Congress is making a concerted effort to save money for taxpayers by reducing the budget over the next five years. Recently the House passed House Resolution 4241 which calls for $50 billion in savings that would have been spent in Fiscal Years 2006 through 2010. And the Senate’s version calls for a $35 billion savings in Senate Bill 1932. Negotiators for both houses of Congress will reconcile the differences, designed to save .33 of 1% of the $14.3 trillion the US government was scheduled to spend between now and FY 2010. Farm program payments will be reduced as part of the savings, but what will that mean for your Cornbelt farm operation?

The Food and Agriculture Policy Research Institute at the University of Missouri examined 500 different scenarios from the reductions from commodity program payments and the Conservation Reserve on market prices, farm program outlays, returns to producers, and net farm income then reported the average of those. While the numbers may seem large in the aggregate, per acre impact seems to be small, but still noteworthy for farm budgeting purposes.

1) A Senate provision would reduce direct and counter-cyclical payments and loan program benefits by 2.5% for the 2006-2010 crops. Estimated impacts include:
• A $1.5 billion reduction in total government farm program outlays for fiscal years (FY) 2006-2010, and a
• $1.1 billion reduction in net farm income for calendar years (CY) 2006-2010.
• Slight reductions in acreage planted and slight increases in market prices for most major crops.
• All estimated acreage and price impacts are less than 0.4%.
2) A House provision would reduce direct payments by 1% for the 2006-2009 crops.
• The provisions would reduce total estimated farm program outlays by $218 million for FY 2006-2010, and net farm income by a total of $138 million for CY 2006-2010.
• Commodity market impacts would be negligible.
3) A Senate provision would limit CRP area to 36.4 million acres between 2006 and 2010, and to 38.3 million acres in subsequent years. Relative to January 2005 baseline estimates, this would result in:
• Increases in area planted to program crops that are much smaller than the reduction in CRP area.
• Modest reductions (less than 0.2%) in crop prices in response to the increase in production.
• Increases in counter-cyclical payments and loan program benefits that offset savings on CRP establishment and rental payments, leaving total government outlays essentially unchanged over FY 2006-2010.
• A slight reduction in net farm income, as the effects of lower commodity prices and increased crop production costs more than offset the impact of increased crop production.
4) A House provision would reduce the maximum advanced direct payment from the current 50% to 40% beginning with the 2006 crop.
• By shifting 10% of direct payments between fiscal years, this would have the effect of reducing FY 2006 net government outlays by $526 million (considering the impact in conjunction with the 1% reduction in direct payments).
• Calendar year net farm income would be slightly reduced in 2005 (because fewer 2006 crop year payments would be made in December 2005), but largely unaffected in subsequent years.
5) A similar Senate provision would reduce the maximum advanced direct payment to 40% in 2006 and 29% in subsequent years.
• This would reduce government outlays during FY 2006-2007 by about $1.1 billion (considering the impact in conjunction with the 2.5% reduction in payments).
• Calendar year net farm income would be slightly reduced in 2005 and 2006 because of the shift in the timing of payments.

Focusing on crop returns per acre under the FAPRI analysis, the Senate 2.5% reduction in crop payments would result in a loss of $1.49 per acre of corn, $.79 per acre of soybeans, and $.57 per acre of wheat. The House 1% reduction in direct payments would result in a loss of $.19 per acre of corn, $.09 per acre of soybeans, and $.12 per acre of wheat. The Senate’s proposed CRP limitation would result in a loss of $.13 cents per acre of corn, $.15 per acre of soybeans, and $.09 per acre of wheat.

FAPRI also examined proposed reductions in the sugar loan, MILC, and cotton programs. While those are reported in their complete report, they are not addressed in this summary due to space considerations.

Summary:
This study illustrates the relative impact of deficit reduction on individual farm operations. While talk of billion dollar reductions may seem large, their actual effect on farm budgets are small when spread over 225 million acres of corn, soybeans and wheat, then further spread over a five year period. Agriculture can say that it has participated in the deficit reduction, but its localized impact will be less than a light sprinkle from a passing summertime cloud that didn’t even settle the dust.