Record farm program payments are raising questions about the effectiveness of the federal farm safety net.
In the latest Inside D.C., Brad Lubben with the University of Nebraska–Lincoln says stronger payments, due in part to an increase in reference prices, won’t necessarily address the underlying financial challenges facing farmers.
“The margins are just as tight or even more challenging now in spite of the fact the safety net is at higher levels.”
He says farm programs have limitations helping farmers reach breakeven.
“There’s a history for decades that you can’t outpace costs, because if you ratchet up something and increase returns, where do those get invested? They get invested in land, which drives up the cost and pulls your margin back to breakeven.” he says.
The USDA says Ag Risk Coverage and Price Loss Coverage programs are providing $13.8 billion in gross payments, the largest annual payout since the programs were established in the 2014 Farm Bill.
Lubben says evaluating the effectiveness of the farm safety net requires looking beyond commodity programs as more investments are made in crop insurance and ad-hoc assistance.
David Widmar with Ag Economic Insights says the timing of farm payments can also complicate the picture of farm financial health.
“We want to make sure we’re putting an accountant hat on, noting this is going for last year’s production and to make sure I don’t get too optimistic and start to buy a lot of equipment, land or bidding up cash rents in light of this.”
Both economists say farmers should consider best- and worst-case scenarios when making financial decisions for their operations.
