Effective Reference Price Likely Increase Payments to Producers

ARC and PLCEffective Reference Price Likely Increase Payments to Producers

Agriculture,  | Quick Take
Apr 13, 2018  | 2 min read | Print Article


The Agriculture and Nutrition Act of 2018 replaces reference prices for covered commodities, the price at which government subsidy payments are triggered, with an “effective reference price” that will likely increase the government guaranteed price and, consequently, the frequency and size of subsidy checks leaving the Treasury.

The Effective Reference Price is the lesser of the following:

  1. 115 percent of the statutory reference price
  2. The greater of
    • The statutory reference price OR
    • 85 percent of the Olympic average of the 5 most recent marketing year average crop price.

The Olympic average yield is found by having the five most recent marketing year average crop prices, eliminating the highest and lowest yields. This increases the likelihood payments will be triggered under the agricultural business income entitlement programs Price Loss Coverage and Agricultural Risk Coverage.

When created in the 2014 Farm Bill, these two programs had a projected price tag of $27.2 billion over 10 years. CBO’s most recent spending update, released Monday, April 9, upped this price tag to $48.2 billion.

Separately, USDA reports they’ve mailed just over $20 billion of payments in just the first three years these programs have been in operation.

Creating a government guaranteed price based on a rolling Olympic average will guarantee businesses higher subsidy payments when market conditions lead to higher prices. While a price cap of 115 percent of the current government guaranteed price puts a ceiling on the program, we’d prefer lawmakers once again adopt the Foxx (R-NC) amendment they agreed to in 2014 that put an overall cap on ARC/PLC program costs of 115% of the CBO projected cost. This common sense cap was stripped from the bill during conference negotiations.

Commodity Reference Price Unit 115% of Olympic Average
Wheat $5.50 Bushel $6.33
Corn $3.70 Bushel $4.26
Sorghum $3.95 Bushel $4.54
Barley $4.95 Bushel $5.69
Oats $2.40 Bushel $2.76
Long Grain Rice $14.00 Hundredweight (Cwt) $16.10
Medium Grain Rice $14.00 Hundredweight (Cwt) $16.10
Soybeans $8.40 Bushel $9.66
Other Oilseeds $20.15 Hundredweight (Cwt) $23.17
Peanuts $535.00 Ton $615.25
Dry Peas $11.00 Hundredweight (Cwt) $12.65
Lentils $19.97 Hundredweight (Cwt) $22.97
Small Chickpeas $19.04 Hundredweight (Cwt) $21.90
Large Chickpeas $21.54 Hundredweight (Cwt) $24.77
Seed Cotton $0.37 Pound $0.42
What's Next After The Farm Bill?