What is in this article?:
- Because the average household income of farm operators typically increases with farm sales, farm households with higher incomes are receiving a larger share of commodity program payments than in the past.
- Barring substantial changes in program design, the shift of commodity program payments toward larger farms and farm households with higher income is likely to continue.
Program design and payment levels
By comparing the distribution of commodity payments across farms specializing in different commodities, and during the most recent years in which the market prices of program crops were relatively high (2009) or low (2005), one can illustrate how the design of the commodity programs affects payment levels. Examining commodity payments’ share of gross cash farm income (GCFI) indicates how much of a farm’s revenue comes from commodity payments.
In 2005, a year when the market price of many program crops was relatively low, about 27 percent of the 2.1 million farms in the 48 contiguous States received commodity-related payments. The number and percentage of farms receiving these payments varied considerably across farm types. For example, about 87 percent of the approximately 291,000 cash grain farms and 95 percent of the roughly 15,000 cotton farms received commodity payments. Cash grains include most of the major program crops.
Lower percentages of other types of farms also receive commodity payments if program crops are (or historically were) among the mix of commodities grown. For example, 6 percent of the farms that specialized in high-value crops (fruit, vegetable, nursery, and greenhouse) and 19 percent of the farms that specialized in raising beef cattle received commodity payments in 2005.
With the notable exception of the direct payments program, the countercyclical design of most commodity-related programs means that in years when commodity prices are low—such as 2005—a higher percentage of farms receive payments, and payments per farm are larger than in years when commodity prices are high. Compared with 2005, a lower percentage of all types of farms reported receiving commodity payments in 2009, a year when the market prices of most program crops were relatively high. Commodity payments as a share of GCFI were also lower in 2009 than in 2005 for all types of farms. Commodity payments’ share of GCFI declined especially sharply for cash grain farms, from 14 percent in 2005 to less than 4 percent in 2009.
It is important to note that farm operators do not receive all the benefits of commodity payments. A significant portion of the benefits of payments is captured by nonoperator landlords. Although many farmers own land, roughly 55 percent of farmland and 64 percent of cropland is operated by someone other than the owner, and 94 percent of rented farm land is owned by nonfarmers. Crop farmers may own their land, they may rent some or all of it for cash, or they may rent some or all of it for a share of production (share-rent). Landlords who share-rent are eligible for Government payments, while landlords who cash-rent are not. However, when Government payments are expected to increase, landlords can negotiate higher cash rents and thus capture some of the payments. Long-standing research conducted at ERS and elsewhere suggests that higher payments do increase cash rents.
As Production of Major Program Commodities Has Shifted to Larger Farms…
Since receipt of commodity-related payments depends on current or past production of specific commodities, shifts in production affect the distribution of payments. Production of major program commodities has, in fact, shifted to larger farms over the past 20 years, continuing an earlier trend. Family farms with more than $500,000 (in 2009 dollars) in annual sales accounted for 54 percent of production of the major program crops by 2009, up from only 22 percent in 1991. The production share of small commercial family farms—those with constant dollar sales between $10,000 and $249,999—declined from 49 to 20 percent.