Commodity program changes outlined for new farm bill
Now that the dust (and euphoria) has settled a bit on the new farm bill, farmers are beginning to ask “So what’s next?”
This Hoosier Farmer series will explore and shed light on the various provisions of the Agricultural Act of 2014 over the course of the next few months.
Many of the specific program details and planned implementation are currently unknown. According to USDA Secretary Tom Villsack, the agency has formed steering committees for each title, and plans are underway regarding roll-out and specifics. Livestock disaster aid programs are expected to accept enrollments very soon.
In the meantime, here is an overview of the new commodity program intended to outline the decisions and options that farmers will be faced with in 2014 and beyond.
Direct payments: Direct payments are repealed for the 2014 crop year with the exception of cotton producers. Cotton producers will collect a “transitional” direct payment equaling 60 percent of their past payments for the 2014 crop year and 36.5 percent for the 2015 crop year. Cotton producers will be eligible for those transitional payments in counties where the insurance program STAX is not available.
Revised commodity program: Farmers must make a one-time, irrevocable decision between two competing commodity program approaches, which include the following: A) price program or B) county or individual farm revenue support program. The revenue program is known as Agriculture Risk Coverage (ARC) and the price support program Price Loss Coverage (PLC). The choice of program is a one-time decision to be made by the deadline established by FSA. That deadline is expected to be during the upcoming summer.
Once selected, farmers will be locked in to their program election until at least 2018. The commodity programs and the choices required all begin with the 2014 crop year. The payout in the different programs and insurance options will be tied to the individual farm, county revenue or national prices.
There are no payment caps on individual programs, but there is a $125,000 cap on individuals for all commodity programs taken together, which is doubled ($250,000) for married couples. Furthermore, adjusted gross income eligibility in the commodity program is limited to those making under $900,000.
When completed by the USDA, the final regulations will further determine program and decision parameters, as well as when farmers can begin to sign up. The USDA will also determine who is eligible as a farmer for commodity program payments.
Base acres: In the new commodity scheme, base acres will be used to determine all program payments, and no payments will be based on acres actually planted. Payments for ARC and PLC will be paid on base acres for the covered commodity. For multiple commodities on base acres, the base will be prorated to reflect the ratio of planted acres to the total acres of all covered commodities on the farm. There is a one-time option to retain base acres or re-allocate base acres among those covered commodities planted during the 2009 through 2012 crop years.
If the owners choose reallocation, the farm’s base acres going forward will be in proportion to the four-year average of acres planted to each covered commodity in those crop years, including any acreage that was prevented from being planted to a covered commodity in a crop year. Other base acre provisions, such as adjustments for acres that exit the Conservation Reserve Program, are similar to the 2008 farm bill except the program decisions outlined below must be made for CRP acres when they exit. An election to reallocate base acres cannot, however, result in an overall increase in the farm’s base acres.
Payment yields: At the same time, there is a one-time option to update yield payments for the covered commodities. Payment yields are currently a part of the farm records at USDA (along with base acres) and, similar to the Counter-Cyclical Payments program from 2008, payment yields will be used to calculate the PLC payments for any covered commodities on which PLC has been elected. If a yield update is elected, the new payment yields will be equal to 90 percent of the average yield per planted acre of the covered commodity in the 2008 through 2012 crop years.
Agriculture Risk Coverage (ARC): Within the ARC program, producers must make yet another decision. They must decide to enroll in county level revenue (County ARC) coverage on a commodity-by-commodity basis, or individual farm level revenue (Individual ARC) coverage that applies to all of the commodities on the farm. Under ARC, 85 percent of base acres are covered for the county option, but payment acres are set at 65 percent for the individual coverage.
Payments on the county option occur when actual county revenue for a covered commodity in a crop year is less than the county-revenue trigger a particular commodity. The payment will be lesser of 10 percent of the benchmark county revenue for a commodity or the difference between the country trigger and the actual county revenue.
The ARC guarantee for a covered commodity in a crop year is 86 percent of the benchmark revenue and historical yield. In this case, price and yield data from the past five years are averaged to calculate the benchmark. However, the high and low years are not used. In short, ARC provides a band of revenue protection from 76 percent to 86 percent of total revenue. In the event of deeper losses beyond this band, insurance is expected to pick up the slack and ensure adequate protections. It should be noted that farmers who sign up for ARC are excluded from buying Supplemental Coverage Option insurance because they are similar in effect.
Price Loss Coverage (PLC): Starting in 2014, producers enrolled in PCL would receive a payment when effective price of a crop is less than the reference price (target price). The effective price for a commodity is the “higher of the national average market price during the 12-month marketing year or the national average loan rate.” In other words, the average price for corn for a marketing year would have to be below $3.70 per bushel to kick in. PLC payment yields could be paid on as much as 90 percent of the farm’s commodity crops based on 2009-2012 crop years.
Reference prices under PLC are set at the following: Corn, $3.70 per bushel; soybeans, $8.40 per bushel; wheat, $5.50 per bushel; grain sorghum, $3.95 per bushel; barley, $4.95 per bushel; rice, (long and medium), $14.00 per cwt; other oilseeds, $20.15 per cwt.
For additional information about each of the program options, including an example farm used to illustrate payment calculations across a range of price levels for corn and soybeans, members may want to visit http://farmdocdaily.illinois.edu/ and click on “Agriculture Risk Coverage and Price Loss Coverage in the 2014 Farm Bill.”
Supplemental Coverage Option (SCO): This new program is an added insurance policy that farmers can buy if they enroll in PLC starting in 2015. They are not eligible if they enroll in ARC. This policy will cover losses exceeding 14 percent or cover losses below 86 percent of revenue. SCO will cover that gap between 86 percent of revenue and when individual insurance coverage kicks in. Farmers will get to choose whether the additional coverage is based on individual yield and losses or county yield and loss. Farmers who buy SCO would pay 35 percent of the actual premium cost and USDA would subsidize the other 65 percent. SCO is an insurance policy so it does not have a payment cap.
Sources: U.S. House Committee on Agriculture, “Agricultural Act of 2014”; American Farm Bureau Federation; Chris Clayton, DTN Ag Policy; “Evaluating Commodity Program Choices in the New Farm Bill,” by Jonathan Coppess, Farmdoc Daily, Feb.6, 2014; “Agriculture Risk Coverage and Price Loss Coverage in the 2014 Farm Bill,” by Jonathan Coppess and Nick Paulson, Farmdoc Daily, Feb. 20, 2014.