Members of the agriculture committees in the Senate and House of Representatives soon will begin drafting the 2012 farm bill. They will do so at a time marked both by great concern over government spending and high farm prices. Perhaps more often than not, it is necessity that gives birth to reform. The drive to cut government spending has provided the need to review farm programs. And certainly high prices for most commodities may make reform more palatable to producers. Famously resilient farm programs may receive greater scrutiny this year than at any time since 1996, also a year of high commodity prices, when Congress made its last stab at weaning production agriculture from government support.

The U.S. Department of Agriculture in its Agricultural Income and Finance Outlook issued in December estimated net farm income in 2011 at $100.9 billion, up 28% from 2010 and 50% higher than the recent 10-year average of $67.4 billion. Net cash income estimated at $109.8 billion would be a nominal record, 19% above the prior record attained in 2010. As the year drew to a close, the average farm price of wheat in 2011 was estimated at $7.43 a bu, up 44% from 2010 and just 8c under the 2008 average. Average prices paid to farmers for corn and soybeans in 2011 were estimated at $6.04 a bu and $12.89 a bu, respectively, both records.

While expenses of farming also were on the rise, 2011 was a good year for producers, and because of the high prices, government payments made directly to farmers accounted for a smaller share of overall farm income than in most recent years, which will be a consideration as Congress reshapes U.S. farm programs.
The U.S.D.A. estimated government payments made directly to producers in 2011 at $10.6 billion, down 14% from an estimated $12.4 billion paid in 2010. If the December estimate holds, government payments to farmers in 2011 would have been the lowest since $7.5 billion in 1997.

Direct payments under the Direct and Countercyclical Program (D.C.P.) and the Average Crop Revenue Election Program (ACRE) were forecast at $4.71 billion for 2011. Direct payment rates are fixed in legislation and are not affected by crop prices. Direct payments in 2011 were expected to be down about 5% from the 2006-10 average because of producer enrollment in ACRE. Authorized under the 2008 farm act, ACRE provides revenue insurance to producers in exchange for a 20% reduction in their annual direct payment allotments. Direct payments may have the eye of congressional budget-cutters.

Farm program payments based on price levels were estimated at $45 million, down 92% from 2010 because of strong crop prices. ACRE revenue insurance payments were expected to drop to $20 million in 2011 from $422 million in 2010. Countercyclical payments were estimated at $17 million and were made only to peanut farmers. Commodity producers were expected to receive $8.3 million in marketing loan benefits, including loan deficiency payments, marketing loan gains and certificate exchange gains.

Other direct payments to producers in 2011 included payments to milk producers and tobacco farmers under individual commodity programs as well as payments under conservation and emergency disaster programs.