FAPRI Baseline: Impacts/Assumptions re: New Farm Bill

March 13, 2014 04:08 AM
 

How FAPRI analysts size up impacts from Agricultural Act of 2014

 


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New commodity program provisions in the Agricultural Act of 2014 indicate higher payments for the 2014 and 2015 crops under the county Ag Risk Coverage (ARC) program compared to the Price Loss Coverage (PLC), but that trend reverses in later years of the bill, according to an assessment of the new farm bill’s impact contained in the updated baseline projections from the Food and Agricultural Policy Research Institute (FAPRI). 

The new farm bill eliminates the DCP and ACRE programs and creates several new programs. 

PLC is one new option for grain and oilseed producers. Participating producers receive a payment when national season-average farm prices fall below fixed reference prices. 

The new reference prices are higher than the target prices that were used in calculating countercyclical payments under the previous farm bill. 

 

ARC is the other new option for grain and oilseed producers. Payments occur when county or farm-level revenues per acre fall below 86 percent of a benchmark.

The benchmark depends on moving five-year Olympic averages of national prices and county or farm yields. 

For illustration purposes only, the chart uses national average soybean prices and yields. With these assumptions, payments would occur in 2014/15 and 2015/16, but not in later years. 


Under the previous farm bill, up to 32 million acres could be enrolled in the conservation reserve.

The new farm bill reduces that cap in steps to 24 million acres by 2017.

Actual enrollment was far below the legislated cap in 2012 and 2013. Projected enrollment is near the new limit.


Under the new farm bill, producers must make a one-time choice to participate in ARC or PLC for the 2014-2018 crops.

Estimated national average ARC payments for corn producers exceed PLC payments in 2014/15 and 2015/16, but the opposite is true in later years.

This suggests some corn producers may face a difficult choice.

PLC participants also have the option of purchasing Supplemental Coverage Option (SCO) beginning in 2015/16.


The story for soybeans is similar, although expected ARC payments exceed PLC payments for the first four years.

Producers would also need to consider possible SCO benefits, which are only available to PLC participants.

Producers can enroll in the county-based ARC program, which pays on 85 percent of base area, or in the farm-based ARC, which considers all program crops on a farm and pays on 65 percent of base area.


Changing market circumstances, final sign-up rules and many other factors will affect producer enrollment choices.

Based in part on projected average payments, the baseline assumes most producers of wheat, sorghum, rice, barley and peanuts will enroll in PLC.

For soybeans and corn, assumed enrollment is split more evenly between ARC and PLC. Of those enrolled in ARC, three-fourths are assumed to choose the county-based option.


  

 

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