House Ag Committee releases proposed reference prices.
House Ag Committee releases proposed reference prices.
Many crops will see a higher reference price in 2025 but not all.
The Republican House Ag Committe released their proposed Farm Bill today. An updated summary of the proposal can be found here.
We have not had time to read all 942 pages, but today’s post will review the effect of the statutory increase in reference prices compared to the 2018 Farm Bill prices. The 2014 Farm Bill introduced the ARC and PLC, and payments would be based on reference prices for PLC and the ARC MYA price could not be below the reference price for Olympic Average benchmark revenue calculations.
The 2018 Farm Bill introduced the term Effective Reference Price (EFR) which could allow the reference price to increase up to 15% of the current reference price, however, it could not drop below the statutory reference price.
With the recent uptick in some commodity prices, many of the commodities covered by the 2018 Farm Bill have it this 115% peak price.
The House proposal increases reference prices across the board for most commodities. There are 23 covered crops, and the House proposal increases the statutory reference price on 15 of these crops as follows (there are two separate grains of rice):
However, this is just an increase to the statutory reference price (SRP). We now have to review what the effective reference price is to determine how much of a possible increase in price each crop will receive from the increase in the SRP for 2025.
We previously provided a chart showing what the estimated 2025 effective reference price would be using the 2018 SFR. We have updated that chart to reflect what the 2025 EFR would be assuming the above new SRPs go into effect. We then show the old effective reference price compared to the new one to determine how much of an effect we would have on the 2025 final EFR as follows:
As you can see most crops receive at least a 10% boost and the typical Southern crops of cotton, peanuts and rice receive the biggest boost in prices.
However, not all crops will see a boost in 2025. For example, grain sorghum will have their new EFR exactly equal to the SFR (based on current projections). Corn will only see a 4-cent increase (less than 1% increase) in the EFR, however, both wheat and soybeans will get a decent increase.
This trend should continue into the 2026 crop too. Even if prices are lousy for the 2025 crop, final EFRs should be approximately the same since the Olympic average price drops the low price of the last five years. The current low price for almost all commodities for the 2025 crop is the 2019/20 MYA and that will drop off for the 2026 calculation, therefore a lousy price in 2025 will also drop off and most EFRs for 2026 would be similar to 2025 numbers.
It is only as we get later into the five-year term of the farm bill that we get a bigger benefit for corn, sorghum, soybeans and similar crops from the higher statutory reference price.
The bottom line for corn growers is that the increase is beneficial, however, it will not materially hit the bottom line until at least 2027 and perhaps later.