September 5, 2017 at 3:32 p.m.
Next farm bill: Emphasis on crop insurance
The farm bill helps direct how the United States Department of Agriculture (USDA) allocates its budget of approximately $100 billion a year. That budget allows a blend of mandatory and discretionary spending.
While $100 billion is a lot of money, the USDA's budget pales in comparison to other federal government spending. Mitchell noted that Medicare and Medicaid grab the lion's share of the federal budget. During 2011, that amounted to some $835 billion, or 23 percent of the budget.
Next in line was Social Security, at $725 billion, or 20 percent of the budget. That was followed by the defense department, with a budget of $700 billion, or 19 percent of the budget pie.
Turning to the USDA's budget, Mitchell said most of it goes toward nutrition programs, including food stamps and school lunches. Nutrition programs account for 79 percent of the USDA budget, or about $79 billion.
That leaves $15 billion for farm and commodity programs, six percent for conservation and forestry, and one percent for other spending.
The next farm bill will likely see farm and commodity programs trimmed by seven to nine percent, or $1.05 to $1.35 billion. Commodity programs include government payments to farmers who grow crops such as corn, wheat, soybeans, cotton and rice.
The payments take several forms, Mitchell said. There are direct payments, counter-cyclical payments, marketing loans, disaster payments and others. All tallied, they account for roughly seven percent of the USDA's commodity support payments.
Another aspect of the USDA's commodity support efforts is crop insurance. In 2012, crop insurance ate up $8 billion of the USDA budget.
Mitchell explained that the USDA subsidizes farmer's crop insurance. That means farmers pay an average of 35 to 45 percent of the cost of the premiums, or $4.1 billion out of the $11 billion the insurance costs. Farmers have been getting, Mitchell said, $2.68 in crop insurance payments for every $1 they spend to buy the coverage.
"Crop insurance," the economist said, "has become the primary mechanism the federal government uses to support commodity agriculture."
Last year, two crops - corn and soybeans - dominated crop insurance costs. For the U.S. as a whole, corn and soybeans accounted for 50 percent of the acres covered by crop insurance. They also accounted for 60 percent of the crop insurance subsidies, almost 70 percent of the liability, and 80 percent of the crop insurance payments to farmers.
Minnesota had the highest percentages of planted acres of corn and soybeans covered by crop insurance in 2012. Gopher State farmers insured 94 percent of their planted corn acres and 94 percent of their planted soybean acres.
Iowa farmers insured 94 percent of their planted corn acres, too, but just 91 percent of their soybean acreage. In Wisconsin, the numbers were smaller - 70 percent of the planted corn acres were insured and 74 percent of the soybean acreage was insured.
While any new farm bill could have many changes, compared to the current one, Mitchell said it's likely that crop insurance will be emphasized more. It's possible that there will be less emphasis on direct and countercyclical payments and some disaster assistance programs.
Premium subsidies could shrink and payment limits could tighten, the economist added. Farmers wanting to buy crop insurance might be bound to some sort of conservation compliance, too.
Mitchell offered these thoughts about the next farm bill. A new farm bill could be passed, or the farm bill could be linked to a fiscal reform or budget bill. Or, Congress could opt for an extension of the 2008 Farm Bill.
To farmers who grow commodity crops such as corn and soybeans, Mitchell said, "Seven-dollar corn has hidden a lot of management problems. The party is over. It's time to get back to work."
Crop insurance will continue in some form, he added. But, Mitchell said, "Don't be dependent on government support payments to be profitable. Take care of your farm business. Be a good farmer to maintain profits with tighter margins."