Door #2 Target Prices
An old program that was phased out with Freedom to Farm was resurrected for southern farmers who wanted to retain the concept of target prices for peanuts and rice, which have enjoyed high price support programs. And the political weight of the south on the Agriculture Committees nearly assures that any new farm program will include target prices.
The concept of target prices created havoc for the USDA when the World Trade Organization upheld a complaint by Brazil over high support prices for US cotton. A payment was made to Brazil, but a subsequent payment was negated by the recent sequester action.
Target prices were included in the 2008 Farm Bill, but were so low, Corn Belt farmers may not have known they were there, with $2.63 for corn, $6.00 for soybeans, and $4.17 for wheat.
While the target prices were low, the government did not have any outlays for deficiency payments. However, they would not have provided any substantial economic support if market prices had faded that deep.
Since target prices are set by a Farm Bill, they will remain steady throughout the life of the legislation, but any financial support they offer could be pared by year to year appropriations.
If target prices are high, payments could be made that would draw taxpayer protest, such as the current system of direct payments. And such financial support, since target prices are based on production, will draw WTO protests because target prices encourage US production at the financial risk of farmers in developing countries.
Door #3 Supplemental Insurance Program
While cotton producers only were eligible for the STAX program proposed in the failed 2012 Farm Bill, the Supplemental Coverage Option (SCO) was included in both the House and Senate proposals. It was designed to enhance the use of crop insurance by offering the opportunity for farmers to cover their shallow losses, their deductible, with a subsidized mini crop insurance program.
It was generally designed to take farmers up to the 90 percent coverage level, and was based on either county yield or revenue in the spirit of GRP or GRIP policies.
The SCO plan was a year to year plan with different levels of financial protection from year to year and could fall substantially as 2012 prices fell compared to the 2013 new crop prices. Another downside is the potential for sporadic coverage, if an insufficient number of farmers wanted SCO to create a risk pool in their county.