Protection holes in farm bill proposal

If U.S. farmers believe commodity prices will stay strong for the next five years, the Senate’s farm bill proposal could be a good choice, say Texas AgriLife Extension economists.

But if markets tank, farmers have no deep-loss protection in the Senate’s proposal, say Joe Outlaw, professor and Extension economist, and James Richardson, regents professor.

“Every commodity with high revenue rates in recent years wants a revenue-based program,” Outlaw says. “The five-year benchmark will be high, but what happens if markets tank?”

He says commodities supporting the Senate farm bill proposal are trading off deep-loss protection for a high benchmark. “It’s not good for all parts of the country.”

He says the House version offers something similar to a counter cyclical payment, now called a reference price. “Both proposals also have supplemental coverage farmers may buy.” Outlaw says both proposals have revenue plans to pay “a little on deep losses. But the Senate bill is not as deep.”

Richardson says if markets stay high, the Senate proposal could be “the best program some farmers can get,” in a new farm law. “But they will no longer have (adequate) support if the market turns south.”

In fact, support would get increasingly worse as markets fall. The base would erode. At some point the program “would become just yield protection. This program does not provide a true safety net,” Richardson says.

He says history shows that high prices turn to low prices. “We can overproduce any good commodity,” he says.

He points to the 1996 farm bill that took away a lot of the market protections farmers had used before. At the time that bill was signed into law, commodity prices were high. “Two weeks after it was signed market prices began to go down,” he recalls. “Within a year, commodity prices were at record lows.”

But in 1996 farmers also had the Agricultural Market Transition Act (AMTA) to bolster income. Richardson says eligible farmers received an added AMTA payment in 1998-2001.  There are no provisions now for a similar program. “And there is no reference price,” he says. “In an insurance type program, when the value of the crop goes down, the base goes down and losses are then paid on a smaller base.”

The current cotton market provides a good example with prices well below $1 per pound just months after historical highs saw cotton climb to $2.