Think tank says U.S. farm bill payments to peak with 2015 crop

[March 11, 2015] CHICAGO (Reuters) - Government support for U.S. grain farmers under the new five-year farm bill will peak with the coming 2015 crop, the Food and Agricultural Policy Research Institute said in a new report.

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

One, called Agriculture Risk Coverage (ARC), makes payments based on moving five-year average prices at the county level. The other, called 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,” FAPRI said in its 2015 U.S. Baseline Briefing Book. The think tank estimated that $3.9 billion in ARC and PLC payments for last year's 2014 crop would be made after fiscal 2016 begins on Oct. 1.

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

FAPRI, based at the University of Missouri, said actual ARC and PLC payments are likely to differ greatly from the projected averages, given 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.

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

Because of expectations of lower prices, U.S. farmers are projected in 2015 to reduce corn, wheat and cotton acreage while slightly increasing soybean area, FAPRI said.

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.

FAPRI expects milk, hog and poultry prices to fall in 2015 as lower feed costs and record 2014 prices boost production. Cattle and beef supplies are tight in 2015, but prices will begin to decline in 2016 as beef production starts to expand.

(Reporting by Christine Stebbins; Editing by Lisa Von Ahn)

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