Title I: Crop Commodity Program Provisions After Enactment of the Agriculture Improvement Act of 2018

The Agriculture Improvement Act of 2018 (2018 Farm Bill) was not watershed legislation for crop commodity programs. Following a major overhaul of programs in the 2014 Farm Bill (which took four years to enact), the House and Senate Agriculture committees chose to tweak rather than make major changes to the programs in 2018, and to continue some modifications to the 2014 Farm Bill made in the Bipartisan Budget Act of 2018. Despite the adjustments being modest, however, they do address issues with commodity programs raised by producers and others in the farm economy, and some may increase benefits. On this page we describe the changes likely to have the broadest effects; additional changes are described in the ERS document Agriculture Improvement Act of 2018: Highlights and Implications.

Three Major Commodity Programs:

The PLC program provides income support payments when the effective price to farmers under the 2018 Farm Bill. Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) were first authorized in the Agricultural Act of 2014. The Marketing Assistance Loan Program is the descendant of the commodity loan program established under the Agricultural Adjustment Act of 1938. Participants in these programs must be actively engaged in farming, must meet Adjusted Gross Income (AGI) eligibility limits, and, where payment imitations were continued by the 2018 Farm Bill, may not receive payments above the established limit.

PLC program payments are issued when the effective price of a covered commodity is less than the effective reference price for that commodity. The effective price equals the higher of the market year average price (MYA) or the national average loan rate for the covered commodity. PLC payments are issued to owners of historical base acres and are not tied to current production of covered commodities. Covered commodities include wheat, corn, sorghum, barley, oats, seed cotton, long- and medium-grain rice, certain pulses, soybeans/other oilseeds, and peanuts.

There are two types of Agriculture Risk Coverage: Agriculture Risk Coverage-County (ARC-CO) and Agriculture Risk Coverage-Individual (ARC-IC). The ARC-CO program provides income support tied to the same historical base acres—not current production—of covered commodities. ARC-CO payments are issued when the actual county crop revenue of a covered commodity is less than the county ARC-CO guarantee for the covered commodity. ARC-IC provides income support tied to a farm’s revenue from current production of covered commodities compared with a benchmark average of that farm’s production of those commodities, but payments are limited to a share of historical base acres on the farm. This page focuses on ARC-CO; the ARC-IC program has not been widely adopted.

The Marketing Assistance Loan program allows producers to use eligible commodities they have produced as collateral for government-issued loans. Eligible commodities include wheat, corn, sorghum, barley, oats, upland and extra-long-staple cotton, long- and medium-grain rice, soybeans/other oilseeds, certain pulses, peanuts, sugar, honey, wool, and mohair. Several options for repaying these loans or for capturing a marketing loan benefit without taking out a marketing loan are discussed below.

ARC/PLC: The Effective Reference Price. For both PLC and ARC-CO, effective reference prices are a key component in calculating program benefits. The 2014 Farm Bill included a fixed reference price for each of the program commodities, with no adjustment mechanism, whereas the 2018 Farm Bill introduces a variable effective reference price (Table 1). The effective reference price replaces the reference price for purposes of calculating benchmark revenues under ARC and payment rates per unit under PLC.

The effective reference price is the greater of the reference price or 85 percent of the average of the Market Year Average (MYA) price from the preceding 5 years, excluding the highest and lowest prices, capped at 115 percent of the reference price. This new method of calculating the PLC payment rates will mean that the effective reference price is greater than the statutory reference price if the historic average of MYA prices is greater than the statutory reference price; for ARC-CO payments, the change potentially increases the national price used in calculating the county benchmark revenue.

Table 1. Except for the addition of Seed Cotton, the reference prices of the 2018 Farm Bill are the same as those of the 2014 Farm Bill # *
Commodity Unit

            2018 Farm Bill Reference Prices:                Crop Years 2019–23 **

2018 Farm Bill National Average Loan Rates:     Crop Years 2019–2023

Wheat

bushel

5.50

3.38

Rice

hundredweight

14.00

7.00

Corn

bushel

3.70

2.20

Oats

bushel

2.40

2.00

Barley ***

bushel

4.95

2.50

Sorghum

bushel

3.95

2.20

Seed cotton

lb.

.367

****

Peanuts

ton

535

355

Soybeans

bushel

8.40

6.20

Other oilseeds *****

hundredweight

20.15

10.09

Dry peas

hundredweight

11.00

6.15

Lentils

hundredweight

19.97

13.00

Chickpeas, small

hundredweight

19.04

10.00

Chickpeas, large

hundredweight

21.54

14.00

Cotton, upland ******

lb.

----

0.45 - 0.52

Cotton, extra-long staple

lb.

----

0.95

Wool, graded

lb.

----

1.15

Wool, non-graded

lb.

----

0.40

Mohair

lb.

----

4.20

Honey

lb.

----

0.69

Notes:

#           Source:  Agricultural Improvement Act of 2018, Committee Report, page 172.

*            "---" Indicates no reference price for the commodity. 

**        Under the 2014 Farm Bill, statutory reference prices are fixed. Under the 2018 Farm Bill, effective reference prices may be higher if average market year prices are higher than statutory reference prices.

***        Barley price is based on all-barley price. Previously, barley price was based on feed barley price.

****      Seed cotton is unginned cotton. Unlike other commodity loans that are nonrecourse loans that can be repaid at less than principal plus interest or forfeited, a seed cotton loan is a recourse loan that must be repaid at full principal plus interest.

*****    Other oilseeds are sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, sesame seed, and other oilseeds designated by the U.S. Department of Agriculture. Not all other oilseeds have the same reference price.

******    Loan rate for upland cotton is set by statutory formulas and cannot be less than $0.45 per pound or more than $0.52 per pound.


PLC Payment Yield. For a producer to receive PLC payments, a payment quantity must be established. The two components of a payment quantity are payment yield and payment acres. Where the landowner has previously participated in base acre commodity programs, payment yield for those acres has been established with previous participation. Landowners who want to update their PLC yields have a one-time opportunity to do so which will be applied beginning with the 2020 crop year. This opportunity is afforded to landowners regardless of their ARC or PLC elections, since base acre elections may be changed annually beginning in 2021. The statutory formula for updating PLC payment yield is to multiply:

(A) 90 percent;

(B) the average of the yield per planted acre for the crop of covered commodity on the farm for the 2013 through 2017 crop years, excluding any crop year for which the acreage planted to the covered commodity was zero; and

(C) the ratio obtained by dividing:

(i) the average of the 2008 through 2012 national average yield per planted acre for the covered commodity as determined by the U.S. Department of Agriculture, by

(ii) the average of the 2013 through 2017 national average yield per planted acre for the covered commodity as determined by the Secretary.

ARC/PLC Election. Base acres, which are tied to historical production of covered commodities on the farm, not to current production, represent the number of acres eligible to receive program payments. Base acres derive from historical production of covered commodities according to provisions of the "1996, 2002, 2008, and 2014 Farm Bills and the 2018 Bipartisan Budget Act." All partners in a farm must in 2019 have made a unanimous election of either ARC or PLC on a covered commodity-by-covered commodity basis. A producer can elect PLC for base acres of one commodity and ARC for another. Unless later changed, this election will apply for the five years, 2019 through 2023, of the 2018 Farm Bill. Program election changes are permitted in crop years 2021, 2022, and 2023. If producers did not make election choices for their farm in 2019, the elections under the 2014 Farm Bill were used and they were ineligible for payments for crop year 2019.

ARC/PLC Enrollment. Once producers have made elections for their base acres, they must enroll those acres each year to be eligible for payments. When producers are enrolling land in ARC or PLC, they are enrolling covered commodity base acres. Neither PLC nor ARC payments are dependent upon current planting of the base crop or any crop. For example, a producer may be receiving ARC or PLC payments on wheat base acres while not planting any wheat. And a producer may not be receiving ARC or PLC corn payments despite having planted corn fencerow to fencerow. If a producer decides to enroll base acres for a covered commodity, he or she must annually enroll 100 percent of base acres for that covered commodity to be eligible for ARC or PLC payments.

An important change to the 2014 ARC/PLC program was made in 2018 through provisions of the Bipartisan Budget Act (BBA). Upland cotton base acres had been made ineligible for ARC or PLC payments in the 2014 Farm Bill, and that base had been designated “generic” base, allowing for program payments linked to current production of covered commodities. Under provisions of the BBA, producers were required to allocate that generic base either to seed cotton (unginned raw cotton) or to other covered commodities for which they had a planting history.

ARC-CO Payments. ARC payments will be made when the Actual County Crop Revenue of a covered commodity is less than the county ARC Revenue Guarantee for the commodity. These parameters are based on national Marketing Year Average (MYA) price and county-level yield data for the county where the base acres are located. The county ARC Revenue Guarantee is calculated as 86 percent of the county ARC Benchmark Revenue—the 5-year Olympic average MYA multiplied by the 5-year Olympic average county yield. A 5-year Olympic average is calculated by taking five numbers in a series, dropping the highest number and the lowest number, then averaging the remaining three numbers. Benchmark yields and MYAs use the five years preceding the year prior to the program year. The ARC Actual Crop Revenue is calculated by multiplying the actual county yield for the program year by the MYA price for the program year. The ARC payment is equal to 85 percent of a farm’s base acres of the covered commodity multiplied by the difference between the county ARC Revenue Guarantee and the county Actual Crop Revenue for the covered commodity. Payment rates may not exceed 10 percent of the ARC Benchmark Revenue.

PLC Payments. Producers who hold base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses (covered commodities) are eligible to enroll in the PLC program on a commodity-by-commodity basis. Payments are made when market prices fall below the effective reference price set in the 2018 Farm Bill (see Figure below). The payment rate is the difference between the effective reference price and the annual national-average market price (or marketing assistance loan rate, if higher). For each covered commodity enrolled on the farm, the payment amount is the payment rate, times 85 percent of base acres of the commodity, times payment yield. PLC payments will be made on base acres of a covered commodity when its effective price (the national price or loan rate, whichever is greater) is less than its effective reference price. The payment rate will be the dollar amount by which the effective price is less than the effective reference price. This means that the difference between the effective reference price and the loan rate is the maximum payment rate. When the effective price is above the effective reference price, no payment is made.

Figure 1. Effective Price Above Effective Reference Price: No Payments

_________ MYA Price = $6.00

_________ Commodity Loan Rate = $3.00

_________ Effective Price = $6.00

_________ Effective Reference Price = $5.00

Payment Rate = $5.00 - $6.00 = Negative

 

Figure 2. Effective Price Below Effective Reference Price and Above Loan Rate

_________ MYA Price = $4.00

_________ Commodity Loan Rate = $3.00

_________ Effective Price = $4.00

_________ Effective Reference Price = $5.00

Payment Rate = $5.00 - $4.00 = $1.00

 

Figure 3. Effective Price Below Effective Reference Price and at Loan Rate = Maximum Pay Rate

_________ MYA Price = $3.00

_________ Commodity Loan Rate = $3.00

_________ Effective Price = $3.00

_________ Effective Reference Price = $5.00

Payment Rate = $5.00 - $3.00 = $2.00

 

Figure 4. Effective Price Below Effective Reference Price and Below Loan Rate = Maximum Pay Rate

_________ MYA Price = $2.00

_________ Commodity Loan Rate = $3.00

_________ Effective Price = $3.00

_________ Effective Reference Price = $5.00

Payment Rate = $5.00 - $3.00 = $2.00

 

Marketing Assistance Loan Program (MALP). The MALP is a post-harvest nonrecourse commodity loan program with marketing loan provisions for producers of wheat, corn, grain sorghum, barley, oats, upland cotton, extra-long staple (ELS) cotton, long- and medium-grain rice, soybeans, other oilseeds, peanuts, wool, mohair, honey, dry peas, lentils, and small and large chickpeas.

These loans allow producers of eligible crops to borrow at a commodity-specific rate per unit of production by pledging their harvested production of that commodity as collateral. A producer may obtain a loan for all or part of new commodity production and hold that loan until the commodity is sold or until the loan matures, usually after 9 months.

Comparison of national average loan rates under the 2014 Farm Bill and the 2018 Farm Bill. $ per unit
Commodity Unit 2014 Farm Bill Crop Years 2014–2018 2018 Farm Bill Crop Years 2019–2023 Percent Change: 2014 to 2018

Wheat

bushel

2.94

3.38

15

Corn

bushel

1.95

2.20

13

Grain sorghum

bushel

1.95

2.20

13

Barley *

bushel

1.95

2.50

28

Oats

bushel

1.39

2.00

44

Cotton, upland**

lb.

0.45 - 0.52

0.45 - 0.52

varies

Cotton, extra-long staple cotton

lb.

0.7977

0.95

19

Rice, long-grain

hundredweight

6.50

7.00

8

Rice, medium-grain

hundredweight

6.50

7.00

8

Soybeans

bushel

5.00

6.20

24

Other oilseeds ***

hundredweight

10.09

10.09

0

Dry peas

hundredweight

5.40

6.15

14

Lentils

hundredweight

11.28

13.00

15

Chickpeas, small

hundredweight

7.43

10.00

35

Chickpeas, large

hundredweight

11.28

14.00

24

Wool, graded

lb.

1.15

1.15

0

Wool, non-graded

lb.

0.40

0.40

0

Mohair

lb.

4.20

4.20

0

Honey

lb.

0.69

0.69

0

Peanuts

ton

355

355

0

 

*        Barley price is based on all-barley price. Previously, barley price was based on feed barley price.

**      Loan rate for upland cotton is set by statutory formulas and cannot be less than $0.45 per pound or more than $0.52 per pound.

***    Other oilseeds are sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe, sesame seed, and other oilseeds as designated by the U.S. Department of Agriculture.

Commodity loans may be settled in three ways:

  1. Repayment at the loan rate plus interest (commodity loans are made at below-market interest rates);
  2. Repayment at the alternative loan repayment rate when market prices fall below the loan rates; or
  3. Forfeit of the pledged crop to USDA at loan maturity.

When market prices are below the loan rate, farmers can repay their commodity loans at a lower repayment rate. Marketing loan repayment rates are based on local prices for wheat, feed grains, oilseeds, and pulses or on the prevailing world market prices for rice and upland cotton. The world market price for rice is determined by a formula adjusted for U.S. quality and location. A quality adjustment for upland cotton is made based on cotton of comparable quality delivered to a definable and significant international market.

When a farmer repays a loan at a lower loan repayment rate, the difference between the loan rate and the loan repayment rate—called a marketing loan gain—represents a program benefit to producers. In addition, any accrued interest on the loan is waived.

Loan program benefits can also be taken directly as loan deficiency payments (LDP), a cash payment equal to the difference between the loan rate and the loan repayment rate. The LDP option allows the producer to receive the benefits of the marketing loan program without having to take out, and later repay, a commodity loan.

Instead of taking out a commodity loan, eligible farmers may choose to receive LDPs when market prices are lower than commodity loan rates. The LDP rate is the amount by which the loan rate exceeds the loan repayment rate or prevailing world market price and is thus equivalent to the marketing loan gain that could be obtained alternatively for crops under loan.

Just as when a marketing loan gain is received on a given collateralized quantity, that quantity is not eligible for further loan benefits, when an LDP is paid on a portion of the crop, that portion cannot later be used as collateral for another marketing loan or for another LDP.

Eligibility Requirements and Payment Limitations

To receive some types of commodity program payments, individuals must meet eligibility requirements based on the level of their participation in farming activities and on their income. Once individuals are eligible, payment limitations cap the total amount they can receive.

Must Be Actively Engaged in Farming. Producers who participate in the PLC or ARC programs are required to provide significant contributions to the farming operation, as defined by the Secretary of Agriculture, to be considered as “actively engaged in farming.”

Must Meet Adjusted Gross Income (AGI) Limit. The 2018 Farm Bill continues the single AGI limit, under which any individual with an annual AGI above $900,000 (including both farm and nonfarm income) is ineligible to receive farm program payments under commodity or conservation programs.

Payment Limitations. The 2018 Farm Bill maintains the limits on producer payments from PLC and ARC at $125,000 for a person or legal entity, with a separate additional limit of $125,000 for peanuts under these programs. Payments from marketing loan gains and loan deficiency payments, however, are no longer subject to payment limitations.

Links

Agricultural Act of 2014. Public Law 113-79—Feb. 7, 2014. 128 Stat. 649.

Agriculture Improvement Act of 2018. Public Law 115-334—Dec. 20, 2018. 132 Stat. 4491.

Compilation of Statutes. Agricultural Act of 2014 (as Amended through P.L. 115-334, Enacted December 20, 2018.

Congressional Research Service. The 2018 Farm Bill (P.L.115-334): Summary and Side-by-Side Comparison. Updated February 22, 2019. 

Economic Research Service. Agriculture Improvement Act of 2018: Highlights and Implications.

Farm Service Agency. 2014 Farm Bill vs. 2018 Farm Bill—Agricultural Risk Coverage & Price Loss Coverage. Fact Sheet. August 2019.

Farm Service Agency. Agricultural Risk Coverage (ARC) & Price Loss Coverage. Fact Sheet. August 2019.

Farm Service Agency. Programs and Services. ARC/PLC Programs

Last updated: Thursday, July 09, 2020

For more information, contact: Erik Dohlman