Why Program Payments Should Not Be Paid Based On Plantings
FarmDoc Daily had a very good article recently on how generic acres may have been influencing farmers to plant more acres than they otherwise may have. Generic acres refer to cotton base acres under the Farm Bill. Cotton growers did not directly participate in the Farm Bill. Rather, they were allowed to take their cotton base acres and convert them to “generic” acres. These generic acres were then enrolled in either PLC or ARC and would be paid based upon the crop planted each year.
All other farmers were paid upon their enrolled base acres. It did not matter what they planted; they would be paid the same. Most generic acres are in areas of the country where peanuts are also grown (primarily the SE portion). When the Farm Bill came out, almost 100% of peanut growers signed up for PLC since the reference price was in excess of current market prices. This provided an incentive for farmers with generic acres to plant peanuts since it would provide for a far larger farm program payment.
The report indicated that these growers received an average of $162 per acre in 2014; $265 in 2015 and projections for 2016 is even higher possible payments. Also, the amount of generic acres planted to peanuts rose from 708,000 acres in 2014 to almost 1 million acres in 2016.
During this same period, the largest corn payments rarely exceeded $100 per acre with other crops being much less. In addition, peanut farmers have their own separate payment limit of $125,000 per person/entity.
As you can see, when there is a direct subsidy based on what you plant, farmers are smart enough to take advantage of that subsidy. Whether that is the correct way of managing crop prices or not is up to Congress to decide.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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