Farm input costs are likely to remain at elevated levels well after commodity prices come off their historic highs, and farm bill programs could provide only limited help, economists warned lawmakers Thursday.
Joe Outlaw, co-director of Texas A&M University’s Agricultural and Food Policy Center, told a House Agriculture subcommittee that it took input prices four to five years to decline to traditional levels after the drought-induced commodity price spikes of 2012.
Commodity “prices are going to decline, but input prices are going to stay up for a while, and they always do, and that's going to leave people with what we call the cost-price squeeze,” said Outlaw.
Outlaw said lawmakers should increase the reference prices in the Price Loss Coverage program to account for the impact of higher input prices.
PLC triggers payments when the average annual price for a commodity falls below the reference price. The current reference prices are $3.70 a bushel for corn, $8.40 for soybeans and $5.50 for wheat, far below the average market prices USDA is forecasting: $6.75, $14.40 and $10.75 per bushel, respectively.
Another option for lawmakers is to create a program to trigger payments when the differences between production costs and commodity prices narrow, similar to the Dairy Margin Coverage program for milk producers.
However, Outlaw said Congress would likely need to experiment with pilot programs for margin coverage first because input costs can vary significantly between commodities.
Outlaw also recommended Congress eliminate the requirement that farmers choose at the beginning of each year between PLC and Agriculture Risk Coverage, which triggers payments when market prices decline from a five-year rolling average. Farmers should automatically receive payments from whichever program is the most beneficial in a particular year, he said.
University of Illinois economist Joseph Janzen said he expects commodity prices to remain elevated through 2023, although the war in Ukraine remains a wild card.
An end to the war could soften both commodity prices and input costs, he said. But he agreed there are “a host of issues around the world that would leave input prices elevated, and that's a concern for U.S. agriculture going forward,” Janzen said.
Rep. David Rouzer, R-N.C., raised the idea of offering farmers fixed annual payments, a concept that Congress created in 1996 and then scrapped in the 2014 farm bill.
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Outlaw said it was politically hard to “defend giving payments to producers (in years) when they didn’t need them.”
Janzen said that providing payments to farmers when there is less need for them is “not going to achieve the policy objectives that we want, which is to keep farmers going through those tough times.”
University of Minnesota economist Robert Craven said direct payments “wouldn't react to the kind of situation we've seen the last three or four years,” referring to the trade war with China and the COVID-19 pandemic. In both cases, USDA used its Commodity Credit Corp. spending authority or supplemental appropriations to provide special payments to farmers.
University of Arkansas economist Ronald Rainey told the lawmakers socially disadvantaged farmers would benefit from more robust marketing for Whole Farm Revenue Protection insurance policies. The program was designed to benefit diversified farms and smaller operations, but participation has been declining.
“If I'm an insurance agent and company, and I'm in a high, intense row crop commercial area, I’ve got a portfolio full of large-scale, commercial row crop producers. I may not even take the time to learn about Whole Farm Revenue, which is what our specialty crop (and) a lot of our small growers would be interested in,” Rainey said.
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