Farmers Just Now Starting to Focus on New Farm Bill

February 25, 2014 02:36 AM
 

via a special arrangement with Informa Economics, Inc.

Initial observations from farmers on safety net choices


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


In recent presentations throughout farm country, with four more meetings to occur this week, it is clear that farmers waited until after the farm bill was signed into law before they focused much attention on the details. That was probably a wise decision, and saved them a lot of frustration and time with the myriad mismanagement from Washington.

The following are some my initial observations based on farmer feedback:

  • Some farmers asked why the farm bill writers did not use the first five months of the marketing year price average rather than the entire marketing year price. This was used in the past, they noted, and would have meant a likely larger payout in low-priced years, and a quicker timeline for payouts, as any farmer safety net payouts will not come until at least Oct. 1, 2015 for the 2014 crops; Oct. 1, 2016 for 2015 crops, etc.

  • Corn and soybean growers will likely initially focus on the county Ag Risk Coverage (ARC) option due to an expected big payout at least for the 2014 corn and soybean crop based on most price projections for the 2014 crop year, and especially compared with the triggers for the Price Loss Coverage/target price option.

  • An easy conclusion is that if a farmer goes with ARC, especially in the Midwest, they will go the county ARC route, and not the individual option.

  • Some wheat growers initially said they would focus on the PLC over ARC, and will look with interest in adding the Supplemental Coverage Option (SCO) with the 2015 crop. SCO is not available if a farmer chooses ARC.

  • Corn and soybean growers said SCO was not so attractive to them as they already are at the 80 percent or higher buy-up level via hefty crop insurance subsidies.

  • Farmers said they will be assessing the impact of the new safety net programs on their crop insurance choices for the years ahead.

  • Corn and soybean growers with an interest in the SCO option indicated they would likely lower their crop insurance guarantee level in exchange for getting more subsidized SCO coverage if they chose PLC. But that still was not likely enough for them to shift from their initial thinking of going the county ARC route.

  • Price expectations are key. The lower the price expectation a farmer has, the more interest they have in the PLC option.

  • Farmers said they may put more of their crop under the nonrecourse commodity loan program if prices falter, as that would give them more time for prices to increase.

  • Farmers expressed a lot of interest in more education about the farm bill, and said they will use several spreadsheets to help determine their final choice(s), and that they will put a lot of weight on what their crop insurance agent may recommend. Check out this primer on the new farm bill for some help with this.

  • Farmer choice equals high anxiety. Several farmers expressed anxiety about getting all of the vested members of their operations to agree on a farm program choice.

  • Many farmers believe dairy producers came out the best in the new farm bill, with the new farmer-friendly gross margin protection program.
     
  • One contact noted: "It still appears that going the PLC/SCO route gives the most flexibility and coverage--but it depends on your price outlook and your underlying buyup on crop insurance. If you have 85 percent buyup already, then 86 percent SCO is almost useless. But, if you have 60 percent  buyup, then SCO covers an additional 26 percent. In addition, PLC covers down to the loan rate -- a combination with a far greater breadth of coverage. The optimal election depends on the circumstances on your farm and your own risk preference.  If instead you want 10 percent protection around the average, then ARC fits the bill. That's a luxury that folks with 85 percent  buyup can afford.  But, even then, a grower should think long term for this reason – two years ago, the harvest price on corn was $7.50/bu. On 1,000 acres at 180 bu/ac at 85 percent coverage...that was a liability of $1.1475 Million!  With prices at $4.50/bu, that liability falls to $688,500!  The insured value dropped $460,000 or 40 percent!  That 10 percent limitation on ARC starts to look pretty limiting."

 

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


 


 

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