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Of Crops and Credit: Commodities Programs Steady Prices, Support Producers

The farm bill’s commodities section helps provide financial security to producers.

By Megan Bland  |  March 29, 2024

As Congress works on a new farm bill, the section of the law addressing agricultural commodities is a top priority. The third largest of the bill’s 12 sections, or titles, the commodities title helps provide financial security to producers. Farm bill programs cover about 20 eligible commodity crops. The Congressional Budget Office estimates that between fiscal years 2025 and 2034, the commodities title will have $62 billion in outlays.

Farm Bill Basics

The farm bill is an omnibus, multiyear law that funds crop insurance, crop subsidies, and research to assist food production and sustainable agricultural practices. It also pays for food assistance programs, including the Supplemental Nutrition Assistance Program, which supports nearly 42 million Americans. More from NCSL:

Below is an overview of the commodities title with insight into what might be included in the next farm bill.

According to the U.S. Department of Agriculture’s Economic Research Service, the commodities title has three main programs: Price Loss Coverage; Agriculture Risk Coverage; and Marketing Assistance Loan. These are administered by the federally owned Commodity Credit Corporation through the USDA’s Farm Service Agency. Other programs and commodity support covered by this title include the Dairy Margin Coverage program, loan deficiency payments and sugar provisions.

The Price Loss Coverage program helps protect producers of covered commodities against financial losses caused by a negative disparity between the commodity’s “effective price” and “effective reference price.” The effective price is the national average loan rate or the market year average price, whichever is higher. The effective reference price is the reference price or 85% of the three median commodity market year average prices from the last five years, whichever is greater, and is capped at 115% of the reference price. These reference prices are established in the farm bill and are considered price floors. Commodities producers receive payments under the PLC program based on a mathematical formula that considers both production yield and acreage.

The Agricultural Risk Coverage program provides income support to producers and is divided into ARC-County, which covers a county’s historical commodities production acreage, rather than current acreage, and the less popular ARC-Individual, which covers a percentage of a farm’s base acreage. Base acres are the average planted acres across multiple years. ARC-County payments are issued when actual county crop revenue is less than the ARC-County guarantee. When the current production yield is lower than average historical production, payment is issued under ARC-IC.

The PLC and ARC programs covered 243 million commodity crop base acres during crop year 2023. (A crop year is defined as the calendar year in which the crop was harvested and the following 12-month period during which the crop is marketed.) The three top enrolled commodities were corn, wheat and soybeans.

The Marketing Assistance Loan program was designed to give producers of certain commodities financial flexibility and stability by allowing them to delay the sale of their crops after harvest until market prices are favorable by taking out a government-issued loan using the commodity crop as collateral. The program helps decrease dramatic price swings caused by oversaturation in the commodity market.

All commodities program payouts are capped at $125,000. Only producers actively engaging in farming can receive payouts, and their gross farm and nonfarm income must be below $900,000. Other eligibility requirements apply.

The farm bill is often considered “must pass” legislation because of the suspension of the 1938 and 1949 “permanent farm law” included in the commodities title. The suspension, which expires with the farm bill, prevents dramatic price increases for certain commodities, such as dairy, at the start of the new crop year and a complete loss of support for others, including soybeans. Were the bill to expire, producers would be unable to receive financial protections against significant commodity revenue drops.

Congress has indicated that the next farm bill will be budget neutral. Debate over changes to the commodities title could include:

NCSL remains committed to furthering the priorities of states, farmers, ranchers and foresters by continuing to promote increased federal-state communication and coordination. NCSL will advocate for the continuation of programs that benefit these important stakeholders in the agricultural sector.

Megan Bland is a legislative specialist in NCSL’s State-Federal Affairs Division.

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