The Farm Bill or the Agricultural Act of 2014 instituted major changes to U.S. agriculture production. A major change in the Farm Bill will require a one-time commodity program decision to be made by the landowner that will stay with the specific property for the life of the Farm Bill, 2014 to 2018. Other changes in the Farm Bill include the opportunity to update Base Acres, Counter-Cyclical Payment yields, and make changes to Conservation Reserve Program contracts.
The three new commodity programs are; Price Loss Coverage (PLC), County Agricultural Risk Coverage (ARC), and Individual ARC, which will replace the Counter-Cyclical and Direct Payments. The commodity program choice will stay with the property even if you change operators or sell your property.
To make the proper decisions for your property, you will need to know what changes in the 2014 Farm Bill will be affecting your farm.
FSA Administered Commodity Programs
The 2014 Farm Bill removed direct payments where farmers received government payments on a per acre basis regardless of crop prices and what crop was produced. Legislators still wanted to provide farmers protection in the event of low grain prices. The Price Loss Coverage (PLC), County Agricultural Risk Coverage (ARC), or Individual ARC will provide farmers with protection from volatility in production.
A deadline has not been made by the USDA for making the commodity program designation. Expectations are that as early as September, all of the USDA agencies will begin training on the intricacies of the new Farm Bill. Following the training, procedures for applying for and making commodity program designations will be made. Early estimates place the time frame for a decision somewhere during the end of November and the beginning of December.
Price Loss Coverage (PLC)
The PLC program provides a commodity price floor to producers and is similar to the former Counter-Cyclical Payment program. The program will reference crop prices set in the 2014 Farm Bill and for a payment to be made, the U.S. crop year average price must fall below the established reference price. The reference price for corn is $3.70, for soybeans is $8.40, and for wheat is $5.50.
The payment is calculated by finding the difference between the crop year average price and the reference price. That difference is then multiplied by 85% of the base acres for the covered crop. That total is then again multiplied by the program payment yield for the covered commodity.
The program payment yield can either be the existing Counter-Cyclical Payment yields already established on the property, or updated to 90% of the average yields for the commodity over the 2008 to 2012 crop years.
This program can be used alongside county ARC coverage on a crop-by-crop basis.
Agricultural Risk Coverage County Level (ARC)
The county ARC program uses the ARC county guarantee to determine payment, which is calculated by taking 86% of the five year Olympic average (removes highest and lowest values) of county yields times the U.S crop year average prices for the past five years (ARC guarantee price).
If actual county crop revenue is less than the ARC county guarantee, a payment is made. The payment is calculated by taking 85% of the base acres for the covered commodity times the difference between the county guarantee and the actual county crop revenue. Payment may not exceed 10% of the ARC county guarantee.
This program can be used alongside the PLC coverage on a crop-by-crop basis.
Agricultural Risk Coverage Individual Level (ARC)
If a producer elects the individual ARC program, each property that the producer enrolls in individual ARC is viewed as one large farm for purposes of qualifying for a payment and determining the level of payment. All calculations for ARC individual guarantees, guarantee price and benchmark guarantee must reflect all of the producer/operator/farmer/benefit recipients acres covered under individual ARC.
The individual ARC program uses the ARC individual guarantees summed across those covered commodities on the farm to determine a payment. The ARC individual guarantee is calculated by taking 86% of the individual benchmark revenue, which is the U.S crop year average prices for the covered crop over the past five years (ARC guarantee price), and summing across all crops on the farm. When actual farm revenue falls below the ARC individual guarantee, a payment is made.
Payment is equal to 65% of the sum of the base acres of all covered commodities across all acres enrolled in the individual ARC program times the difference between the individual guarantee and the actual individual crop revenue across all commodities planted on the farm. Payment cannot exceed 10% of the individual benchmark revenue.
Individual ARC covers all crops and cannot be used along with any other options.
Base Acres Reallocation
The 2014 Farm Bill will allow landowners to have the opportunity to reallocate base acres. Base acres are the total amount of tillable acres on your field and are used when calculating crop insurance payments for FSA administered programs. They are allocated to each crop depending on their planting frequency, and are calculated by taking the average number of acres that have been dedicated to each crop over the past five years.
Reallocation allows for farmers to update the number of acres that have been allocated to each crop. Areas of the Dakotas and Northern Minnesota may be more apt to reallocation due to the increase in corn grown in those areas. Farmers and land owners may want to reallocate base acres because they have started a new crop rotation.
Counter-Cyclical Payment yields for covered commodities can be updated as part of the 2014 Farm Bill. Each parcel has a counter-cyclical yield for each crop. The last Farm Bill used counter-cyclical yield values to reimburse farmers during cycles when crop prices fell, which was previously calculated as 93.5% of the average yield over a five year period.
To calculate the updated counter-cyclical yield information, an operator will take 90% of the average yield from 2008 to 2012 for each covered commodity. It may be advantageous for operators or landowners to update their yields if they have had significant yield increases over the past five years due to capital improvements or improved technology. Updating your counter-cyclical yields could be negative if you have seen lower yields over the past couple of years due to poor weather, like the drought in 2012 or mismanagement by an operator. The yield information can be updated on a crop by crop basis.
It is important to make sure the yield and base acre information is most beneficial for your property. The correct values will not only benefit your operator and keep them afloat in the event crop prices fall significantly, but it will also make your property more attractive to other interested renters. Again your insurance decision made this year will stay with the specific property if it is sold or a new operator begins working on it.
Conservation Reserve Program Early Termination Option
The 2014 Farm Bill provides certain properties that have acres in the Conservation Reserve Program (CRP) to terminate their contract prior to its completion. To be eligible for early termination, the contract must have been in effect for a minimum of five years and have none of the following characteristics:
· Filterstrips, waterways, strips adjacent to riparian areas, windbreaks, and shelterbelts;
· Land with an erodibility index of more than 15;
· Land devoted to hardwood trees;
· Wildlife habitat, duck nesting habitat, pollinator habitat, upland bird habitat buffer, wildlife food plots, state acres for wildlife enhancement, shallow water areas for wildlife, and rare and declining habitat;
· Farmable wetland and restored wetland;
· Land that contains diversions, erosion control structures, flood control structures, contour grass strips, living snow fences, salinity reducing vegetation, cross wind trap strips, and sediment retention structures;
· Land located within a federally designated well-head area;
· Land that is covered by an easement under CRP;
· Land located within an average width according to the applicable Natural Resource Conservation Service field office technical guide, of a perennial stream or permanent water body; and
· Land enrolled under the Conservation Reserve Enhancement Program (CREP).
The USDA has not set a timeline to apply for early termination, but they will release that information when it had been decided.
The purpose of this update is to provide you with an idea of how the Farm Bill affects landowners. By only allowing a one-time registration and holding the FSA administered insurance program to the property for the life of this Farm Bill, the government has made this crop insurance decision more important than it has been in the past. In the past, operators were the only ones making a decision, now everyone with an interest in the property needs to be involved in the process.
There is still much more information to be released and many questions to be answered by the USDA as they begin to roll the programs out.
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