Farm bill payment to peak this year

CHICAGO, Ill. (Reuters) — Government support for U.S. grain farmers under the new five-year farm bill will peak with the coming crop, says the Food and Agricultural Policy Research Institute in a new report.

The 2014 farm bill replaced traditional direct payments to farmers with support tied to market prices. Farmers need to choose one of two basic formulas by March 31.

The Agriculture Risk Coverage (ARC) makes payments based on moving five-year average prices at the county level, while the Price Loss Coverage (PLC) provides payments when national average prices fall below fixed reference prices.

Farmers commit to one option for all five years.

“Payments under 2014 farm bill programs increase when crop prices fall,” the institute said in its 2015 U.S. Baseline Briefing Book. The think-tank estimated that US$3.9 billion in ARC and PLC payments for last year’s 2014 crop would be made after fiscal 2016 begins Oct. 1.

“ARC spending is greatest in 2015-16 but declines in later years as the moving averages that determine benchmark revenues adjust,” the institute said.

“Projected average ARC and PLC payments peak with the 2015 crop at about $6.5 billion but decline to $3.4 billion for the 2018 crop.”

The institute, based at the University of Missouri, said actual ARC and PLC payments are likely to differ greatly from the projected averages because of price and yield volatility.

The projected farm support payments are separate from the huge U.S. private crop insurance program, which the government both guarantees as a reinsurer and subsidizes by paying 50 percent or more of farmer premiums.

The institute estimated that crop insurance net outlays would average more than $8 billion per year over the next 10 years.

U.S. farmers are expected to reduce corn, wheat and cotton acreage this year because of expectations of lower prices, while slightly increasing soybean area.

The institute said it expected average corn prices to recover to $3.89 per bushel for the 2015-16 marketing year because of reduced U.S. production, while continued large global supplies would pressure wheat to $5.17 and soybeans to $9.29.

It expects milk, hog and poultry prices to fall this year as lower feed costs and record 2014 prices boost production. Cattle and beef supplies are tight, but prices will begin to decline next year as beef production starts to expand.

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