Final House farm bill now goes to the Senate

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. I've got Paul Kneifer and myself here today to give you a little update on what's going on with the Farm Bill in DC. And so we're going to start out with Paul just kind of giving us an overview, and then we'll get into some questions and some things that he's seeing from the House side. Of the proposal. So with that said, Paul, go ahead and kind of start at will.

Paul

Neiffer: I will do that. You know, essentially the House Ag Committee, which is controlled by the Republicans. So this is sort of a Republican proposal. The Senate side is controlled by the Democrats. So we know there's going to be a clash between the two. But the proposal came out of the House Ag Committee yesterday. So now the, the actual House itself will be debating it and we'll see if they pass it as is. But I just want to go through some of the key things that I think production ag would be most interested in. Number one is there's definitely a large boost in reference prices. And, you know, across the board, it's between 10% and almost 22% or 21%. I think rice— yeah, rice was the highest at about 20.7%. Corn was only at about 10% and so on. So that definitely is helpful for both PLC and ARC.

It's more helpful for PLC per se than it would be over on the ARC side, but it's definitely very, very helpful. Now, the key is when we say that, does that really mean that like on corn you're going to get a 10% increase in prices? Well, no, because Remember, we have what's called an effective reference price. So this is the statutory reference price went up. The effective reference price can go up to about 115% of the old price. However, it's limited to 85% of the Olympic average price. And right now that price is at $426. The maximum that it would be under the new bill is $430 for the next couple of years. So remember, this starts in '25. So corn, instead of getting $4.26 for PLC, you're going to get $4.30. Well, Chris, that's about a 1% difference. So really, for the next couple of years, this really doesn't benefit corn farmers that much.

But again, remember, we as corn farmers or the corn farmers out there really don't want to collect PLC because that means the price has gone down.

Chris

Barron: Mm-hmm.

Paul

Neiffer: So I'll just hold off for a second on that and see if you got any questions on that.

Chris

Barron: I don't know. You tell me, what should I be asking on that one?

Paul

Neiffer: You know, I think the reality is over in the Senate, you know, they only increased corn— excuse me, cotton, rice and peanuts by 5%, and they left everything else the same. So we know this is going to be a battle. You know, the CBO on the scoring because of this large increase in reference prices, it is going to cost some money. Now, the House Ag Committee and the Republicans in the House think that they're able to get enough funding from CCC the way they scored it, that they'll be okay. So just hard to know. It is helpful, but whether they get it all, I think what will happen, there'll be, you know, some cuts there. But I think we'll definitely still get an increase in reference prices.

Chris

Barron: I have a question on ad hoc payments. You know, I think I read something in there unless I misunderstood it, but like the MFP, you know, that Market Facilitation Program we had, and then they're saying the money has to come from CCC. There's not extra money, but that's one thing being said, and you never know what kind of black swan weather stuff. Exactly.

Paul

Neiffer: Yeah. Yeah. And see what, how the CBO, and this is my understanding, so I could be off a little bit, but the CBO, because there's $30 billion a year of— I think it's per year— of authority to use CCC funding. And CBO came out and said, hey, we're only going to allocate $1 billion, you know, per year, or $12 or $10 billion over the life of the— you know, because they score it out for 10 years. Well, we know MFP was probably $20 or $30 billion. CFAP was $20 or $30 billion. So what the House is saying, hey, our history is that we use quite a bit of CCC, so therefore it should be part of our baseline. So that's the battle that's going on right now. So we'll see. Now, the other thing, since PLC and ARC is based on base acres, you know, a farmer has to have base acres in order to get that payment.

Well, a lot of young producers or producers that have planted more acres than their base acres they're sort of being penalized. So this house allows a one-time opportunity to increase base acres. It doesn't change your current base acres at all. There's no reallocation. So if you have 1,000 base acres of corn, 1,000 base acres of soybeans, you're still going to have at least 1,000 of each. That doesn't change. What changes is that you're allowed to increase your base acres if your planted acres were greater than your base acres, including if you planted to what we call non-covered acres. And that's like in your area, sweet corn, green peas, potatoes, onions, those fruits and vegetables that a lot of farmers even in the Midwest will grow those crops. As long as those crops are less than 15% of total acres, you get to increase it for all those non-covered commodities.

If it's greater than that, then your limit's going to be 15 acres. And I have a quick example here. I'll just read it sort of verbatim. You know, you farm 200 acres, of which 100 are corn base acres and 100 are not currently base acres at all. During the test period, which is from 2019 through 2023, you planted on average 25 acres to green peas. I use green peas and the 175 acres were planted to corn. I just assumed there was no other crops. So in that case, since 25 acres are less than 15% of 200 acres, which would be 30 acres, you get to increase your base acres from 100 all the way up to 200. Now let's say that you planted 50 acres of green peas during that period. You could only increase your base acres by 30, not 50. So that's just sort of a quick example for you. Mm-hmm.

So Chris, in your operation, I bet you you know, that your operation probably plants more than you have base acres. That's typically what I've always seen. So this is a one-time opportunity to increase your base acres to go up to that level of planted acres. Now, if the total planted acres for the country are more than 30 million, they're going to shrink it down so that on average it's only 30 million.

Chris

Barron: Okay. So is the Senate going to go along with that?

Paul

Neiffer: The Senate proposed increasing base acres, but only for underserved farmers. So you and I, we're white males, we're not underserved farmers. So we would not be able to allow to increase our base acres. So that again, is going to be a battle between the House and the Senate.

Chris

Barron: Interesting. Another topic I wanted to hit on was payment limitations is always a big deal because of just how the operations are structured and all that kind of thing and what's going on. Talk a little bit about payment limitations.

Paul

Neiffer: Yeah.

Chris

Barron: What's the House's and what could go through the Senate maybe?

Paul

Neiffer: Yeah. So the House has a proposal that says they're not increasing payment limits. Well, let's back up. Let me talk about conservation, CRP, because a lot of farmers in the Midwest, all over the country, participate in CRP. Right now, the current payment limit for CRP is $50,000. The House bill boosted it up to $125,000. There's no provision in the Senate that I'm aware of that increases CRP. But for like ARC, PLC and those type of provisions, the payment limit is $125,000. The House still keeps it at $125,000 unless you can prove that more than 75% of your AGI, your adjusted gross income, is from farming. Now, under the current FSA rules, it's been very difficult for farmers to meet that definition because FSA doesn't treat the gain from selling farm equipment as farm income.

The House proposal specifically states FSA, thou shalt treat gains from selling farm equipment as farm income. So I'm going to say almost all of your farmers would then qualify for this boost up to $170,000 or $155,000 from the current $125,000. So if you're, if you're really a farmer, you really get $155,000 payment limit, not $125,000, and it's indexed to inflation. So that's a good, good result.

Chris

Barron: That leads me to kind of— I don't want to go down a rabbit hole, but I might be, but I'm going to anyway— is a lot of these farm operations have cousins, brothers, uncles, sisters, you know, farming together. Yeah. And, you know, there's, you know, we've had conversations in the previous podcast you and I had. People want to go back and listen to that. We talk about GP, the general partnership structure. There's also, though, ownership within some of the family businesses and then you have the actively engaged and the non-actively engaged partners.

Paul

Neiffer: So this, this is going to create— yeah, this is going to create issues, Chris. Right. If you're just a Schedule F farmer, your payment limit is going to be $155,000 in most cases. If you're a family partnership where, you know, two of the family are really actively engaged in farming and that's their only source of income, and two of them are, let's say, live in Des Moines, they're a teacher or whatever they might be, a doctor, that's going to restrict that payment limit for their share from $155,000 down to $125,000. So you're still going to get the $125,000, but it's that increase up to $155,000 that might get curtailed because you have too much income from nonfarm activities.

Chris

Barron: Another side note on that sort of too is when you sign up for the Farm Bill, you have to show active participation. Yeah, all that. And sometimes we see some of the farm operators that are transitioning, they're getting less and less acres. And I've seen some of the counties start to really quiz the senior partners or the youthful partners that are coming in on either end of that spectrum. Are you actively engaged? Are you, are you operating equipment? Are you making decisions and stuff? Is there anything that they're changing or tweaking there a little bit, or is that kind of—

Paul

Neiffer: I didn't see anything in the provisions that tweaks that. Now, the one benefit that— let's back up to payment limits— is that right now, if you farm as an S corporation or an LLC or an LLP, you're limited to one payment limit. This proposal, the House proposal, says let's say you have 4 equal owners and they all farm. So let's pretend like they're all active. You know, you got 4, they're all working on the farm, but they're structured as an LLC. Under current rules, they get one payment limit. Under the proposal from the House, they're going to get 4 payment limits because they're going to treat it as if they were like a general partnership. Now, Chris, for those farms that still are C corporations, which we know there's still some C corporations floating around. Yeah, yeah. Chris raised his hand. As far as I can tell, that's still one payment limit.

And those are 5 family members that each own, you know, 20% or 25%. That's still restricted to one payment limit. Now, at that point, Maybe you elect to be an S corporation because it's very important for you to have 3 or 4 payment limits. So again, I hate to say it, but some of the tax structuring we do may run afoul of FSA limits. So that's something we're going to have to be careful of. Yeah.

Chris

Barron: One way to get around with the C corp thing is you just have individuals in the operation. If they don't own any of the C corp, they go out and rent the new ground.

Paul

Neiffer: Yep.. Yeah, exactly.

Chris

Barron: And you have another entity. And so there's, there's a thousand ways around that, I think. Yeah.

Paul

Neiffer: Yeah. Keep that C corp under the 125 and then 155 and then have the owners or the non-owners, you know, start renting ground themselves.

Chris

Barron: Yeah, that, that fixes a lot. Plus it, it keeps everybody legitimately actively engaged too, which I think is a good thing. Do you think that's going to go through the Senate? Do you think that's what we're just talking about? That's going to make it through?

Paul

Neiffer: Well, I don't know, because back in 2018, this was actually proposed. A similar provision was proposed by the House and it got eliminated. You know, your, your oldest senator from your state, you know, Senator Grassley, really doesn't like this provision. And he's still got a fair amount of clout even though he's not on the Senate Ag Committee. He's still, you has a lot of clout. I'm hopeful, but I'm just— I'd give it at best 50/50. I think certainly this would cost money. And if you come down to the fact that you need to save $3 or $4 or $5 billion to get the farm bill to meet the CBO score, this would be an easy spot to cut it.

Chris

Barron: Mm-hmm. Gotcha. So I want to get in again.

Paul

Neiffer: If it— I was going to say, if it's a big deal, we can still get around it. You form a general partnership, you have each partner be a single-member LLC or corporation or whatever. We can still get around it. It's not that big of a deal.

Chris

Barron: It's, it's just, you know, there's a, there's a balance between farming the government and running your farm too. And so, you know, I think the business structure is a key thing, but I think we got to you know, we're going to have to pay attention and every situation is a little unique. So I want to talk about insurance, but I want to talk about that last. And so I want to ask, is there anything else in there that warrants being aware of currently right now?

Paul

Neiffer: I think other than crop insurance, which we'll talk about, you know, certainly if you're a sugar beet farmer or sugar farmer, there's some benefit there. They've increased the loan rates by about 10%. That may or may not be helpful in the future. Problem with those loan rates, that really is beneficial if, if pricing is really low. I mean, I don't think you want corn prices to drop all the way to $2.42 so you can participate on a corn loan with the government instead of at $2.20. It's $2.42 now. So I think we've covered most of what I'm, you know, dairy's got a little bit of provisions, everybody's got a little bit of provisions, but I think we've covered the key steps, especially for production ag.

Chris

Barron: Yeah, I think we're going to want to stay tuned on all that. I want to wrap up though with crop insurance. Talk a little bit about what, what's the meat that's in there? What's it going to do to coverage levels and that kind of thing? What's being proposed?

Paul

Neiffer: And actually, I did forget to— and it's sort of almost related to crop insurance on ARC. They actually are boosting the guarantee instead of being 86%, it's actually going to start at 90%. So that's definitely helpful. And the payment limit, instead of being 10% of benchmark revenue, is going to be 12.5% of benchmark revenue. I forgot to mention that. And we may have mentioned that once before, but that's an important provision. So over on crop insurance, I think most of us know that your limit on most revenue protection coverage is at the 85% limit. They actually are now adding in a 90% coverage, and I'm just going to sort of read it. It's on individual yield or revenue coverage, but it's aggregated across multiple commodities.

So if you're doing corn and soybeans and wheat, you could go all the way up to 90%, but you're going to have to do it on, I think, on all three of those commodities. You can't pick 75 on one and 85 on one and 90 on the other. You have to do it on, on 90%. And then on SCO, the Supplemental Coverage Option, they're boosting that up. Instead of being 86% as the max, it's now going to be at 90%. And they're really boosting the premium subsidy. Right now it's 65% subsidy. They're going to boost it all the way up to 80%. I think you're going to see a lot of farmers, if that happens, they're going to start taking advantage of SCO, especially if they're in areas like maybe Oklahoma, Texas, North Dakota, where it's, where it's to get coverage at that 85% level. I could definitely see them doing that. The negative is you're still restricted. You can't take— you can't elect ARC.

You can only elect PLC with SCO. So that's something you have to be aware of. And then one other area and then open up for questions. On beginning farmers, you know, right now you have a 10 percentage point. So if the subsidy is 50%, it gets boost up to 60%. But that's only good for 5 years. They're actually increasing that to 10 years. And the first couple of years, that percentage boost instead of 10 is 15 and then 13, 11. And then for years 5 through 10, it's at that 10% level. So that's a pretty good deal for beginning farmers.

Chris

Barron: That's huge. So going from 65% to 80% premium subsidy would be pretty significant savings. And I'm thinking of the, you know, you described, you know, like the Texas and the North Dakota and all those outer areas. What about the middle part? Do you— because you're talking a lot of money. I mean, that's going to be a fairly expensive endeavor for them. For the US economy. Is that something you think the Senate's gonna go?

Paul

Neiffer: I don't think it scored that high on the cost. So I think it still is because I think even on the Senate side, you know, Stabenow, who's the chair of the Senate Ag Committee, is very much a proponent of having a lot of our subsidy really go for crop insurance using that instead of an ad hoc, you know, like ARC or PLC. So I think that really has a good chance of getting implemented. You know, also, Chris, I'm part of the Midwest Crop or Midwest Ag Council. And I think we actually as a council sort of help get some of that stuff into the, into the, into the bills. So if you're in that Midwest, and that's really the key states in the Midwest. That's something a farmer might be interested in, in checking out. It's a pretty good advocacy organization. It just started a couple of years ago. Impetus from Collin Peterson, you know, the retired House Ag Committee.

So I think that's a pretty good thing for farmers to check into.

Chris

Barron: The Midwest Ag Council.

Paul

Neiffer: Yeah, yeah. Our Council on Ag. I always get it screwed up. I can't remember if it's Midwest Ag Council or the Midwest Council on Ag, but, you know, either one is good.

Chris

Barron: So yeah, yeah, yeah, that's great. I think of everything you just described, I think one of the best values for the country and the producer, I think, is this insurance component. Yeah, yeah, that's where the risk is. And, and if we need help, it's when we have a loss, right? It's not— yeah. You know, we want to grow a crop and we want a decent market and we don't expect people to give us money. But when we have a, you know, a very disrupted season and it's financially impactful and everything, that's— I think a lot of producers are willing to pony up their portion of that. And if, and if the premium is 80%, holy crap, why would you not spend? Yeah. And I mean, I'm not an insurance agent, but You know, when I look at— well, I think—

Paul

Neiffer: yeah, I think what will happen too is people will then maybe instead of buying RP at 85%, they'll buy it maybe at 65% or 70% and then use SCO because remember that 65% RP is— is subsidy is a lot higher than 85%. And so they'll use, you know, SCO to sort of top it off a little bit. Now you got to be careful because SCO is based on the county. You know, so you got to be careful with that. You know, if you have a lot of ground that's very variable compared to the county, you know, you still probably want to look at, you know, topping off the RP coverage.

Chris

Barron: But, and those with high APH, the high APHs though, that are in a fairly high productive area, they're probably just going to buy the 90% coverage by option. Yeah. And the money and have a good coverage level because you Yeah, because their premium is going to be pretty cheap anyway.

Paul

Neiffer: Right.

Chris

Barron: Yeah, right.

Paul

Neiffer: Yeah.

Chris

Barron: Yeah. No, that's, that's really interesting. I think it's going to create some opportunities for, like you said, a lot of the North Dakota producers we work with kind of struggle with getting any kind of a higher level and it's just so expensive for what you can get.

Paul

Neiffer: Yeah.

Chris

Barron: They kind of get the shaft compared to, you know, some of the Midwest producers, I think.

Paul

Neiffer: Well, what I see, I get my Southwest Missouri versus the coverage on my farm that you farm for me and it's a— I mean, it's 3 or 4 times more expensive for the same coverage.

Chris

Barron: Right, right. Yeah.

Paul

Neiffer: And that's irrigated ground. I mean, it shouldn't— yeah, it shouldn't be, but I mean, it just is.

Chris

Barron: Yeah. Yeah. Well, I think we've covered a lot. Is there anything other than stay in tune because this has got to get through the Senate? What's the timeline look like? What— when, when do you think— how long does it take to get through and to get some sort of a—

Paul

Neiffer: Yeah, it takes—

Chris

Barron: it typically takes 2 or 3 months.

Paul

Neiffer: From the time the House issues their markup bill that's under the House floor and still isn't at the House floor. I mean, you got to go through the Rules Committee and so on. It's a minimum of 2 to 3 months, it seems like. And that's if you have bipartisan support. And we got to remember, Chris, this is an election year. If it doesn't get done by probably late July, it's not going to get done this year. Plus, the Republicans, they may say Yeah, they say, hey, if we get Trump back in the White House and the Senate goes Republican, which it's looking like, and even the House may stay Republican, they may say, hey, if we got all three, why are we doing a farm bill this year? We can cram through what we want next year.

Chris

Barron: Mm-hmm. Just seems like we'll see with the Senate being more heavy Democrat that the Biden administration would want to get something pushed pushed through so they could say, hey, see, look at what we got for you.

Paul

Neiffer: I mean, you, you would think so. You would think so. So, so, but yeah, like I say, if it doesn't happen by the end of July, you know, we'll have the Farm Bill will get punted for another year. '25 will be the same as '24, and then we'll have a 2026 Farm Bill.

Chris

Barron: Interesting. Nothing like just delaying the inevitable, right?

Paul

Neiffer: Yeah, exactly.

Chris

Barron: Exactly. I'm excited about that insurance thing. I think that's To me, that's the highlight of it all.

Paul

Neiffer: Yeah, if that happens, we'll definitely have some follow-up meetings and maybe not with me, but with, you know, some crop insurance experts more so than me.

Chris

Barron: You seem to have that stuff all figured out too, so we'll continue to bug you.

Paul

Neiffer: But we'll see.

Chris

Barron: Yeah. So with that all said, any final comments to wrap it up?

Paul

Neiffer: No, just I cross my fingers, but my wheat crop both in Washington State and in Missouri is looking pretty good. So hopefully, you know, it stays that way and the prices actually come up.

Chris

Barron: I gotta say, you've been getting some pricing opportunities, so hopefully you're taking advantage of that too.

Paul

Neiffer: I have sold about 25% of the crop so far on both sides.

Chris

Barron: Okay. You know, you'll have to keep at it probably. So.

Paul

Neiffer: All right. Well, and I have some triggers. I have some triggers in place. So that's that. If it goes up another 10 or 15 cents, another 10 or 15% will get sold.

Chris

Barron: Yeah, that's a good deal. So. All right. Well, Paul, thanks a lot for the information. We will stay in contact with you and stay tuned and we'll keep updated on this stuff as the farm bill gets going through the Senate. With that said, thanks, everybody, and we'll catch you again next time. Oh, you're going to say something else?

Paul

Neiffer: I was going to say, if people want to, they can check out my blog too at FarmCPAReport.com. Agri-report.com. I've been posting on the Farm Bill as far as things going on fairly regularly, almost daily on it. So that's something they might want to take a look at.

Chris

Barron: Yeah, definitely, definitely check that out. All right, Paul, thank you. All right. You're welcome. You bet. Thanks, everybody. And we will catch you again next time on the Ag View Pitch.