One of the most asked questions we get is whether the next farm bill will contain a reference price increase for covered commodities to offset higher input prices. Both the price loss coverage (PLC) and agriculture risk coverage (ARC) safety net programs use reference prices in their respective calculations. Focusing on PLC, with relatively high market prices, it would seem that now is the time to increase reference prices as market prices for many covered commodities are above their respective reference prices. This would mean reference prices could be raised modestly without triggering much, if any, payment. This analysis sets aside the question of whether the agricultural committees will have any more money to write the next farm bill.
Table 1 provides the ratio of marketing year average prices to reference prices for seven covered commodities from 2023 to 2032. The results in Table 1 that are green indicate the market price is above the reference price for the commodity for that year. And conversely, ratios that are red indicate market prices that are below reference prices. One of the first things that jumps out in the table is that the 2023 marketing year has all but peanut prices higher than their respective reference prices. CBO projects prices to decline below reference prices for all but corn and soybeans over their projection period. Generally, this wouldn’t bode well for the agricultural committees being able to increase reference prices; however, the last column in the table contains base acres for each of the covered commodities. Two of the biggest crops in terms of base acres (corn and soybeans) that account for more than 146 million base acres are projected to experience prices above their respective reference prices. The remaining commodities with relatively lower marketing year average prices account for less than 100 million acres, with wheat accounting for more than one-half of the total.
Time will tell whether reference prices can be increased, which will largely depend on an infusion of new money into the farm bill process. Proponents should feel cautiously optimistic that a reference price increase could be feasible.
Table 1. Ratio of Marketing Year Average Prices to Reference Prices and Base Acres.
Outlaw, Joe, and Bart Fischer. “Does the May 2022 CBO Baseline Provide Any Information About the Ability to Increase Commodity Reference Prices?” Southern Ag Today 2(42.4). October 13, 2022. Permalink