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FAPRI projects farm payments under lower prices

Due to falling crop prices, the Agriculture Department is projected to pay out $3.9 billion in Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments for the 2014 crop after fiscal year 2016 begins on October 1, 2015, but those payments will decline by the 2018 crop year, the Food and Agricultural Policy Research Institute said today in its latest baseline outlook for U.S. agriculture.

The report was scheduled for release on the FAPRI website at 3 p.m. EDT.

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 said.

“Actual ARC and PLC spending in any given year is likely to differ greatly from these projected averages, given price and yield volatility,” the researchers added.

The numbers may be imprecise, however, because crop farmers have until March 31 to choose whether to adopt the ARC or PLC program for five years under the 2014 farm bill.

FAPRI is briefing the House Agriculture Committee staff members today and the Senate Agriculture Committee staff on Tuesday.

FAPRI is a dual-university research program that uses comprehensive data and computer modeling systems to report to Congress on U.S. agriculture. FAPRI is run by the Center for Agricultural and Rural Development at Iowa State University, which develops international models, and the Center for National Food and Agricultural Policy at the University of Missouri-Columbia, which develops the domestic component.

In its summary, FAPRI said, “Lower prices have resulted in a large decline in crop producer income and could result in significant federal spending under new programs established by the 2014 farm bill. After reaching record levels in 2014, most livestock sector prices are also expected to decline in 2015. As a result, net farm income is projected to fall sharply.”

According to FAPRI, here are some key results of the study:

  • Record production of corn and soybeans in 2014 has pushed down prices of all major grains and oilseeds.
  • In response to lower expected prices, U.S. producers are projected to reduce corn, wheat and cotton acreage in 2015, while slightly increasing soybean area. The total area devoted to major crops declines in 2015, but remains above the average that prevailed over the 2008-13 life of the previous farm bill.
  • Average projected corn prices are projected to recover to $3.89 per bushel for the 2015-16 marketing year in response to reduced U.S. production. Wheat and soybean prices both fall in 2015-16, to $5.17 per bushel and $9.29 per bushel, respectively, given continued large global supplies.
  • Between 2016-17 and 2024-25, corn prices are projected to average $4.06 per bushel and soybeans $10.09 per bushel, similar to projections made last year. Wheat prices average $5.57 per bushel, and cotton prices average 63 cents per pound.
  • Milk, hog and poultry prices are all projected to decline in 2015 as producers respond to lower feed costs and the record output prices of 2014 by significantly increasing production. Cattle and beef supplies remain tight in 2015, but prices begin to fall in 2016 as beef production starts to expand again.
  • Lower prices translate into reduced farm income, as both crop and livestock cash receipts decline in 2015. Lower feed and fuel costs result in a modest reduction in total farm production expenses. Net farm income falls to $79 billion, a 27 percent decline from 2014.
  • Payments under 2014 farm bill programs increase when crop prices fall. A projected $3.9 billion in ARC and PLC payments for the 2014 crop will be made after fiscal year 2016 begins on October 1, 2015.
  • 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. Actual ARC and PLC spending in any given year is likely to differ greatly from these projected averages, given price and yield volatility.
  • Crop insurance net outlays are projected to average more than $8 billion per year over the next 10 years.
  • Projected food price inflation drops to 1.6 percent in 2015, and averages 2 percent per year from 2016-2024.