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2014 Farm Bill: Decision Time

March 8, 2014
By: Katie Humphreys, Farm Journal Managing Editor
Capitol CornField 650
  
 
 

Five crop years are riding on a one-time selection

There’s a lot riding on the new farm bill—almost $1 billion per page, actually. After three years of hearings, markups and floor time, the 959-page Agricultural Act of 2014 is official. House and Senate
approval and the President’s signature are only half the battle, though.

"In 12 titles, the bill provides a cross-section of support for agriculture and rural America—from commodity programs and crop insurance to rural development and research," says Sara Wyant, editor of Agri-Pulse. In the end, 79% of the farm bill funding goes to nutrition.

"Commodity supports are still there in case of significant price declines," she adds. "The big change for farmers—and one we’ll continue to see—is a shift from traditional commodity price support to crop insurance, where farmers have more skin in the game."

Due to the complexity of the farm bill and the fact that farmers will make decisions they have to live with through 2018, the long tail of implementation isn’t so bad.

"Not only does USDA have to write the regulations that go with the farm bill, but they have to develop software for the new programs," says Roger Bernard with Informa Economics Inc. "Use this time to your benefit and take advantage of the various tools and data to make the best decisions for your operation. Set yield and price expectations to help in the decision-making process, as well."

Commodity support. In the commodity title, which was cut by $14.3 billion, direct payments, ACRE (Average Crop Revenue Election) and counter-cyclical payments are out. Two new programs that provide farmers the option to secure revenue- or price-based coverage are in.

The Ag Risk Coverage (ARC) program is available on an individual or county level. This is the "shallow-loss" program many talked about during the farm bill process. If you choose the individual coverage under ARC, all crops are enrolled in that program because it is a whole-farm approach.

The Price Loss Coverage (PLC) program uses target prices to determine if farmers can earn payments under the program. If you choose PLC or the county ARC, you can mix and match which crops on the farm are covered under which program. The target price for corn is $3.70; soybeans, $8.40; and wheat, $5.50.

Choosing which program to participate in is a one-time election that locks you in for the 2014 through 2018 crop years. If you don’t decide, USDA will automatically enroll you in PLC.

"One interesting change to note is that landlords have to agree and sign off on the program," Bernard says.

ARC and PLC payments will be made on base acres. Your total base acres are the same as base acres as of Sept. 30, 2013. Farmers can elect to reallocate base acres among the farm’s covered crops according to each crop’s share of the farm’s total acres planted to those crops from 2009 through 2012. Reallocation can’t result in an overall increase in the farm’s base acres, though.

Payment hole. "Since direct payments were eliminated in the new farm bill, farmers won’t receive any payments in October 2014," Bernard notes. "The first payments will not arrive under the new commodity title until after Oct. 1, 2015."

Given that, the price support loan program will likely increase in popularity, Bernard adds. "It will provide cheap financing for farmers who need cash flow, help them avoid selling postharvest and hold out for higher prices, which is what the commodity loan program was intended to do," he says.

ag act chart

Insurance boost. With crop insurance, farmers repeatedly said they liked the previous farm bill’s programs. They’ll be happy to hear the new bill enhances existing crop insurance programs a bit and adds new products, Wyant says.

The most notable changes to the crop insurance title, which received a $5.7 billion lift, include:

Crop insurance tied to conservation. If producers are deemed to be out of compliance with conservation requirements, they will be subject to a loss of premium subsidy assistance in the year following the final determination of a violation.

Adjustment in APH (actual production history). A farmer can exclude one or more yields from their APH if the county (or contiguous county) yield in that year was at least 50% below the counties’ simple average for the previous 10 years.

Enterprise units for irrigated and non-irrigated crops. Crops will now be separated by these practices to establish enterprise units.

"The producer will also be able to elect different levels of coverage, which is a huge positive," says Jamie Wasemiller with the Gulke Group. "In many instances, a producer with irrigation will have less concern about yield, thus meaning they might elect a lesser coverage level, unless they are concerned about price decline."

Producing crops on native sod. If a producer decides to farm ground that has not been tilled for the production of an annual crop in Minnesota, Iowa, North and South Dakota, Montana and Nebraska, then for the first four years of planting, a crop insurance T-yield (estimated county yield) of 65% and a 50% reduction in premium subsidy will apply.

Young producers and ranchers assistance. Beginning farmers and ranchers will receive an additional 10% premium assistance. Beginning farmers who have been involved in an operation can use the previous producer’s pro­duction history or assigned yield to deter­mine yield cov­erage. Any exclu­ded yield will be replaced with a yield equal to 80% of the applicable T-yield.

Supplemental coverage option (SCO). Starting in 2015, this county insurance plan pays farmers when county revenue falls below the 86% expected revenue trigger. It will then cover from 86% down to the MPCI (Multiple Peril Crop Insurance) coverage level. The trigger will be determined by the MPCI purchased—revenue trigger for RP (revenue protection) and RP-HPE (harvest price exclusion) policies and yield trigger, if under a yield policy. This policy has a 65% premium subsidy.

"Most producers purchase either an 80% or 85% policy, so this new product does not provide much benefit, in my opinion," Wasemiller says. "This product is also only an option for those who participate in the PLC program."

Remember, these crop insurance provisions will not be available until 2015.

commodity program


High cotton. Beginning in 2015, a Stacked Income Protection Plan (STAX) is offered for cotton with no payment cap because it falls under the crop insurance title, not the commodity title as in past farm bills. Farmers will receive a transition payment for 2014, and the transition payment in 2015 would only be made to those in counties where STAX is not available.

STAX is operated by the Risk Management Agency and available as supplemental insurance or a stand-alone policy, although maximum coverage for an area already covered under other insurance cannot exceed the deduc­tible for the underlying crop insurance. The STAX program provides coverage for revenue loss of at least 10% and up to 30% for a stand-alone policy, insuring cotton for a minimum price based on the expected price established under existing Group Risk Income Protection or area-wide policy and crop year.

Programs of note. Other key titles and provisions in the farm bill include:

Conservation. For 2014, the Conservation Reserve Program cap will fall from 32 million acres to 27.5 million acres. By 2018, that number will be 24 million acres.

The 23 conservation programs in the 2008 farm bill are consolidated into 13, with the Conservation Stewardship Program and the Environmental Quality Incentives Program (EQIP) still intact.

Nutrition. At 79% of the farm bill, the nutrition title incentivizes SNAP participants to buy more fruit and vegetables, raises minimum thresholds for some programs and makes lottery and gambling winners ineligible.

Rural development. Funding for rural development programs is set at $228 million, and the Beginning Farmers and Rancher Development program receives $100 million. It also authorizes an updated study of waterways and transportation infrastructure.

Payment limits. There will be two sets of limits—$125,000 per person or $250,000 per married couple—with no separate per-program amounts.

Adjusted Gross Income (AGI). The new farm bill calls for one limit for on-farm and one for off-farm income—with a unified three-year average AGI limit of $900,000.

Implementation earmarks. In the $100 million set aside for the Farm Service Agency to implement the new farm bill, $3 million goes to the Extension Service to help educate farmers, and an equal amount goes to universities to develop web-based tools.

"Farmers can’t sign up yet, but it will run into the fall and potentially into 2015," Bernard says. "That will give farmers a lot of data to consider, including the Prospective Plantings and other acreage reports and supply and demand reports. Use the data and educational tools wisely because your decision sticks for five years."

Livestock and Dairy Programs

Big questions remain for livestock producers. For dairy farmers, in particular, the bill becomes as much of what they didn’t want included as what became law. 

  • Livestock disaster programs are in, but the Supplemental Revenue Assistance Payments program (SURE) is not.
  • Livestock payments are reauthorized back to 2012.
  • Programs reauthorized include Livestock Indemnity Payments, Livestock Forage Disaster Program and Emergency Assistance for Livestock.
  • Under the miscellaneous title, the Secretary of Agriculture is to conduct an economic analysis of USDA’s Country of Origin Labeling (COOL) rule.
  • Dairy farmers will have a choice between the new margin insurance program or Livestock Gross Margin insurance–Dairy (LGM–Dairy).
  • While margin insurance coverage is limited to a farm’s highest annual milk history of 2011, 2012 or 2013, LGM–Dairy has no production limits and will be offered as long as government insur­ance subsidies are available.
  • There are no limits on the margin insurance either, but it insures a milk-feed margin based on national prices.
  • The margin insurance calculation is based on a whole herd ration covering all milking cows, dry cows and replacement heifers.


The 2014 farm bill has been signed into law; now the real work begins for farmers. To learn more about the ins and outs, visit
www.AgWeb.com/farm_bill

You can email Katie Humphreys at
khumphreys@farmjournal.com.

 

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FEATURED IN: Farm Journal - March 2014

 
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