By Jonathan LaPorte
The Farm Bill has often been a source of support to farms in managing risk. Market volatility and tightening margins have made price risk a major concern in recent years. A common request from stakeholders is to reform the Farm Bill’s Price Loss Coverage (PLC) prograillim to offer more aid against lower market prices.
The House Agriculture Committee recently drafted their version of a reconciliation bill. The draft includes proposed changes to raise statutory reference prices for PLC. The changes would be retroactive to include the current 2025 growing season. Note: It is expected that the Senate will soon provide their own version of a reconciliation bill as well. The Senate bill may include different changes to the PLC program.
The following is an analysis of the potential impact on PLC support payments using the House Agricultural Committee’s proposed changes. The analysis provides a framework for understanding impacts of any proposed or finalized changes passed by Congress.
Background on PLC Statutory Reference Prices
Current statutory reference prices (SRPs) were set in the 2014 Farm Bill. They provide support when price shocks are felt during relatively stable marketing periods. For a support payment to be made, the season-average price per bushel for a marketing year would need to be lower than the statutory reference price (SRP).
Statutory Reference Price (SRP) - Season-Average Price = PLC payment calculation
The 2018 Farm Bill kept SRPs the same at $3.70 for corn, $8.40 for soybeans and $5.50 for wheat. The bill also introduced an escalator clause to increase prices based on a crop’s Olympic average. In an Olympic average, both highest and lowest values are removed before calculating an average. For PLC, the average skips the most recent year and uses the immediate five previous years in its calculation.
Five Year Olympic Average x 85% = Escalator Clause Price
The escalator clause outlines that the payment calculation will use the higher of the SRP or 85% of the Olympic average. The price used will be referred to as the effective reference price (ERP). However, the clause also outlines that the ERP must be capped at 115% of the SRP’s value.
Statutory Reference Price (SRP) x 1.15 = Effective Reference Price Cap
The current effective reference price caps are $4.26 for corn, $9.66 for soybeans and $6.33 for wheat.
Proposed increases to Statutory Reference Prices
The House Ag Committee has proposed increasing the statutory reference prices in two phases. Phase one will be a set increase for marketing years 2025 through 2030. Phase two would see SRPs increase 0.5% each year up to 115% of the 2025-2031 SRP value. The changes are outlined in the table below from University of Illinois Farmdoc
Source : msu.edu