or unexpected disruption in international markets could potentially drive significant irreplaceable resources from the agricultural sector. In contrast, critics contend that producers may choose from ample private sector risk-management tactics to offset weather risk while other sectors of the U.S. economy also face tough competition in international markets.

Apart from the policy choice of making a large public investment in a single sector of the nation's economy, the intensive focus on a small number of field crops raises the question of whether all U.S. farm commodities (and hence certain geographic regions of the country) have been treated equitably by the various farm programs. Significant funding differences across programs and commodities raise the question of whether potential unintended incentives might divert producer behavior from the production choices that would otherwise prevail in the absence of government programs. For example, some farm subsidy critics claim that, by focusing federal farm support primarily on feedstuffs (feed grains and protein meals), U.S. farm policy has lowered the cost for American consumers of meat relative to fruits and vegetables—which have been essentially unsubsidized. If true, this would suggest that current farm price and income support programs have indirect nutritional consequences. Similarly, critics of federal intervention in crop insurance markets have argued that by removing a substantial portion of the risk of farming on land with high yield variability, large federal crop insurance subsidies have encouraged production on marginal and environmentally sensitive crop land or discouraged the adoption of more environmentally friendly production techniques.

Regional Differences in Agricultural Activities

Most of the United States lies within a temperate zone, but agro-climatic variations still result in important regional specialization. For example, the rich, deep soils of the U.S. Corn Belt—stretching from Ohio westward through Indiana, Illinois, Iowa, southern Minnesota, and northern Missouri to Nebraska and Kansas—make it one of the world's most productive corn- and soybean-growing regions. The warm, humid conditions of the U.S. Cotton Belt stretch from the Carolinas westward across the southern United States through the delta states and into northern Texas, while a Hard Wheat Belt encompasses the arid northern and southern plains states. High-protein spring wheat thrives in a northern tier from Montana to Minnesota, while soft wheat production is spread throughout the wetter environments of both the Corn and Cotton Belts and the Pacific Northwest. Irrigation has allowed agriculture to flourish in California, Arizona, New Mexico, and arid portions of the states bordering the eastern and western Rocky Mountains.

Livestock activities are also determined, in large part, by a region's resources and climate: The most marginal lands serve as a base for cow-calf operations, while hog, poultry, and cattle operations are determined by the interplay of feed availability, proximity to markets, land opportunity costs, and animal waste management and environmental considerations.

With these agro-climatic conditions in mind, significant funding differences across program crops raise questions about whether federal resources are being used equitably and in the most efficient manner possible to achieve their policy goals.

Commodity-Specific Farm Safety-Net Programs

USDA's three farm safety-net components are funded through two principal entities within the USDA: the CCC and the FCIC. Only farm safety-net outlays that can be linked to specific crops are included in the charts and data tables of this report, with the exception of Figure 1 , which examines all farm safety-net outlays—commodity- and non-commodity-specific—since 1996.

The commodity-specific data exclude CCC outlays on conservation, trade, renewable energy, rural development, farm credit, and other general farm programs. Also excluded are CCC disaster assistance outlays that focus on livestock, tree crops, and orchards rather than farm program commodities. Similarly, FCIC outlays for the annual administration and delivery costs of private insurers and the costs associated with sharing the underwriting risk with private insurers are not included.

The commodity-specific programs funded by the CCC and FCIC are briefly described in the following two sections. The outlays across programs and by commodities are summarized in Table 4 , Table 5 , and Table 6 and discussed later in this report in " Comparison of Farm Safety-Net Program Outlays ."

Commodity-Specific CCC Support

CCC-funded commodity support programs include the marketing assistance loan (MAL) program and two revenue support programs—the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. The MAL, ARC, and PLC programs are authorized by provisions of Title I of the 2014 farm bill and are mandated for 26 farm commodities. However, not all commodities are eligible for all three commodity programs.

Section 1111 of the 2014 farm bill defines a set of 22 "covered commodities" that are eligible for the ARC and PLC programs. Covered commodities include wheat, oats, barley (including wheat, oats, and barley used for haying and grazing), corn, grain sorghum, long-grain rice, medium-grain rice, pulse crops, soybeans, peanuts, and other oilseeds. Other oilseeds include sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, sesame seed, and any other seed designated by the Secretary of Agriculture. Pulse crops include dry peas, lentils, small chickpeas, and large chickpeas. Noticeably absence from CCC revenue program eligibility is upland cotton, which was removed from eligibility for CCC revenue support programs under the 2014 farm bill as the result of a final ruling from a World Trade Organization (WTO) dispute settlement case successfully brought by Brazil against U.S. cotton support programs. However, cotton producers have been eligible for several cotton-only program payments described below in " Cotton-Specific Programs ."

An expanded list of "loan commodities" is eligible for MAL benefits. Loan commodities include all covered commodities plus upland cotton, wool, mohair, and honey.

Coupled Price Protection: Marketing Assistance Loan (MAL) Program

The MAL program provides both a floor price and interim financing for so-called loan commodities. A participating producer may put a harvested "loan" crop under a nine-month, nonrecourse loan valued at a statutory commodity loan rate. The loan uses the crop as collateral (in other words, the payments are "coupled" to current production) and the loan rate, in effect, establishes a price guarantee. The producer has the option to repay the loan and reclaim the crop when local market prices are above the loan rate plus interest. However, when local market prices fall below the statutorily fixed loan rate prior to loan maturity, then four potential MAL benefits become available to a producer with a crop under loan:

1. A participating farmer can repay the loan at a repayment rate based on local market conditions and pocket the difference as a marketing loan gain (MLG). 2. Rather than taking the loan when the posted local price is below the loan rate, farmers may request a loan deficiency payment (LDP), with the payment rate equal to the difference between the loan rate and the loan repayment rate. 3. As a third alternative, a participating farmer may use commodity certificates to repay the loan at the lower local market price and avoid any potential program payment limit associated with the market gain. 4. As a final option, to avoid any potential program payment limits, a producer could forfeit the pledged crop to USDA at the end of the loan period and keep any price gains associated with forfeiture.

MAL program benefits are available on the entire crop produced, which means a farmer receives no benefits in the event of a crop loss.

Decoupled Revenue Support: ARC and PLC Programs

In contrast to the MAL benefits, the ARC and PLC programs make payments based on historical acres and yields and therefore are not dependent on current production. In other words, they are decoupled from current producer production choices. In addition, both ARC and PLC use annual prices in their payment formulas rather than daily or weekly prices used by the MAL program.

PLC payments make up the difference between a crop's statutory "reference price" and its national season average farm price (SAFP). ARC payments make up the difference between a county revenue guarantee (based on 86% of the product of the five-year Olympic moving averages of historical data for national SAFPs and county yields) and actual crop revenue (defined as the average county yield times the national SAFP). The county ARC program is referred to as ARC-CO. ARC-CO and PLC payments to a producer are paid on 85% of the farm's acreage history (referred to as the farm's base acres) times the farm's historical crop yield (referred to as the payment yield) times the payment rate. For each program crop, eligible producers (those with base acres for program crops) had a one-time choice in early 2015 between the PLC and ARC programs depending on their preference for protection against a decline in either (a) crop prices or (b) crop revenue, respectively. Alternately, rather than selecting between PLC and the ARC-CO guarantee for each covered commodity, a farmer could select a farm-level "individual" ARC guarantee (ARC-IC), which combines all covered crops into a single, whole-farm revenue guarantee. ARC-IC payment is based on 65% of base acres and program yields.

Generic Base Recouples Program Payments

As mentioned earlier, the 2014 farm bill excluded upland cotton from eligibility for PLC and ARC payments. Instead, the former upland cotton base (totaling 17.5 million acres) was renamed as "generic" base. Generic base is eligible for ARC and PLC payments if a covered crop is planted on the farm. Thus, program crop choices made on generic base recouple ARC and PLC payments to plantings. A rational producer will consider potential program payments in addition to market conditions and crop rotations when making crop choices for generic base.

Cotton-Specific Programs

Although upland cotton was excluded from eligibility for ARC or PLC payments under the 2014 farm bill, producers of upland cotton remain eligible for MAL benefits and derive benefit from payments under a provision that provides economic adjustment assistance to users (EAAU) of upland cotton ( P.L. 113-79 , Section 1207(c)) and cotton storage cost reimbursements (Section 1204(g)).

EAAU payments are made to domestic users for all documented use of upland cotton on a monthly basis, regardless of the origin of the upland cotton. The payment rate is $0.03 per pound and results in CCC outlays of about $49 million per year. Although the payments are made to cotton users, at least a portion of the payment is likely returned to producers in the form of higher prices associated with the increased demand from domestic users.

In addition, the 2014 farm bill (Section 1119) established Cotton Transition Assistance Payments (CTAP) as an offset for the loss of ARC and PLC program eligibility. Under CTAP, upland cotton producers were eligible for payments on a percentage of former cotton base acres for crop years 2014 and 2015: For 2014, 60% of base received payments; for 2015, payments were made on 36.5% of base. CTAP was valued at a combined $484 million during 2014 and 2015.

In 2016, USDA used its administrative authority under the CCC Charter Act to offer U.S. upland cotton producers a one-time cotton ginning cost-share (CGCS) payment program valued at $328 million. The CGCS program provides cost-share payments for cotton producers' cotton ginning costs based on their 2015 cotton plantings multiplied by 40% of average regional ginning costs.

Dairy Programs

Under the 2014 farm bill, milk production is supported by the Margin Protection Program (MPP) and the Dairy Product Donation Program (DPDP). The MPP is a voluntary program that makes payments to participating farmers when a formula-based national margin—calculated as the national average farm price for all milk minus a national-average feed cost ration —falls below a producer-selected insured margin that can range from $4.00 per one hundred pounds (cwt.) to $8.00/cwt. Producer payments are based on a farm's historical milk production and are, thus, partially decoupled from current production behavior. However, producers may change their coverage level each year (within the $4 to $8 range), thus integrating current market conditions into the producer's program and production choices. Whereas participation in MAL, ARC, and PLC is free, the MPP program operates more like an insurance program: Milk producers must pay an annual administrative fee of $100 for each participating dairy operation and statutorily fixed premiums that rise steadily for higher margin protection levels and greater volumes of insured milk. As a result, there is the potential for a producer to experience MPP costs associated with participation without any benefits if national margin payments are not triggered. Through the first three years of the 2014 farm bill, MPP payments have been triggered only at high margin levels where producer participation has been low. As a result, producer-paid MPP premiums have actually exceeded program payments.

Sugar

Current farm law mandates that raw cane and refined beet sugar prices are supported through a combination of limits on domestic output that can be sold (marketing allotments), nonrecourse marketing assistance loans for domestic sugar (but at the processor level), quotas that limit imports, and a sugar-to-ethanol backstop program (Feedstock Flexibility Program). These sugar program features result in essentially no CCC outlays.

U.S. producers of both sugar and milk receive important price support via import protection from low-price international products under tariff-rate quotas (TRQs). Such TRQ support does not appear as a CCC outlay; instead, the costs are borne by domestic consumers. For example, sugar TRQ protection is notified annually as market price support (valued at over $1.4 billion in 2014) to the WTO by the U.S. government. The potential costs of TRQ protection are not included with the data used in this report.

Agricultural Commodities Without CCC Program Support

In contrast to producers of traditional program crops, producers of specialty crops (e.g., fruits, vegetables, and tree nuts) and livestock have generally received little or no direct government price or revenue support through commodity programs. Instead, these commodities benefit more generally from federal investments in agricultural research and extension programs and from federal support for domestic food and nutrition programs. Specialty crop and livestock farms may manage risks through business diversification and the purchase of federal crop insurance and may benefit from participation in federal disaster assistance programs.

Commodity-Specific FCIC Support

The FCIC directs and finances federal crop insurance programs. The largest federal cost in support of federal crop insurance programs is federal subsidies on producer premiums. The federal government, through the FCIC, has paid on average 62% of all crop insurance premiums from 2014 to 2016. As both participation in crop insurance programs and the value of insured crops have grown over time, so too has the absolute level of federal premium subsidies.

Premium subsidies are crop-specific. In 2016, crop insurance policies covered 290 million acres and over 100 commodities including fruit trees, nursery crops, pasture, rangeland, forage, and dairy and livestock margins. However, the major farm program crops (i.e., the covered crops) account for over 90% of all federal premium subsidies. Federally subsidized policies protect producers against losses during a particular season, with price guarantee levels established early in the year using the preplanting values of harvest-time futures contracts. As a result, the revenue guarantee protected by federal crop insurance moves up and down with market conditions. This contrasts with commodity programs where protection levels are fixed in statute (e.g., PLC reference prices and MAL loan rates) or use a five-year Olympic moving average for national farm prices and county yields to determine a revenue guarantee (e.g., ARC-CO).

Comparison of Farm Safety-Net Program Outlays

From 1996 through 2017, total outlays for farm safety-net programs (including non-commodity-specific spending) were on average $16 billion per year including $8.6 billion for commodity programs, $2.5 billion for disaster assistance, and $4.9 billion for crop insurance ( Figure 1 ).

After removing the non-commodity-specific outlays, the remaining commodity-specific outlays for that same period averaged $12.3 billion per year, including $8.6 billion for revenue support programs and $3.8 billion for crop insurance premium subsidies ( Figure 2 ).

USDA commodity programs operate counter-cyclically to commodity prices: Payments increase when commodity prices fall below support levels and decline when prices rise. In contrast, federal crop insurance outlays are pro-cyclical to commodity prices: Liability, premiums, and federal support outlays increase or decrease with commodity prices. As a result of their opposing cyclical behavior, CCC and FCIC outlays tend to counter-balance each other.

Between 2006 through 2013, CCC-funded program outlays declined while FCIC support for crop insurance expanded. This shift was primarily the result of market conditions and the associated rise in commodity prices that occurred during that same period ( Figure 3 ) rather than a change in policy. Since 2014, farm prices have again turned downward and CCC outlays have increased relative to FCIC outlays.

Program-Specific Outlays

The 2014 farm bill's safety-net programs cover the five crop years of 2014 through 2018. Through the first three years (2014 through 2016), CCC and FCIC outlays are a combined $38.1 billion. In annual terms, commodity-specific outlays are estimated at $12.7 billion per year, including $7.5 billion for CCC programs plus $5.2 billion in FCIC crop insurance premium subsidies ( Figure 4 and Table 6 ).

CCC programs accounted for 59% of commodity-specific outlays (see Figure 5 for program breakouts), with FCIC outlays accounting for the balance of 41%.

Commodity-Specific Outlays

Most of the commodity-specific costs for the farm safety net under the 2014 farm bill may be attributed to a few major crops. Corn (46%), wheat (16%), soybeans (15%), cotton (8%), rice (5%), and peanuts (4%) cumulatively account for 94% of CCC and FCIC payments from 2014 through 2016 ( Figure 6 ). Although these six crops receive a majority of farm program support, they do not constitute a majority of farm output value: During 2014 to 2016, these crops have accounted for about 28% of total farm receipts including fruits and vegetables, livestock, dairy, and poultry. It is this preponderance of CCC and FCIC spending focused on a small number of commodities that merits further inspection of how the programs function across program crops.

Production Characteristics of Major Program Commodities

Corn is the largest crop grown in the United States both in terms of planted acres ( Figure 9 ) and value of output ( Figure 7 ). During 2014-2016, the three largest crops in value terms—corn, dairy, and soybeans—accounted for about 34% of the total value of U.S. agricultural output. When production values and planted acres are combined to reveal gross returns (before costs) per acre ( Figure 8 ), then sugar crops have the highest per-acre valuation ($1,291 per acre) followed by rice ($913) and peanuts ($775). The national average returns-per-acre for program crops is $475 per acre. Soybeans, pulse crops, minor oilseeds, other feed grains, and wheat all have average returns per acre below the national average.

Comparison of Base Acres and Planted Acres

Since the allocation of commodity-specific payments is based largely on historical or current output, base acres and current planted acres are major factors in understanding the distribution of payments. For example, corn is the largest crop grown in the United States in terms of both planted acres and base acres ( Figure 9 ). Thus, corn has the most acres potentially eligible for MAL benefits and ARC or PLC payments.

Because a farmer's actual plantings may differ from farm base acres, program payments may not necessarily align with financial losses associated with market prices or crop revenue. In order to better match program payments with farm risk, the 2014 farm bill provided farmers with a one-time opportunity to update individual crop base acres by reallocating acreage within their current base to match their actual crop mix (plantings) during the 2009-2012 crop years. However, significant differences still persist between actual planted acres and base acres ( Figure 9 ), especially for soybeans, rice, pulses, and minor oilseeds.

In the case of cotton, which was removed from eligibility as a covered commodity, former cotton base acres were renamed "generic base" and made eligible for potential payments if a covered crop is planted on the farm. Figure 9 includes a comparison of generic base (17.6 million acres)—previously upland cotton base—with average annual upland cotton planted acres (9.7 million acres).

Under the 2014 farm bill, there are 260 million base acres eligible for payment under the ARC or PLC programs ( Figure 10 ). The three largest crops—corn, soybeans, and wheat—account for 83% of total base acres. This compares with their combined 74% share of acres planted to principal crops in the United States over the same period.

Comparison of Outlays by Commodity

FCIC payments vary directly with planted acreage and market prices. In contrast, the CCC payment distribution depends on both market prices and the degree of coupling. For example, the crop-specific distribution of coupled MAL payments is determined by the distribution of planted acres across program crops and by daily or weekly local market conditions (reflected in the local posted county prices or AWPs used to determine MAL benefits) relative to statutorily fixed loan rates. The distribution of decoupled ARC and PLC payments is determined by the distribution of base acres across program crops and by annual market conditions (reflected by the national season average farm prices used to determine the payment rates) relative to support levels.

Absolute Payment Levels

Under this commodity structure, corn producers have received an average of $5.81 billion per year under the 2014 farm bill ( Figure 11 ). This compares with $2 billion per year for wheat and soybeans, respectively. Corn support represents 46% of annual CCC and FCIC commodity-specific payments ( Figure 6 ). The absolute size of corn's federal farm support payments is largely determined by its extensive planted and base acres ( Figure 9 ).

The top three program crops—corn, soybeans, and wheat—account for 77% of annual CCC and FCIC commodity-specific payments. Again, the absolute size of these three crops' share of federal farm support payments is principally the result of their large share of planted and base acres. The next section adjusts commodity payments for planted acres and for the value of production.

Payments Per-Acre and as a Share of Value of Production

When federal subsidies are measured as payments per acre ( Figure 12 ) or as a share of the program crop's value of production ( Figure 13 ), then peanuts, rice, and cotton emerge as the program crops with the highest payment levels under the current structure of farm programs and market conditions.

Average payments per acre across all program crops are $48.52 per acre. This represents 11% of the average per-acre value of production. Payments to peanut and rice producers (or owners of peanut and rice base acres) are well above the average payment rate for all other program crops. Under the 2014 farm bill, peanuts have received an annual average payment of $341.19 per acre, representing 46% of the per-acre crop value. Rice, at $238.47 per acre (representing 27% of average per-acre crop value), ranked second among program crops. Cotton, at $104.56 per acre and 22% of average per-acre crop value, ranked third.

Despite its large absolute payments of $5.8 billion, when adjusted for planted acres, corn producers are at $63.96 per acre, representing 11% of the corn crop's per-acre value. Soybean and pulse crops are below the average of federal support by every measure averaging per-acre payments of $23.40 and $17.86, respectively, and with value shares of 5% and 6%, respectively. Sugar program support appears low by both these measures but, as stated earlier, excludes the potentially substantial support value of import protection, which varies with international market conditions. For example, in its 2014 notification to the WTO, USDA reported $1.4 billion in import price protection for U.S. sugar. Sugar crops also rely on supply management controls (market allotments) that are not available to other program crops.

Another important observation is the absence of measureable direct support for the U.S. dairy sector. Outlays under the MPP program, created by the 2014 farm bill, have failed to offset the premiums that dairy producers have paid to USDA to participate. This absence of program payments is displayed in Figure 11 and Figure 12 and contrasts with Figure 7 , which shows that the U.S. dairy sector represents the second-largest commodity sector (behind corn) among program commodities with an annual average value of production estimated at $39.8 billion during the 2014-2016 period. However, unlike corn and other program crops, dairy has received no measureable direct commodity support.

Also noteworthy are the cotton programs described earlier in section " Cotton-Specific Programs ." The CTAP and CGCS programs were available only on a one-time, temporary basis and will not be available in future years under the 2014 farm program structure (barring congressional action).

Payments as a Share of Costs of Production (COP)

Most farmers have long endorsed the concept of basing support on the cost of production (COP), because costs have to be covered to stay in business. The permanent legislative authority for commodity support programs, the Agricultural Adjustment Act of 1938 (P.L. 75-430), uses prices paid for production inputs as a key determinant of support prices.

The 1973 farm bill, starting in 1975, used annual changes in COPs (as measured by the index of prices paid by farmers for production inputs, interest, taxes, and wages) and productivity efficiency (measured by yield increases) to adjust target prices, which were crop-specific reference prices used in determining payment rates. Current farm policy no longer explicitly includes COP as a determinant of support. Most economists argue against basing support on COPs for several reasons:

First, they contend that the specialized nature of some farm inputs (particularly land, buildings, and machinery) makes their cost dependent on the value of the farm output. This means that when earnings are above market levels because of a subsidy, the gains will be capitalized into the prices of the specialized inputs, thereby raising the subsequent COP and leading to calls for additional subsidies. In other words, the payments become self-inflating by bidding themselves into the capital assets (especially land values) that support agricultural production, thus resulting in higher farm payments as COPs rise. Second, COPs are different for every farmer. Thus, there is the problem of choosing which cost categories and levels should be covered—for example, only variable costs and only at a level of the low-cost highly efficient farmers, or national average variable costs, or average total costs rather than variable costs. Another consideration is that COPs are the key metric for assessing competitiveness in the marketplace. Basing U.S. farm support payments on a crop's domestic COP could result in significant market distortions if U.S. COPs are above international COPs, since any surplus production could not move into international markets without some form of export subsidy.

Instead, most economists argue in favor of linking farm support to market conditions so as to minimize unintended incentives and subsequent resource misallocations. There are times when market prices drop substantially, but temporarily, below trend levels. At these times, support may be justified to prevent unnecessary and undesirable resource adjustments. This builds on the concept of a market-based "safety net" that uses market price trends as the basis for setting support levels. Market-based support is discussed more in the following section.

In spite of the opposition of economists, most farmers regularly advocate for support to cover their COPs. To this point, how do current levels of support compare to COPs across commodities?

When USDA payments are expressed as a share of variable COP ( Figure 14 ) and total COP ( Figure 15 ) for each program crop for crop years 2014-2016, peanuts, at 66%, receive higher levels of federal assistance than other program crops. Rice and sorghum also receive higher levels of federal support relative to other program crops by this measure. Their average federal payments represent variable COP shares of 43% and 39%, respectively. Corn—the largest crop grown in the United States and the largest recipient of total CCC and FCIC payments—has 19% of its variable COP covered by farm payments. Payment rates for soybeans and pulse crops are lower at 14% and 12% of variable COP, respectively.

When payments are expressed as shares of total COP, peanuts and rice still rank first and second, but there is some shifting of position among the other program crops.

However, it is dairy—with no net support payments under the 2014 farm bill—that ranks last by the COP measures, with USDA outlays representing 0% of either variable or total production costs.

Support Levels Compared to Market Prices

The development of the farm safety net—and the establishment of commodity price protection levels inherent in target prices—is the result of a process that involves the voice of concerned citizens and consumers, lobbying activities by stakeholder groups, political pressures, and inputs from the research community and other experts. With respect to stakeholders, the various industry, trade, and producer groups that represent the major program crops have seen their cost structures increase substantially since 2006 as higher commodity prices and competing uses have bid up the price of important inputs such as land, fertilizer, and seed. They have also seen increased competition resulting from trade agreements and the integration of China, India, and Brazil into the global agricultural markets. Several extreme weather events, such as the widespread U.S. drought of 2012, have also occurred. These many factors imply that the large capital investments needed to operate a farm are subject to substantial underlying risk. As a result, many commodity interest groups argue for an expanded safety net with a revenue support target that does not shift dramatically following any single market event. Ultimately, many farm groups point to COPs as the relevant reference point for setting target prices.

In contrast, economists John Groenewegen and Kenneth Clayton argued in 1982 that "the level of price support should be established below trend market prices." One can think of the trend market price as reflecting the long-term equilibrium market price. The logic of providing a "safety net" may be used to set support prices at some level below the long-term equilibrium price. Currently, the law specifies fixed support levels under PLC and MAL without consideration for market price trends. Paraphrasing from Groenewegen and Clayton, trend market prices as a reference point should not cause the support program to attract additional resources into the sector but would provide a cash flow to farmers when market prices deviate substantially and temporarily below trend levels. Possibly in recognition of this logic, the last time that USDA proposed a farm bill to Congress in January 2007, it suggested that MAL rates be set at 85% of the five-year Olympic average market price for covered crops, with maximum loan rates as established in the House-passed version of the 2002 farm bill ( H.R. 2419 , 110 th Congress). The WTO dispute settlement ruling against U.S. cotton programs in 2005 further suggested that by giving price support levels a market context, as suggested by the formulation of a moving average, they would be more likely to be found in compliance with WTO rules.

How do current support prices vary across major program crops in comparison to market price trends? This is evaluated by three different measures. First, support prices (MAL loan rates and PLC reference prices) are compared with average farm prices under the 2014 farm bill. Then, the level of "price protection" provided under the MAL and PLC programs is measured as the percent of monthly farm price observations below the MAL loan rates and PLC reference prices established under the 2014 farm bill for each program crop. An extended nine-year period from January 2008 through May 2017—intended to reflect long-term market conditions—is used to evaluate this second measure. Finally, monthly market price data are used to evaluate the policy parameters needed to obtain equal levels of price protection across program crops since January 2008.

Support Levels as a Share of Average Farm Prices

MAL loan rates and PLC reference prices are expressed as a percentage of monthly average farm prices (MAFPs) under the 2014 farm bill (2014 through 2016) (see also Table 5 ).

A comparison, by commodity, of MAFPs with MAL loan rates provides a general sense of the level of relative price protection across program crops ( Figure 16 ) for the crop years 2014 through 2016. Upland cotton and rice prices are evaluated against monthly averages of their respective AWPs. The MAL program does not use monthly prices as a basis for payments but rather weekly AWPs for cotton and rice and daily posted county prices for the other program crops. Using a monthly national average price data smooths out daily (or weekly) and regional variation from the market price data and provides only a general approximation for how often a commodity has been eligible for MAL benefits. However, MAFP and AWP data is readily available and facilitates ease of comparison for this exercise.

The MAL loan rates for program crops range between 29% and 99% of the MAFPs or AWPs. Upland cotton, peanuts, and oats appear to have loan rates that are higher compared with their AWPs or MAFPs during the 2014-2016 period, whereas loan rates for barley, chickpeas, mustard seed, and rapeseed are lower as a percentage of monthly prices.

Similarly, a comparison, by commodity, of MAFPs with PLC reference prices provides a general sense of the level of relative price support across program crops ( Figure 17 ). The PLC program uses 12-month season average farm prices (SAFPs) to calculate the level of payments (if any), rather than monthly prices. As a result, a comparison of the monthly market price with the PLC reference prices captures more variation than would occur with an annual average. Thus, it provides an indicator of the level of counter-cyclical income support provided across program crops—not of potential payments across crops.

The reference price for peanuts represents 131% of MAFPs. Canola ranks second behind peanuts at 123%. About half of the program crops—including soybeans, barley, and all pulse crops—have PLC reference prices that are less than their average farm prices.

Measuring Price Protection: January 2008 to May 2017

The frequency with which monthly AWPs or MAFPs fall below the loan rate suggests how often a particular commodity is eligible for MAL benefits. When the marketing loan rate is above the market's equilibrium price, it acts as a floor or support price. Similarly, the frequency that MAFPs fall below the PLC reference price represents a measure of the price protection provided by the PLC program. To evaluate program price protection under the MAL and PLC programs, an extended data period—January 2008 through May 2017—is used to provide a larger, more representative sample of the underlying market conditions and to avoid the price effects that might occur during any single year.

The current set of MAL loan rates were initially established under the 2008 farm bill ( P.L. 110-246 ) and have not been adjusted to reflect the rise in market prices that occurred from 2006 through 2013 ( Figure 3 ). As a result, market prices have been consistently above MAL loan rates for most program crops since January 2008. Only upland cotton had prices (AWPs) that fell below its loan rate—in 8% of the observations—during the period ( Figure 18 and Table 2 ).

The data period (January 2008 to May 2017) includes the three years of 2011-2013, when farm prices sustained record or near-record highs for most program crops. Because this three-year period of sustained high prices immediately preceded the 2014 farm bill, it likely played a role in the establishment of relatively high PLC reference prices when compared to the counter-cyclical payment (CCP) program target prices from the 2008 farm bill ( P.L. 110-246 ).

The percentage of MAFPs falling below the PLC reference price during the reference period (January 2008 to May 2017) varies from 0% for soybeans to 78% for peanuts ( Figure 18 and Table 2 ). In other words, no PLC payments would have been made over the data period on soybean base acres, whereas monthly peanut farm prices were below their reference price of $26.75 per cwt. (78% of the data period). In addition, 58% of canola prices were below their PLC reference price. For the remaining program crops, MAFPs were below their respective PLC reference prices for 34% to 42% of the observations.

Hypothetical Equity Adjustments to Program Parameters

One potential approach to establishing parity of relative price protection across program crops would be to adjust each crop's respective MAL loan rate or PLC reference price until an equal portion of monthly farm price observations is below the adjusted level. This analysis builds on the concept of a "market-based" safety net that uses market price trends as the key factor in setting support levels.

The choice of any particular threshold for MAL and PLC price protection is purely arbitrary. However, by comparing the rates at which each commodity's monthly market price falls below relevant farm program parameters, a rough approximation is revealed about how current program parameters vary from more parity levels of price protection. This approach ignores all of the other potential policy reasons for setting each commodity's MAL and PLC support levels and focuses strictly on the price protection component of each program.

Hypothetical 20%-, 25%-, and 30%-Price Protection MAL Loan Rates

Three price protection rates are examined for MAL loan rates—20%, 25%, and 30%. In other words, the current MAL loan rates for each program crop are adjusted such that 20%, 25%, and 30% of the monthly farm price observations for data period (January 2008 to May 2017) fall below the respective loan rate for each crop. The resulting parity parameters and the percent adjustments needed to achieve parity are presented in Table 2 for each of the three price protection rates.

As mentioned earlier in the discussion surrounding Figure 16 , market prices have moved significantly above MAL loan rates since 2006 such that current MAL loan rates are offering only minimal price protection. Further, to achieve price protection at any of the three levels examined (20%, 25%, or 30%), MAL loan rates would have to be raised for all program crops.

Results for the 20% price-protection level are displayed in Figure 19 . To achieve price protection parity, the barley loan rate would have to be raised by 133%, soybeans by 91%, corn by 83%, and sunflowers by 78%. Cotton and peanut loan rates would require the smallest increases at 7% and 13%, respectively, suggesting that cotton and peanuts already have substantial price protection relative to other program crops.

Hypothetical 35%-, 40%-, and 45%-Price Protection PLC Reference Prices

The statutory PLC reference prices are adjusted such that 35%, 40%, and 45% of the monthly farm price observations are less than the PLC reference price during the same data period (January 2008 to May 2017). The resulting parity parameters and the percent adjustments needed to achieve parity are presented in Table 3 for each of the three price protection rates.

Results for the 40% price-protection level are displayed in ( Figure 20 ). To achieve the hypothetical 40% price-protection level, PLC reference prices for peanuts, canola, and sorghum would have to be lowered: peanuts by 19% from $26.75 to $21.55 per cwt., canola by 14% from $20.15 to $17.40 per cwt., sorghum by 3%, and rice by 1%. In contrast, PLC reference prices for the other major program crops would have to be raised to achieve a 40% price-protection parity rate: soybeans by 19%, oats by 17%, wheat and barley by 5%, and corn and sunflowers by 3%.

Conclusion

This report compares rates of federal support across program crops using several different analytical approaches. While there are numerous other valid methods for comparing program support levels, the analytical approaches used here provide reasonable bases for making initial comparisons. There may be little or no practical or theoretical justification for equalizing support rates, total payments, or payments per harvested acre. In fact, some critics say the subsidies themselves are not justified. However, to the extent that farm support is a key part of congressional debate, support levels among crops are likely to be a consideration. Large disparities in the relative levels of protection among program commodities can influence resource allocations and cropping decisions, potentially resulting in unintended market consequences that may have regional implications.

To the extent that the January 2008 through May 2017 time period reflects long-term market conditions, then the parity price-protection method of comparison evaluated in this report suggests that peanuts (and cottonseed when included as a hypothetical program crop) receive significantly higher price protection levels under both the MAL and PLC reference price programs as compared to the other program crops under the 2014 farm bill. Canola, sorghum, and rice also have greater support levels relative to the remaining program crops by these measures. In contrast, soybeans and pulse crops receive relatively lower price protection.

The choices of loan rate (20%, 25%, and 30%) and reference price (35%, 40%, and 45%) protection levels used in this analysis are arbitrary. However, the relative outcomes remain consistent under other levels of protection.

Note that results based on market conditions that prevailed in the past are not necessarily indicative of future outcomes. Changing market circumstances in the years ahead could lead to materially different relationships across support payments for program crops.