Farm Bill at End Zone: What Farmers Need to Know and Do

02:32PM Jan 30, 2014
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via a special arrangement with Informa Economics, Inc.

Key features of 2014 Farm Bill

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The farm bill took a long time even for usually slow Washington. Five calendar years for a five-crop-year bill. That is a definition for dysfunction. The House passed the measure 251-166. When the Senate votes on it Tuesday, Feb. 4, it's through, thankfully, so now what?

It's mostly a farmer-friendly law. Farmers have a choice of farmer safety net options – either a revenue assurance plan called Ag Risk Coverage (ARC, aka Shallow Loss Payments), or Price Loss Coverage (PLC, aka target or reference prices).

If farmers choose ARC, they can base payments on county or individual farm. If county, any payments will be made on 85 percent of your base acres – 65 percent if they choose the farm-level option. If they choose PLC, any payouts are on 85 percent of base acres.

If they choose county ARC or PLC, they can mix programs for your individual crops. But if they choose farm-level ARC, your safety net choice covers all crops on that farm number.

Once the safety net choice is chosen, that decision will last for the life of the farm bill.

County ARC payments occur when actual crop revenue is below the ARC revenue guarantee for a crop year. County ARC guarantee is 86% of county ARC benchmark revenue. Coverage is capped at 10%, meaning coverage is between 76% and 86% of the county ARC benchmark revenue. County ARC benchmark revenue is based on the Olympic average (removes high and low values) of county yields and U.S. crop year average prices for the 5 preceding crop years.

PLC payments occur if US average market price for the crop year is less than the crop’s reference price. Reference prices are: wheat, $5.50/bushel; corn, $3.70/bushel; grain sorghum, $3.95/bushel; barley, $4.95/bushel; oats, $2.40/bushel; long grain rice, $14.00/hundredweight (cwt).; medium grain rice, $14.00/cwt.; soybeans, $8.40/bushel; other oilseeds, $20.15/cwt.; peanuts $535.00/ton; dry peas, $11.00/cwt.; lentils, $19.97/cwt.; small chickpeas, $19.04/cwt.; and large chickpeas, $21.54/cwt.

Payments for Title I programs will be on base acres – not planted. You will have an option to reallocate your base acres for the average of what you planted or was considered planted during 2009-2012. For example, if you had a 100 acre wheat base and planted an average of 50 acres of corn during 2009-2012, you have the option of reducing your wheat base by 50 acres, and establishing a corn base of 50 acres. The reallocation is on a ratio of what you planted or was considered planted during 2009-2012.

For both PLC and county ARC, payment acres for a crop are 85% of the farm’s base acres for the crop plus any generic base acres (former cotton base acres) planted to the crop. Individual ARC payments acres are 65% of the sum of the farm’s total base acres and any generic base acres planted to covered crops on the farm.

Farmers can update their yields under PLC: That's big deal if they have increased yields. Remember farmers will be paid on yields and base acres. PLC payment yields can be updated to 90% of the farm’s average planted yield over the 2008-2012 crop years.

The 2008 Farm Bill’s nonrecourse marketing loan and loan deficiency payment program and associated loan rates are extended, except for modifications to the loan rate for cotton, which now can range between 45 and 52 cents per pound.

Farmers MUST signup for either ARC or PLC by the end of the yet-announced enrollment period. If they do not enroll, they will be ineligible for any 2014 payouts under either ARC or PLC, and will default to the PLC for crop years 2015-2018.

Farmers have plenty of time to consider options as USDA sources inform enrollment will not likely begin until April and will likely last into summer. That will give various Extension personnel given $3 million to help educate you on the various options. Universities have been given $3 million to come up with a farm bill spread sheet to help determine your best options. But farmers have already informed they will likely rely a lot on their crop insurance agents to help determine their best options. But it is the farmer information and assumptions that should determine which program options they choose.

Farmer advice: No one should give a blanket safety-net recommendation. Farmers should let their information they plug into spread sheets determine their choices – and they could vary by crop. The price outlook for the years ahead will be important. If farmers think we are just in a bearish lull that will not last long, maybe the ARC is the best route. If they think bearish prices will linger, take a hard look at the PLC and perhaps adding the optional SCO beginning with 2015 crops.

An optional Supplemental Coverage Option (SCO) is available for those taking PLC beginning with 2015 crops – not 2014. SCO provides farms the option to purchase county level insurance that covers part of the deductible under their individual yield and revenue loss policy. Coverage level cannot exceed the difference between 86% and the coverage level in the individual policy. Subsidy rate is 65%. SCO is not available if enrolled in ARC. Under SCO, there are no payment limits.

Other crop insurance provisions:

The higher subsidy levels for enterprise insurance are made permanent.
– A new revenue-minus-cost margin crop insurance contract is authorized. The initial target is rice for the 2015 crop year.
– Several provisions encourage data sharing, with a focus on USDA agencies. One objective is to increase availability of county-based insurance products.
– A producer may exclude a yield for a crop year in which the county planted acre yield was at least 50% below the average county yield over the previous 10 consecutive crop years.
– Budget limitations are placed on renegotiations of the Standard Reinsurance Agreement, including budget neutrality with regard to the crop insurance programs.
– Insurance benefits are reduced if a farm tills native sod for production of an annual crop.
– Insurance coverage is to be offered by dryland and irrigated acres of a crop.
– Beginning farmers and rancher are eligible for a higher subsidy rate on insurance.
– Proposal to reduce the level of insurance subsidies for high income individuals was deleted.
– USDA's Risk Management Agency is given a mandate to focus on developing insurance products for underserved commodities. Immediate priorities are revenue insurance for peanuts, margin insurance for rice, and a specialized irrigated policy for grain sorghum. Studies are authorized of insurance for swine and poultry catastrophic disease, poultry business interruption; and food safety. Insurance for organic crops is to offer price elections that reflect the retail or wholesale price, as appropriate. Index-based weather insurance pilot programs are a priority.

Cotton producers are different. Beginning with the 2015 crop, they will have a revenue/crop insurance-type program called the Stacked Income Protection Plan (STAX.) But that will not be available for 2014, and this is why there will be a "transition payment" for upland cotton growers and for 2015 cotton for those counties where STAX is still not available. The formula for the payment is a bit complex, but let's just say the payment will be close to the last direct payment for cotton. Direct payments for other crops are eliminated.

Farmers can only get STAX if they plant cotton (which has nothing to do with the old cotton base now called generic base). The only way a farmer get payments on generic base is if they choose to plant something other than cotton. Base acres have no connection to STAX. The reason you would have fewer acres enrolled in STAX is because farmers chose not to plant cotton.

A big change is payment caps. There is an individual $125,000 pay cap for combined ARC, PLC and marketing loan gains. Double for a spouse. In the last farm bill there was a $40,000 cap for direct payments; $80,000 if a spouse. That means some larger-acreage farmers will not leave nearly as much money "on the table" as they have in the past. The 2008 Farm Bill provided for a $65,000 payment limitation for Counter-cyclical Payments and ACRE; a $40,000 payment limitation for Direct Payments; unlimited marketing loan gains (MLGs) and loan deficiency payments (LDPs); as well as $100,000 under the SURE program for a combined total of $205,000, excluding marketing loan gains and LDPs. The 2014 Farm Bill provides for a single cap of $125,000 under which all PLC, ARC, MLGs, and LDPs must fit. The $125,000 cap is the same as in the Grassley-Fortenberry amendments adopted in the Senate and House farm bill debates. The 2014 Farm Bill payment limit of $125,000 is $80,000 less than the 2008 Farm Bill payment limit and includes MLGs and LDPs. But, the SURE program is eliminated via the 2014 Farm Bill.

The two (farm and nonfarm income) adjusted gross income (AGI) limitation tests are replaced with a single $900,000 AGI limitation for certain commodity as well as conservation programs.

Payment "hole" until 2015: Timing of the completion of the bill and the elimination of direct payments, effective with the 2014 crop, mean there won't be a gov't payout coming to most crop producers in October 2014, with the next likely payments not arriving until Oct. 2015, except for a smattering of CCP or ACRE payments. Even though loan rates are set at low levels which make any LDP/MLGs unlikely, some wonder if the price support loan program could come into play as a cash-flow tool. After all, that was the purpose of the program -- to allow you to hold crops until prices improve.

The Dairy Product Support and MILC programs are replaced with a Dairy Production Margin Protection Program based on the difference between the price of milk and feed cost of producing milk. A producer elects a coverage level between $4 and $8 per cwt. No premium is paid for the $4 coverage level; premiums are paid for higher coverage levels. Premium schedules are specified for production of 4 million or fewer pounds and for production greater than 4 million pounds. No supply control provision is included.

A Supplemental Agriculture Disaster Assistance program is funded permanently. It includes a Livestock Indemnity Program for livestock losses from adverse weather or attacks by federally reintroduced animals; a Livestock Forage Program for losses resulting from drought or fire; a program of emergency relief to producers of livestock, honey bees, and farm raised fish not covered by the two previous programs; and a Tree Assistance Program for natural disasters.

Other Farm Bill features of note:

Farm bill in pages: 959.

Farm bill name: Agricultural Act of 2014.

Cost: $956.4 billion over ten years, according to estimates by the Congressional Budget Office.

Projected savings: $16.6 billion over the next decade, closer to $23 billion before prior sequestration busts. Reality of those "savings" will depend on prices ahead and safety net participation levels.

Biggest farm bill reforms: Elimination of direct payments and a new gross margin program for dairy policy with no supply management. Also, conservation compliance linked to crop insurance program.

Sodsaver language included: Farmers who break native sod for planting would have to pay sharply higher insurance rates on the land. The premium subsidy would be reduced by 50 percentage points for four years. In a compromise, the penalty is limited to Minnesota, Iowa, North Dakota, South Dakota, Montana, and Nebraska.

Reduced CRP acres: Conservation Reserve Program (CRP maximum acres reduced to 24 million by Fiscal Year 2018, which begins Oct. 1, 2018.

Conservation programs merged: The bill includes about $6 billion in savings by merging 23 separate conservation programs into 13.

Food stamps: Cuts food stamp funding by $8.645 billion, but added back $645 million for various worker/pilot programs, for a net $8 billion reduction for the program. The bill provides a $200 million increase in financing to food banks. Most of the food stamp funding savings will come by tweaking federal "heat and eat" benefits that have been exploited in recent years by several states and the District of Columbia. Changes will require the states and D.C. to pay more in "heat and eat" money, a move that will reduce, but not eliminate, SNAP payments by about $90 monthly for about 850,000 households. The farm bill also cuts SNAP funding by prohibiting USDA from spending money on television, radio and billboard ads to promote the program and on programs designed to recruit new beneficiaries. And in response to years of documented evidence of misuse and abuse of the program, USDA will need to ensure that illegal immigrants, lottery winners, college students and the dead cannot receive food stamps and that people cannot collect benefits in multiple states.

Stabenow stymied COOL changes: Meatpackers and some livestock groups are upset that the farm bill does not repeal or overhaul the country-of-origin labeling (COOL) regulations that have been challenged by Mexico and Canada at the World Trade Organization (WTO). Senate Ag Chairwoman Debbie Stabenow (D-Mich.), who successfully fought any COOL changes during negotiations with House Ag Chairman Frank Lucas (R-Okla.), said Congress would address the issue separately later should the WTO decide that a new rule implemented last year by USDA is illegal. "If the US loses the case, then COOL will be suspended, changed or repealed," said Stabenow. "It's just a matter of months before that determination, and then we will move forward at that point." The newly enacted Fiscal Year 2014 omnibus spending package expresses strong disapproval of UDSA's new COOL rule, but does not stop them from being implemented. The farm bill conference report includes a provision requiring USDA to conduct within six months an economic analysis of the COOL rule's impact on consumers, producers, and packers. USDA Sec. Vilsack last week signaled no waiting period by USDA is likely.

King amendment not included: Rep. Steve King's (R-Iowa) amendment that would have restricted the reach of state agricultural standards was dropped because it faced "overwhelming opposition from many, many corners," Stabenow said. Also, the farm bill would not block USDA's Grain Inspection Stockyards and Packers Administration from implementing some poultry industry regulations.

No change for now for defining actively engaged re: farm program subsidy payments: No change in farm management requirements for family farms that receive crop subsidies. But for other operations, USDA would be required to write a new definition of "significant contribution of active personal management."

Ethanol proponents got some negative news: While some in the next-generation biofuel industry like the $881 billion in mandatory spending the farm bill would provide, it would block subsidies for ethanol blender pumps, a much needed infrastructure need if ethanol consumption is to expand. The Advanced Biofuels Association, which represents companies that make biomass-based versions of conventional fuels, not ethanol, said the bill would encourage "additional production capacity for advanced biofuels and stimulate development of new energy crops and nonfood feedstocks." The bill would provide $100 million in mandatory funding for Fiscal 2014 and $50 million a year more in 2015 and 2016 for the Biorefinery Assistance Program. Another $25 million a year is set aside for subsidizing energy crops through the Biomass Crop Assistance Program. The bill would mandate $50 million a year for the Rural Energy for America Program, which subsidizes energy efficiency measures and renewable-energy projects, but add the ban on funding blender pumps.

Food Safety Modernization Act (FSMA) study: Requires the Food and Drug Administration (FDA) to analyze the economic impact of produce safety standards on farms of varying sizes. The study would be included with the final rule.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.