U.S. Crop Agriculture’s Government Payment Trap

By Carl Zulauf, Gary Schnitkey, Nick Paulson, and Jonathan Coppess

The April 11, 2025 Farmdoc Daily found the U.S. crop safety net is no longer countercyclical. The April 16, 2025 Farmdoc Daily found this is mainly due to changes in ad hoc and emergency and crop insurance payments. Safety net payments are now high, even when private market returns are high. Implications of the demise of the countercyclical crop safety net are explored for the period since the 2014 Farm Bill authorized the current set of commodity programs. Total commodity and ad hoc and emergency payments, plus net insurance payments, notably exceeded economic losses from producing the nine crops for which the USDA’s Economic Research Service (ERS) computes a cost of production. The $88 billion excess of safety net payments over private market losses likely played a role in the 52% and 73% increase in farm assets and debt, respectively, since 2013, which in turn are creating pressure for on-going high payments.

Crop Safety Net Payments in Perspective

From 2014–2023, the nine cost of production crops as a group received cumulative crop safety net payments of $120 billion while their cumulative private market net returns at harvest totaled -$32 billion (see Figure 1). ERS assigns a cost to all inputs except management. The $88 billion excess of safety net payments over private market losses more than covered those costs. Commodity programs accounted for 30% of total safety net payments; 32% were crop insurance indemnities net of farm-paid premiums; and 38% were from ad hoc and emergency programs. Even if ad hoc and emergency payments are excluded due to special circumstances, commodity and crop insurance payments exceeded private market losses by $42 billion. The data and calculations used to create Figure 1 are detailed in the data notes to the April 11, 2025 Farmdoc Daily.

Farm Assets, Debt, and Interest Expense

Between 2012-2013 and 2023-2024, farm assets increased 52% as farm real estate (i.e. land and buildings) increased 59% (see Figure 2). Farm debt rose 73% as real estate debt rose 96%. Total and real estate interest expense increased even more (87% and 100%, respectively). Interest rates were higher in 2023-2024 than in 2012-2013. A two-year average is used to smooth year-to-year variation.

Land Rent vs. Asset Cost

One indicator of the potential impact of crop safety net payments on land values is to compare the price of land to the rent farmers paid to crop the land. Using data from USDA National Agricultural Statistical Service (NASS) surveys, per acre price of cropland was 52% higher in 2023-2024 than in 2012-2013 (see Figure 3). Cash land rent was 21% higher. The price to buy cropland clearly increased more than what farmers were willing to pay to crop it. Several factors could explain the difference, with crop safety net payments one of them.

Policy Implications

Policy needs to consider both the situation of individual farmers and the crop sector. To focus on one is to potentially create problems for the other.

The current economic picture of the U.S. field crop sector is stark, even disturbing. Since 2013, the price of U.S. cropland increased 52% as production of nine large acreage field crops incurred private market losses, more than offset by large crop safety net payments.

Value of cropland and other real assets are thought to be linked to returns they generate vs. alternative investments. To sustain the post-2013 increase in cropland price, private market return must increase, large safety net payments must continue, or interest rates, an alternative investment return, must decline. (See Nov. 26, 2024 Farmdoc Daily for a discussion of these three factors in the current cropland market.)

Contemporary pressure for continuing, high crop safety net payments is evident in three ways. The ad hoc economic assistance of December 2024 is not far from the average annual safety net payments to the cost of production crops over 2014-2023 ($10 vs. $12 billion/year). The farm bill safety net debate has stressed the need to raise commodity program support levels and insurance premium subsidies. Additional ad hoc assistance is being touted should the tariff war cause U.S. crop exports and prices to fall.

Pressure for more payments face an era of tighter Federal budgets, so they may not materialize. However, until they do not occur, markets will expect them to continue and price them into costs, such as land and machinery, in a process many economists describe as “capitalizing payments into future costs.”

More payments are thus unlikely to relieve the crop cost-price squeeze but instead raise the cost of producing crops.

In short, U.S. crop agriculture confronts a government payment trap.

Unwinding this trap will unfortunately come with pain, such as higher financial stress and bankruptcies, unless higher prices or yields increase private market returns or interest rates decline.

The trap and its potential pain could largely have been avoided if past crop safety net payments had not exceeded private market losses. Limiting future total payments to no more than crop sector losses would be a first step in the unwinding and likely dampen the pain. More broadly, policymakers should always aim to avoid having total crop safety net payments exceed crop sector private market losses.

U.S. Crop Agriculture’s Government Payment Trap was originally published by Farmdoc.