Government Payments to the Rescue?

Gov't Payments

By Brent Gloy and David Widmar

As we discussed last week, U.S. farm income has declined dramatically over the last two years. The magnitude of the drop has been substantial. In real (2009) dollars, the fall from 2013 to 2014 and 2014 to 2015 are the largest absolute declines since 1979 to 1980.   In percentage terms, the 2014 to 2015 decline is the largest since 1982-1983.

We thought it would be worthwhile to examine the decline in further detail. As we mentioned last week, persistently high and increasing expenses have played a key role in the decline. We will look at how expenses have changed throughout previous downturns in a later post. For this week’s post we wanted to look at something that hasn’t gone up in this downturn, direct government program payments. Continue reading

Got Enough Base?

Got Enough Base

by Brent Gloy and David A. Widmar

As the possibility of 2014 farm program payments slowly works its way toward reality, we thought it would be useful to look at one of the major drivers of how large these payments will be, farm program base acres. The ARC-County and PLC programs both pay farmers on 85% of their base acres, while ARC-Individual pays on 65% of base acres. According to USDA payments will be made at the end of the marketing year for the commodity in question, but not before October 1, 2015.

One key feature of the new farm bill is that payments under ARC-County and PLC do not depend upon what was actually planted for the growing season.   While current prices (ARC-CO and PLC) and yields (ARC-CO) are the most important triggers for farm bill payments, base acres rather than planted acres determine the total payment that a farmer receives. Most of the discussion around payments has been at the level of payment per base acre. The concept of a “base acre” sounds fairly intuitive, but we wanted to know how well base acres lined up with planted acres and whether producers might be disappointed when, or if, a farm bill payment is made. Continue reading