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Credit: House Ag Committee

Christmas comes early with a Dec. 20 Farm Bill

By Matt Reese and Ty Higgins

Today, President Donald Trump signed the Agriculture Improvement Act of 2018.

“With the passage of the farm bill we are delivering to the farmers and ranchers, who are the heart and soul of America, all sorts of things that they never even thought possible,” said President Donald Trump. “We are insuring that American agriculture will always feed our families, nourish our communities, power our commerce and inspire our nation.

“By signing this bill we are protecting our crop insurance programs and funding that producers rely on in times of disaster.”

Retired Ohio State University agricultural economics professor Carl Zulauf recently hit the high points of the 800-plus-page 2018 Farm Bill.

“This is a largely a bill that is a 5-year extension of current policy with a few exceptions in each title. The biggest exception is the Conservation Title. There are major changes in that title across all of the different programs. The biggest philosophy is a redirection of funding away from working lands toward the regional partnership programs that were established in 2014 as a component of the conservation title and the conservation easement or longer-term withdrawal programs. So I think this is a big statement on conservation policy,” Zulauf said. “They increased the number of acres in the Conservation Reserve Program from 24 to 27 million, but they capped the rental rate at 85% of the county average for the permanent component of CRP and 90% for the continuous component of CRP. This will have significant influences. For those with land in CRP, they are changing a bunch of other parameters so it is not clear what the rental rate will do for a given piece of land, but overall the rental rate will come down.”

In terms of the Title I crop support programs — Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) — there were some small changes that could be major differences moving forward.

“They are going to allow you to switch between ARC and PLC beginning with the 2020-21 program. You won’t make a 5-year commitment to one program as you did in the last farm bill. It will be year by year,” Zulauf said. “This will be a big change in the program. The best program can easily vary from year to year.”

Another major change to farm programs is an option to update program yields for PLC. Owners of an FSA farm will have a one-time option to update their program yields. In addition to the PLC program yield update option, the bill also includes changes to the calculation of yields for the ARC-County program. Specifically, the plug yield is 80% of the transitional yield and is used in the ARC calculations to replace yields in any year that are below it.

The 2018 Farm Bill also includes modified language regarding base acres. Specifically, it prevents payments on any base acres if all the cropland on the FSA farm was planted to grass or pasture during the years 2009 through 2017. The base acres and program yields for the farms affected by this provision will remain on record with FSA, but payments will not be made on those acres and farms.

The 2018 Farm Bill also increases the loan rates for the Marketing Assistance Loans (MAL) and Loan Deficiency Payments (LDP). This is the first across-the-board increase in loan rates since the 2002 Farm Bill.

By most accounts, the 2018 Farm Bill was a big win for livestock producers. Effective policy for the sector has largely been left out of previous farm bills, but that trend appears changing in 2018.

The most notable livestock changes are with dairy policy provisions in Title I with the Dairy Margin Coverage (DMC) Program.

“The highest margin levels for Tier I production were $9.50, up from $8. This is a big increase in coverage and a major change in payment levels for dairy. They lowered premiums at the same time and gave discounts,” Zulauf said. “It is clear that Congress wants this to be the dairy policy and they are trying to make it as attractive to producers as possible.”

Zulauf and Christopher Wolf, with the Michigan State University Department of Agricultural, Food, and Resource Economics, took an in depth look at the significant changes to the dairy sector in the DMC. Here are their observations from Dairy Provisions in the 2018 Farm Bill.

  • This confirms a strong commitment to dairy policy based on the margin between milk prices and feed costs, not the price of milk and milk products as characterized dairy support policy prior to the 2014 farm bill.
  • The 2018 dairy policy changes are clearly designed to increase payments to dairy farms, likely driven by concerns over financial stress in the US dairy sector.
  • When measured by $/cwt., the 2018 dairy policy changes most benefit small dairy farms.
  • When measured by percent change in profit or loss, mid-size dairies appear to benefit most.
  • The analysis suggests that the 2018 dairy policy changes do not appear to alter the economies of size forces at work pressing dairy farms to get larger or differentiate out of commodity milk production. For example, no farm size has 2014-2017 losses turned into profits.
  • The 2018 dairy policy changes do, however, raise a policy issue of potentially great importance: “Is DMC providing so much support that it increases the economic incentive to produce milk and/or reduce the willingness of financially stressed dairy farms to leave the sector?”  To the extent the future reveals a “yes” answer, more milk production means lower milk prices and thus higher cost of the DMC program to the Federal government. Emergence of this outcome could mean that, in its desire to help financially struggling dairy farmers, Congress has created a DMC program that may cost so much that political friction for change emerges.  In the past, this type of fraction in dairy policy has often resulted in various programs to buy out dairy herds. In short, whatever the future holds, DMC will likely be watched closely by both supporters and detractors, both within and outside the U.S. dairy sector.

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