Higher U.S. farm-program reference prices can increase federal crop-support costs because they can raise the payment rate used by the Price Loss Coverage (PLC) program. Under the 2018 Farm Bill, an escalator can lift a crop’s effective reference price when its recent price history is high enough. The effect varies by crop, and a higher benchmark does not by itself guarantee a payment to every producer.
What “reference price” means in farm policy
Here, a reference price is a U.S. farm-program benchmark used in calculating crop subsidies—not a retail price comparison. For PLC, the benchmark is part of the calculation that determines whether a payment is due and, if so, the payment rate. A higher reference price can make that rate larger when the program’s other relevant conditions are met.
How the 2018 Farm Bill escalator works
For a crop year, the effective reference price is the higher of the statutory reference price or 85% of the Olympic average of the five most recently completed crop years, subject to a ceiling of 115% of the statutory price. An Olympic average drops the highest and lowest values from the five-year set before averaging the remaining three.
That 85% factor means the five-year Olympic average must be more than 15% above the statutory reference price before the formula can lift the effective price above the statutory level. The calculation uses completed crop years, not a single current market quote. The ceiling limits how far the escalator can raise the benchmark.
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What the 2022 analysis projected for 2024
In a June 29, 2022 analysis, University of Illinois farmdoc authors Carl Zulauf, Gary Schnitkey, Krista Swanson, Nick Paulson, and Jonathan Coppess projected possible increases beginning with the 2024 crop year. Their projections were conditional on the May 2022 World Agricultural Supply and Demand Estimates (WASDE) price assumptions being realized; they are not current forecasts or verified final outcomes.
| Crop | Projected change from the 2022 analysis for 2024 |
|---|---|
| Soybeans | 10%, or $0.87 per bushel |
| Corn | 8%, or $0.29 per bushel |
| Sorghum | 3%, or $0.11 per bushel |
| Wheat | No increase projected |
| Long-grain rice | No increase projected |
Those crop-to-crop differences follow from each commodity’s own price history relative to its statutory benchmark. The June 2022 analysis does not make these figures a record of realized 2024 payments.
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Why a higher benchmark can cost more
When PLC’s other conditions for payment are met, a higher effective reference price can increase the payment rate. If that happens across supported commodities, federal spending on the farm safety net can rise. The farmdoc authors said the escalator could materially increase that budget for some program commodities, including corn and soybeans.
The authors also argued that escalator-driven increases could reduce the need for Congress to raise statutory reference prices separately. That was their policy analysis in 2022, not a later official budget score. Successful Farming’s July 5, 2022 article reported an average cost of “$7 billion a year” for commodity supports, attributing the figure to the CBO baseline. That is a dated report of a baseline figure; the available account does not identify the baseline vintage or precisely which programs it counted, so it should not be read as a current CBO estimate.
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Historical estimates are not observed escalator payments
The same farmdoc analysis modeled what might have happened had the escalator applied during 2014–2018. It estimated higher corn and soybean reference prices in every year except corn in 2018, with maximum modeled increases of $0.56 per bushel for corn and $1.26 per bushel for soybeans. Sorghum and wheat also would have risen in some years in the counterfactual, while long-grain rice would not have risen. These are historical estimates of a hypothetical formula effect, not observed payments under an escalator that was operating then.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the mechanism does—and does not—establish
The formula links an effective reference price more closely to sustained market-price history while retaining the statutory figure as a floor and the 115% limit as a cap. The farmdoc authors noted that the law did not explain the escalator’s original rationale; their analysis described its effect rather than attributing a definitive congressional intent.
The key fiscal trade-off is therefore conditional: a qualifying price history can lift a crop’s benchmark, which can raise PLC payment rates and spending when other payment conditions are satisfied. The size and budget effect depend on the commodity and the applicable conditions; the escalator alone does not establish that a producer will receive a payment or how much Congress will spend.
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