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Higher reference prices come with a cost

Since early this year, farm groups worried about rising production costs have called for higher reference prices, which are used in calculating crop subsidies, to be written into the 2023 farm bill. Congress is months away from drafting the farm bill, so there has been little discussion of the budgetary impact. But it could be significant, according to university economists who looked at a related concept: The reference-price escalator that was included in the 2018 farm law.

The escalator increases reference prices whenever the five-year Olympic season-average price for a crop is more than 15% higher than the statutory rate, set at $3.95 a bushel for corn, $9.24 for soybeans and $5.50 for wheat. Writing at the farmdoc daily blog, the agricultural economists said the escalator would boost reference prices beginning with the 2024 crop year. The soybean reference price would rise 10%, corn 8% and sorghum 3%, they said, but the reference prices for wheat and long-grain rice would not change. The analysis looked at five crops covered by the escalator.

“The reference price escalator is likely to increase the reference price over the next farm bill period for a number of program commodities, including corn and soybeans,” said economists Gary Schnitkey, Krista Swanson, Nick Paulson and Jonathan Coppess of the University of Illinois and Carl Zulauf of Ohio State University.

“It thus could materially increase the budget for the farm safety net in the next farm bill. The likely increase in reference prices due to the reference price escalator during the 2024 farm bill reduces the need to raise statutory reference prices, a topic generating considerable discussion.”

Since the 2018 farm law took effect, the escalator has increased reference prices in at least one crop year for chickpeas, crambe, lentils, mustard, rapeseed, short-grain rice and sesame.

Commodity supports cost an average $7 billion a year, according to the CBO baseline.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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