The Securities and Exchange Commission Proposed Climate-Related Disclosures and Unintended Consequences?

The Securities and Exchange Commission Proposed Climate-Related Disclosures and Unintended Consequences?

In a previous Southern Ag Today article, I discussed the concept of unintended consequences which is a topic we talk a lot about in agricultural policy.[1]  Generally speaking, unintended consequences result from a lack of knowledge and/or lack of analysis of the potential consequences of a policy change.  The previous article focused on the unintended consequences associated with government policies that created the U.S. ethanol industry.  This article looks at the Securities and Exchange Commission (SEC) proposed rule changes that would require climate-related disclosures of publicly traded firms.[2]

On March 21, 2022, the SEC proposed rule changes that would require certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. 

According to the SEC, the proposed rule “would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions.”  Required disclosures for each of the three scopes would be phased in over a period of time.

This proposal generally requires publicly traded companies to provide investors more information about GHG emissions coming from business activities.  However, as reported by the American Farm Bureau Federation (AFBF), “While farmers and ranchers are not public companies and therefore not ‘registrants’ that are required to report directly to the SEC, their obligations through their regulated customers could be enormous….requirements for Scope 3 greenhouse gas emissions not only directly affects farmers’ and ranchers’ operations, but could create several substantial costs and liabilities, such as reporting obligations, technical challenges, significant financial and operational disruption and the risk of financially crippling legal liabilities.”[3]

While the proposed rule’s focus is to provide investors more information about the GHG emissions of publicly traded companies, depending upon 1) if the rule is adopted and 2) how it is implemented, it could have implications for U.S. farmers and ranchers because as AFBF points out, “for agriculture, food, and forestry manufacturing alone, there are nearly 2,400 companies registered with the SEC that would be subject to reporting Scope 3 emissions from its farm suppliers.”

Source: SEC data compiled by American Farm Bureau Federation (AFBF)




Outlaw, Joe. “The Securities and Exchange Commission Proposed Climate Related Disclosures and Unintended Consequences?“. Southern Ag Today 2(40.4). September 29, 2022. Permalink

Drought Related Livestock Sales and Tax Reporting Options

Drought Related Livestock Sales and Tax Reporting Options

Livestock producers are making hard decisions this summer and fall as widespread drought conditions limit pasture, hay, and, in some places, water availability across the southern and western states. Drought losses can result in additional costs for purchased hay (for those who can find a hay source), selling calves early, retaining fewer replacement heifers, or culling cows to reduce pressure on pasture and rangeland. Drought disaster programs are available to help offset some of the additional costs. For example, the Emergency Assistance for Livestock, Honey Bees and Farm-Raised Fish (ELAP) program can help offset the added cost of transporting hay from greater distances this year. Forage management and supplementation can also stretch available grazing to reduce the need for winter hay feeding in some areas. However, in many cases, producers will be reducing herd sizes through additional cattle sales. 

Drought related costs and losses will be reflected on 2022 tax returns for many producers across the country. Understanding how those losses must be reported come tax season and what documentation to retain will aid in properly reporting expenses and program payments. Drought related farm expenses and payments from drought disaster programs are fairly straightforward. For example, if a producer purchases hay in 2022 sourced from farms in states at a greater distance than previous years, they may be eligible for the ELAP transportation cost offset mentioned previously. The producer would report the cost of hay and hauling as farm expenses. The ELAP disaster payment for excess transportation cost would be reported as income. For more information on USDA disaster program documentation requirements, see factsheet:

Cattle sales will also be reported on tax returns, but these decisions are a little more complicated. Gains from breeding, dairy or draft cattle sales in excess of normal due to drought may be deferred for up to two years, as long as the dollar value of the cattle are replaced within those two years. Record keeping is critical. The producer can only defer cattle sales that are above what would typically be sold under normal production conditions. Two tax provisions exist to avoid the adverse tax consequences of selling more animals than normal due to weather related conditions. One applies only to breeding, dairy and draft animals that will be replaced. The second applies to market animals where the income from the additional animals sold are reported in the year that they would have normally been marketed.

Consider an example for breeding animals: Over the past 3 years, my cattle operation sold 30 calves weighing 650 pounds and 4 cull cows as an annual average. Due to drought in 2022, I sell 5 replacement heifers I would ordinarily have retained and 10 cows (6 more than the average) for $10,000. I can defer reporting the $10,000 of income from the excess animal sales (the 5 replacement heifers and the 6 cows) by electing to replace those sold by buying at least $10,000 of replacement breeding animals by December 31, 2024. If I do not spend at least $10,000 on replacement animals, I must amend the 2022 return and report the difference as income in that year. Should my county or a contiguous county be declared a federal disaster area, the replacement period is extended to 4 years and the animals will not have to be replaced until the end of 2026. The replacement animals must also be of the same type and purpose of the animals sold (dairy animals for dairy animals or breeding for breeding). This tax provision is under Internal Revenue Code Section 1033(e).

Now consider an example for the sale of any livestock (other than poultry) due to weather related conditions, and this time the county I raise cattle in is declared a federal disaster area (which is a requirement for this provision). Using the same facts as the prior example, I sold 6 more cows and 5 replacement heifers plus 15 head of calves (that would have normally been sold in 2023) for $20,000. Combined, this is more livestock than what would have normally been sold had the drought conditions not existed. This tax law provision allows me to elect to report the $20,000 of income in 2023 instead bunching this excess income in 2022. This tax provision is under Internal Revenue Code Section 453(g). 

Documentation is critical for all drought related losses. Specifically for your taxes keep the following in your tax records: 

  • Evidence of the weather-related conditions that forced the sale or exchange of animals.
  • Number and kind of livestock sold or exchanged.
  • Number of livestock of each kind that would have been sold or exchanged under normal business circumstances (generally, the average number of animals sold over the three preceding years).
  • The amount of gain realized on the sale or exchange.
  • The amount of income to be postponed

It will be important to discuss the application of these tax provisions with your income tax advisor. Sources of drought information include the Drought Monitor Maps which indicate drought intensity by state and region. In addition, USDA reports which counties are currently considered drought disaster areas and are eligible to receive federal disaster programs, and disaster declarations generally are available from State and Federal government websites and stakeholder announcements. Tax season seems like it is far off on the horizon still, but better understanding how drought related losses will be reported may aid in documentation of losses today. 

For more information see the Rural Tax Center factsheet

Hagerman, Amy, and JC Hobbs. “Drought Related Livestock Sales and Tax Reporting Options“. Southern Ag Today 2(38.4). September 15, 2022. Permalink

Agricultural Provisions in the Reduction Act of 2022

Agricultural Provisions in the Reduction Act of 2022

In a recent report by the Agricultural & Food Policy Center (AFPC), we provided an overview of the agricultural provisions included in the recently-passed Inflation Reduction Act (IRA) of 2022.  The IRA was a Senate-led compromise that broke the months-long logjam over the Build Back Better (BBB) Act that had been stalled in the Senate.  As noted in Figure 1, the funding for agriculture in the IRA was less than half of what had been proposed in the BBB.

As noted in Figure 1, roughly half of the funding for agriculture goes to conservation.  Specifically, the IRA provides an additional $8.45 billion for the Environmental Quality Incentives Program (EQIP), $3.25 billion for the Conservation Stewardship Program (CSP), $1.4 billion for the Agricultural Conservation Easement Program (ACEP), $4.95 billion for the Regional Conservation Partnership Program (RCPP), $1 billion for Conservation Technical Assistance, and $300 million for USDA to collect “field-based data” to quantify carbon sequestration and greenhouse gas emissions.  Importantly, beyond the temporary funding increases, the authorizations for all of these programs – including the Conservation Reserve Program (CRP) – were extended through fiscal year 2031.

The IRA also provided $3.1 billion for loan relief to borrowers with “at-risk agricultural operations” and almost $3 billion in assistance and support for “underserved farmers, ranchers, and foresters,” of which $2.2 billion is for financial assistance – including the cost of any financial assistance – to producers determined to have experienced discrimination prior to January 1, 2021, in any USDA farm lending programs.  As noted in a recent Southern Ag Today article, initial versions of the IRA had left out debt relief, but the version that was signed into law ultimately addressed the issue.  

Finally, the IRA provided over $13 billion for rural development programs – most of which is for rural electric cooperative loans – and almost $5 billion for forestry-related provisions.

We are frequently asked about the impact that this will have on the next farm bill.  While one can argue that an additional infusion for farm bill conservation programs is helpful, it is important to note that the additional funding dries up in fiscal year 2026, which will likely coincide with the mid-point of the next farm bill.  This undoubtedly will complicate what are already guaranteed to be complicated farm bill deliberations next year.

Figure 1. Comparing Estimated Outlays for Agriculture under the Build Back Better (BBB) Act and the Inflation Reduction Act (IRA), FY2022-31.

Fischer, Bart L., and Joe Outlaw. “Agricultural Provisions in the Inflation Reduction Act of 2022“. Southern Ag Today 2(36.4). September 1, 2022. Permalink

Crop Insurance Loss Ratio Trends Over Time

Crop Insurance Loss Ratio Trends Over Time

The Risk Management Agency (RMA) is responsible for rating crop insurance in an actuarially sound way. Unlike private insurance companies, RMA is not driven by profit when determining rates. Premium rates do not include the cost of sales, underwriting, loss adjustments, or the operating costs of RMA. Legislative language instructs that “the amount of the premium shall be sufficient to cover anticipated losses and a reasonable reserve[1].” RMA considers actual production history in the rating process, and rates are established independently of crop and geographic region. The loss experience of rice is not a factor when developing a premium rate for corn. Likewise, the loss experience of corn in Mississippi is not a factor when developing a premium rate for corn in Illinois. 

The politics of crop insurance comes into play with the premium subsidy percentage amounts set by policy. Subsidy percentages are equitable across all crops, though, with each crop receiving the same subsidy percentage dependent on coverage level and unit choice. Total acres insured, coverage level, and premium rates all factor into the total amount of subsidies received by a crop. As seen in Figure 1., corn has received a total of $24.6 billion of crop insurance subsidies in the past decade, followed by soybeans at $14.9 billion. Rice and peanuts have total subsidy amounts of $617 million and $424 million, respectively, over the past decade.  

Crop insurance performance is often judged by loss ratios. A loss ratio is simply calculated as indemnity payments divided by total premium. A loss ratio of 1.0 means that indemnity payments equaled total premiums. A loss ratio greater than 1.0 means indemnity payments exceed premiums, and a loss ratio less than 1.0 means total premiums exceed indemnity payments. The Risk Management Agency (RMA) is statutorily mandated to achieve a target loss ratio of 1.0. While loss ratios can fluctuate year-to-year, the national and crop-specific ratios have been trending down since 1989, as seen in Figure 2. Interestingly, many crops have trended down at similar rates. Rice, cotton, wheat, soybeans, and the national total have similar sloping trend lines. Corn has trended down but at a slower rate than the previously mentioned crops. Peanuts have seen the most dramatic decrease in the trend of any crop.    

Figure 1. Total 10 Year Subsidy Amount by Crop, 2013-2022

Source: USDA-RMA Summary of Business – Report Generator (

Figure 2. U.S. Crop Insurance Loss Ratio Trends Over Time by Selected Crops, 1989-2021

Source: USDA-RMA Summary of Business – Report Generator (

[1] Coble, K. H., Knight, T. O., Goodwin, B. K., Miller, M. F., Rejesus, R. M., & Duffield, G. (2010). A comprehensive review of the rma aph and combo rating methodology: Final report. Prepared by Sumaria systems for the risk Management agency.

Maples, William E., and Keith H. Coble. “Crop Insurance Loss Ratio Trends Over Time“. Southern Ag Today 2(34.4). August 18, 2022. Permalink

Debt Relief for Certain Farmers & Ranchers

Debt Relief for Certain Farmers & Ranchers

On March 11, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021 into law.  Section 1005 of the act required the Secretary to make payments to socially disadvantaged farmers or ranchers “in an amount up to 120 percent of the outstanding indebtedness” of eligible producers for both direct and guaranteed loans administered by various USDA agencies.[1]  While USDA immediately went to work implementing the provisions, multiple lawsuits were filed – alleging that the provision was unconstitutional because it violates the Due Process Clause of the Fifth Amendment – and 3 courts have issued injunctions prohibiting USDA from issuing any payments, loan assistance, or debt relief pursuant to Section 1005.[2]  According to USDA, the injunctions “do not prohibit FSA from completing administrative actions leading up to payments, including providing payment notifications to potentially eligible borrowers.”[3]  At the time of passage, the Congressional Budget Office (CBO) estimated the provision would cost $3.98 billion over the next 10 years.[4]

            In the meantime, the Build Back Better Act (BBB) of 2021 – which passed the House on November 19, 2021 – sought to remedy the concerns raised about Section 1005 in the American Rescue Plan.  Specifically, Section 12101 of the BBB amends Section 1005 of ARP, in part, by changing the focus of the debt relief to “economically distressed borrowers” with eligibility tied to eight (8) broad criteria ranging from debt delinquency metrics to whether the farm or ranch was headquartered in a county with a poverty rate of 20 percent or greater.[5]  With the presumably expanded list of eligible borrowers, CBO estimated that the provision would cost $6.647 billion over the next 10 years.[6]  Due, in part, to the price tag of the overall bill, the BBB has languished in the Senate for the last several months.

            Last week, Senators Schumer and Manchin announced a joint agreement to add various provisions from the BBB – via the Inflation Reduction Act of 2022 – to the FY2022 Budget Reconciliation Bill.[7]  In our review of the draft legislation posted last week, it does not appear that debt relief for farmers and ranchers was included.  While Congressional leaders may have plans for including debt relief in another legislative vehicle, unless and until they do – or unless and until the courts rule on the pending cases or lift the existing injunctions – potentially eligible farmers and ranchers will have to keep waiting.  


[2] See Holman v. Vilsack, 21-1085-STA-jay, Order Granting Motion for Preliminary Injunction (July 8, 2021); Miller v. Vilsack, 4:21-cv-00595-O, Order (July 1, 2021); Wynn v. Vilsack, 3:21-cv-00514-MMH-JRK, Order (June 23, 2021). 






Fischer, Bart, and Tiffany Dowell-Lashmet. “Debt Relief for Certain Farmers & Ranchers“. Southern Ag Today 2(32.4). August 4, 2022. Permalink

An Initial Look at Forced Base Update on the South

An Initial Look at Forced Base Update on the South

One of the questions policy economists get the most from farmers is how likely is it that they will get to update their base acres in the hopes of finally converting their non-base acres into base.  For example, there is a significant amount of cotton produced in the Texas Panhandle that does not have seed cotton base and therefore is not eligible for ARC or PLC protection.  In previous base update opportunities provided in the 2002, 2014 and 2018 (for cotton only) Farm Bills, producers always had the choice to stay with the crop bases that were established in the 1985 Farm Bill or update to align their crop bases more closely to current plantings.  Given the choice, producers rarely would choose to have less total base acres even if it meant more closely aligning their bases to current plantings.  This type of update has generally been scored by the Congressional Budget Office (CBO) as having a positive cost so Congress has had to find the money to update crop bases.

One of the suggestions currently making the rounds in Washington D.C. is a forced base update where producers who were planting less than their farm’s base acres during some specified time period would lose base and similarly, those that were planting more than their current base acres would gain base.  Proponents see this as costing less to implement, as some farmers will most certainly gain base acres while others would lose base.  While the devil is very much in the implementation details that would be determined by USDA, a quick evaluation of USDA-NASS planted acre data relative to USDA-FSA base acre data for the 13 Southern States indicates the South would lose a considerable amount of base in a forced base update situation where keeping old crop bases would not be an option.

Table 1 compares the planted acres of nine primary covered commodities (corn, grain sorghum, soybeans, rice, wheat, cotton, peanuts, barley and oats) in the South and indicates that an average of 53.6 million acres were planted in 2021 and 2022.  This compares to 2021 total base acres of 62.1 million acres.  Producers planted roughly 8.5 million acres less than their crop bases during that time period.  Of the 13 Southern States, only Kentucky, North Carolina, Tennessee, and Virginia planted more acres than they have crop base.

While this quick analysis only looked at planted acres over two years, it still provides a good indication of what the direction of the overall impact would be on the Southern States.   A forced base update is still just one of many proposals that are floating around Washington as farm bill discussions are just getting started.  Individual farmers may benefit drastically; however, it is important to understand that a forced base update will have significant negative repercussions on the South as a whole.

Table 1.  Planted Acres of Nine Primary Covered Commodities for 2021 and 2022 and 2021 Base Acres.

Outlaw, Joe. “An Initial Look at Forced Base Update on the South“. Southern Ag Today 2(30.4). July 21, 2022. Permalink