Like Babcock, Patrick Westhoff, director of the think tank Food and Agricultural Policy Research Institute (FAPRI) said that lower ethanol demand would hurt corn prices, the end-product of which would be higher government payouts.
"That is definitely the direction," said Westhoff.
RUN OF STRONG GRAIN PRICES ENDING?
A seven-year run of strong grain prices reduced U.S. crop subsidies to minimal levels - a significant savings to taxpayers. The rise in ethanol production has been a big factor in supporting corn prices.
Market prices for major crops like corn and soybeans have for years been far above the levels where support prices come into play. Support prices, also called target prices, assure a minimum price for a crop and act as an income stabilizer.
The farm bill, if passed in its current form, would establish a plan to provide up to 90 percent of average revenue from a crop.
Backers say it is needed to safeguard farmers' revenue from volatile market prices and high production costs.
For example, the drop in farm-gate prices from $6.89 a bushel for the 2012 corn crop to $4.50 forecast by USDA for the 2013 crop would be the largest one-year decline in six decades.
Corn subsidy payments would be triggered if the average farm-gate price is significantly below $4.50 a bushel, analysts said. If those prices sink to $4, "huge payments" would be needed, said Westhoff.
Agricultural economic professor Daryll Ray of the University of Tennessee says the next few years will test if there is a cash price "plateau" in the mid-$4 a bushel range for corn, or if market value lies lower than that.
From late 2008 to mid-2010, the most recent period of lower prices, corn futures traded roughly between $3.00 and $4.50.
With a record crop in the bin, "if spring 2014 planting goes well, prices could go lower yet," Ray said in a policy review on Nov. 15.
Back-of-the-envelope calculations put potential corn subsidies at $2 billion or $3 billion a year. But Babcock and Westhoff said the picture is still evolving. Large export demand could support prices, they said, and the impact of low prices, it they occur, would not be uniform.
The revenue guarantees of the new farm bill will be tied to local results, not a centralized price like Chicago futures. "The distributions matter," said Westhoff.
The cost of the farm bill, now in the hands of a select group of House and Senate negotiators, will be calculated on a "baseline" from early this year, when congressional forecasters penciled in higher average commodity prices. The recent drop in market prices will not alter the estimates of cost savings under the bill.