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Evaluating Commodity Program Choices in the New Farm Bill

February 11, 2014
Nebraska corn field
  

By Jonathan Coppess, University of Illinois

The new farm bill has revised the farm safety net, requiring farmers and landowners to sort through a series of decisions. Here, we provide initial analysis and information on the choices in the new farm safety net for the 2014 crop year.

Background

On Feb. 4, the 2014 farm bill (named the Agriculture Act of 2014) cleared its final Congressional hurdle. President Barack Obama signed the farm bill into law on Feb. 7, and now it goes down to the USDA for implementation. The commodity programs in Title I of the farm bill and the choices required all begin with the 2014 crop year. The final regulations will further determine program and decision parameters, as well as when farmers can begin to sign up. The discussion below is based on the legislative text. It will be updated or revised as needed based on the regulations.

The difficult negotiations between competing approaches to the farm safety net resulted in the compromise approach in the final bill that require the decisions discussed herein. In short, the House farm bill required the owners of a farm to choose between a county revenue program and a fixed-price program. The Senate version of the farm bill provided both a price and revenue program for all farms and covered commodities but within the revenue program it required a choice between county level revenue or individual farm level revenue. The final bill requires a choice among a price program, a county revenue program or an individual farm revenue program.

Discussion

Title I of the 2014 farm bill includes a price-based assistance program called Price Loss Coverage (PLC) and revenue-based assistance programs called Agriculture Risk Coverage (ARC) (more information is available here). Reflecting significant concerns about market and planting distortions, the compromise utilizes base acres for all program payments (i.e., payments are made on a percentage of the farm's base acres); neither program makes payments on the acres actually planted to covered commodities with the exception of cotton base acres (now termed "generic base acres") that are planted to covered commodities. Cotton is no longer a covered commodity due to the World Trade Organization (WTO) dispute with Brazil.

First, owners of a farm will be provided a one-time opportunity to either retain their current base acres or to reallocate their 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 (CRP), 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.

Second, the owners of a farm will be provided a single opportunity to elect to update payment yields for 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.

Third, beginning with the 2014 crop year all of the producers on a farm must make a one-time, irrevocable election among the price (PLC), county level revenue (County ARC) and individual farm level revenue (Individual ARC) programs. The PLC election can be made on a covered-commodity-by-covered-commodity basis, however, Individual ARC applies to all covered commodities on the farm and a farm cannot elect PLC for some commodities and Individual ARC for others. This feature essentially makes the programmatic choice as PLC and County ARC on a covered-commodity-by-covered-commodity basis, or Individual ARC for all covered commodities. If County ARC is elected for a covered commodity it is ineligible to receive PLC payments and the commodity is also ineligible for the Supplement Coverage Option (SCO) created in the crop insurance title of the bill. If Individual ARC is selected, it applies to all covered commodities and they would all be ineligible for PLC and SCO.

All of the producers on a farm must make this program decision for the 2014 crop year and it must be unanimous. If they fail to make a unanimous election for the 2014 crop year, they will not receive any payments for that crop year from the programs. Additionally, the farm will automatically be deemed to have elected PLC for all covered commodities beginning with the 2015 crop year. Notably, the term producer includes everyone sharing in the risk of producing a crop and entitled to share in the crop available for marketing from the farm. It includes owners, operators, landlords, tenants and sharecroppers. This unanimous program decision has similarities to the 2008 farm bill election between the Counter-Cyclical Payments program and the Average Crop Revenue Election (ACRE) program. Because direct payments have been eliminated, however, there is no reduction in payments for electing the revenue-based programs. But farmers will still need to involve landlords in this decision and everyone involved must agree.

Fourth, as noted above, revenue-based assistance through ARC requires that all producers agree to "select" the same coverage level: county or individual farm. Again, if owners of the farm choose Individual ARC that applies to all covered commodities on the farm. The calculations and payments for County ARC and Individual ARC are similar but with important differences. County ARC makes revenue-based payments on 85 percent of the covered commodity's base acres when actual county revenue is between 86 percent and 76 percent of the benchmark county revenue. The benchmark county revenue is calculated using the 5-year Olympic rolling average (drop the highest and lowest crop years) of county yields for the commodity and the 5-year Olympic rolling average of its national prices. Individual ARC calculations include all covered commodities planted on the farm with revenue-based payments made on 65 percent of the farm's total base acres. The calculations for Individual ARC must also take into consideration the individual producer's share of all farms in the same state in which the producer has an interest and for which Individual ARC has been selected. Individual ARC makes payments whenever the actual revenue for all covered commodities on the farm is between 86 percent and 76 percent of the benchmark revenue, which is calculated using a 5-year Olympic average of the sum of the revenues (prices multiplied by yields for each commodity) for all covered commodities. More specifically, each covered commodity's price and yields are multiplied for each crop year, then the 5-year Olympic average of each commodity's revenue are added together for the benchmark.

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RELATED TOPICS: Crop Insurance, 2013 Farm Bill

 
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