The New Farm Bill: What’s It Mean for Us?
Article provided by Rich Morrison, Risk Management Analyst, Diversified Crop Insurance Services
On Friday, February 7, President Obama signed into law our next farm bill, which will guide us for the crop years 2014-2018. Below, there is a graphic showing how the $954 billion is intended to be spent over the next 10 years. Below are some of the changes/new programs in the new law, with with my general thoughts on how we can use the new programs.
First off, the new bill will discontinue fixed direct payments, counter-cyclical payments, ACRE, and the SURE disaster program. There will be a partial fixed direct payment for cotton growers in both 2014 and 2015. A portion of the money saved by cutting the fixed direct payments is being allocated to two new add-on insurance products – SCO (Supplemental Coverage Option) & STAX (Stacked Income Protection for cotton). The new bill cuts almost $9 billion in food stamp spending, and almost twice that amount from the farm side.
The first thing producers will be able to do is decide whether to update their base acres for what was planted in 2009-12 or keep their current bases. You’ll only be allowed to change crops, not add base acres. Talk is that this will begin late spring or early summer, and would impact potential farm program payments for 2014-18 crops.
The second thing producers will do is choose which program to enroll in: PLC (Price Loss Coverage) or ARC (Ag Risk Coverage). This election is a 5-year election, continuing for the duration of this farm bill. PLC is a target price program very similar to the counter-cyclical program that pays (on base acres) when annual average farm price falls below the “reference price”. Those reference prices for traditional northern crops are not as attractive relative to current prices (corn $3.70, soybeans $8.40, wheat $5.50) as they are for traditional southern crops (rice $14.00/cwt, peanuts $535/ton). ARC is a target revenue program somewhat similar to the ACRE program from the last farm bill, and is based on target revenue for either the producer’s county or farm. ARC is considered a “shallow loss program” in that it protects a level from 86% of the revenue trigger down to 76%. ARC-county will use the county’s 5-year Olympic average yield times the 5-year Olympic average farm price times 86% as its trigger revenue, and compare it to actual revenue – the final county yield times current year average farm price – to determine a possible payment. If there is a payment it will be made on 85% of your base acres you have of that crop. ARC-farm is described similar to the previous SURE program, in which each crop’s revenue is compared to its trigger, then added together to determine if there’s a whole farm loss in revenue. If there’s a loss on the ARC-farm it will only be paid on 65% of your base acres. Producers signing up for ARC-farm will be able to update their yields using 2008-2012 production. As I understand it, producers will be able to sign up to choose by crop between PLC & ARC-county, while ARC-farm is an entire farm selection. Both ARC choices look very attractive for corn, soybeans, and wheat when you consider that the current running 5-year Olympic average prices are: corn – $5.30, soybeans – $12.17, & wheat – $6.81. And it appears that these averages should stay close to these numbers for at least the first two years of the program.
Some other changes regarding the commodity title are: $125,000 per entity payment limit for all programs ($250,000 for husband/wife operation), & there’s a $900,000 adjusted gross income limit for participation in these programs. Producers may receive notice late spring or early summer about updating their base acres, with the signup deadline for the program 6-8 months away, so you’ll at least get to see most of this growing season prior to making a commitment.
Changes to the crop insurance title won’t come into play until the 2015 crop year since those deadlines are already upon us for 2014.
The bill does add the SCO, or Supplemental Coverage Option, which only producers who enroll in PLC are eligible for. SCO is a county-level revenue policy that can be purchased by crop that protects based on the county yield from 86% down to the insured’s individual coverage level. The SCO is subsidized at 65%, and can be purchased from your agent. STAX, or Stacked Income Protection, is a similar program only for cotton, which will provide county-level revenue protection on losses of 10% to 30% of the expected county revenue, not to exceed the producer’s individual insurance coverage level. STAX is subsidized at 80%, and can also be purchased from your crop insurance agent. Other changes for crop insurance are: peanut revenue insurance will now be available; dairy gross margin insurance will be available; separate coverage & enterprise units will be possible for irrigated and non-irrigated crops; Yield Adjustment (plug) increase from 60% to 70% of the county T-yield. And lastly, conservation compliance is now tied to crop insurance. We’ll learn in the months ahead what that really means.
My thoughts – For crops like corn and soybeans, the ARC looks like a decent program to provide price support if we’d have multiple low price years or a regional crop problem. For crops like rice and peanuts, the PLC program should provide good price support with prices close to current market prices. And with the big subsidy for STAX, we’ll certainly be interested in that program for cotton next year.