This study investigated the impact of China’s agricultural subsidy policy on farmers’ commercial production, indicated by sales market participation. A nationally representative survey data, panel Tobit model, IV Tobit model, and the Correlated Random Effects (CRE) approach were used. The findings reveal that farmers receiving agricultural subsidies have improved crop sales’ share of total output value. Mechanism analysis reveals that agricultural subsidies have driven up farmland scale and increased agricultural labor supply in production, incentivizing the motive for profit maximization among farmers. Meanwhile, agricultural subsidies also encourage farmers to cultivate more grain crops. Policymakers should continue deepening the reform of agricultural subsidies and promoting farmer specialization and commercial production. Moderate-scale operation of farmland should be one of the targets of agricultural subsidies.