Betting the Farm

Every five years or so, Congress passes a massive farm bill to fund the federal government’s agricultural programs. For decades, it included guaranteed subsidies to farmers—-payouts worth $4.5 billion a year under the 2008 bill. But no more. With U.S. farm profits at a record $129 billion, in 2014 lawmakers eliminated the subsidies. Instead, the nation's 1.7 million farmers must choose between two new programs intended to protect them against unexpected losses. One would insure their income in bad harvest years. The other would compensate them if crop prices fell. It's a high-stakes decision that requires them to predict whether they're at greater risk from acts of God or acts of man. Illinois farmer J. Gordon Bidner says he needed "two crystal balls" to figure it out.

"A lot of it comes
down to whether or not
you’re a pessimist."
$35,100,000,000 $27,200,000,000 $40,800,000,000 through 2023. Last year, Congress created a new set of subsidies, which the CBO estimated would cost for 10 years. Because of record harvests, commodity prices have crashed. Now the CBO says the total cost will be According to the Congressional Budget Office, subsidies to farmers under the system that ended in 2014 would have cost taxpayers $13.6b less than the cost of the old subsidy system The Essentials $7.9b more than the CBO initially expected. The fall in commodity prices has caused the biggest single-year drop in farm profits since the Great Depression $4.7b was paid out in guaranteed subsidies in 2014
160-189 110 The case for revenue insurance McLean County has consistently high corn yields that beat the national average, ranging over the past 10 years from bushels an acre. During the drought in 2012 average yields fell to bushels an acre. ARC would help Bidner in years when yields plummet, because his payout would keep his revenue consistent. Agricultural Risk Coverage (ARC)
Pro:
ARC promises Bidner money in the event of a catastrophic weather event that destroys a harvest, making it less likely that one or two bad years could put him out of business.
Con:
Payouts are based on average yields, so they could be pushed down by a string of low-yield years brought on by drought or other circumstances.
Takeaway:
ARC smooths out swings in revenue.
 
$2.08 $6.87 $3.70 The case for price protection Illinois corn prices have grown less stable over the past 10 years , ranging from an annual average low of a bushel in 2005 to a high of a bushel in 2012.The 2014 Farm Bill set a floor for commodity prices. Corn is set at a bushel.Since 2007 the average price of corn in Illinois hasn’t fallen below $3.53 a bushel. Price Loss Coverage (PLC)
Pro:
If demand for corn drops—in case of a market glut or if the government cuts mandates for ethanol, which is made from corn —PLC cushions farmers against having to sell at a loss.
Con:
In a bad harvest year, when Bidner has less to sell, the PLC program offers no support for lost income.
Takeaway:
PLC guarantees a minimum price.
 
TheDecision Bidner, who’s been farming since the 1970s, considered more than 1,000 scenarios when estimating his payouts under each program. He expects demand for U.S. grain to grow but is worried about a major drought.He’s signing up for ARC.The case for ARC was especially strong for Bidner’s soybeans. Their guaranteed price is $8.40 a bushel. The current USDA average is $10.50 a bushel—well above the PLC payout trigger.The deadline to decide is April 7. As of March 27, 90% had registered.
"These payments
won’t determine whether I plant corn
or soybeans, but
it provides a little protection from
the risk."