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Passage of the New Farm Bill

Written by: Kent Thiesse

 

The long-awaited new Farm Bill finally passed the U.S. House on Wednesday, January 29, by a vote of 251-166. The legislation is likely to pass the U.S. Senate in the coming days, and will be signed into law by President Obama shortly after that. The new Farm Bill will reduce overall Federal spending, will reduce total CRP acreage, and will make some significant changes to farm commodity programs. The new Farm Bill will govern Federal farm programs for the next five years (2014-2018), and commodity programs will be implemented for the 2014 crop year.

 

The new Farm Bill legislation, which is 959 pages in length, will cost the Federal government approximately $956.4 billion over the next ten years (2014-2023), which is a reduction of about $16.5 billion from the baseline spending in the previous Farm Bill. The reductions are approximately $14 billion from the farm commodity programs, $4 billion from conservation programs, and a little over $8 billion from the supplemental nutrition assistance program (SNAP), with a projected increase in expenditures of about $6 billion for crop insurance programs.  The overall spending under the new Farm Bill will be approximately $756 billion (79.1%) for SNAP programs, $90 billion (9.4%) on crop insurance programs, $57.6 billion (6.0%) on conservation programs, $44.4 billion (4.6%) on farm commodity programs, and $8.4 billion (.90%) on all other programs.

 

The Farm Bill has a total of twelve “Titles”, with the most commonly discussed titles being Commodities (Title I), Conservation (II), Nutrition (IV), and Crop Insurance (XI). These four Titles account for over 99 percent of the estimated Federal spending on the new Farm Bill. The other Farm Bill Titles are Trade (III), Credit (V), Rural Development (VI), Research (VII), Forestry (VIII), Energy (IX), Specialty Crops and Horticulture (X), and Miscellaneous (XII). The last eight Titles, which account for less than one percent of expected total Federal expenditures from the legislation, include programs for export enhancement of agricultural products, foreign food aid programs, support for rural utilities and emergency response, support for agriculture research and extension at land-grant universities, support for bio-energy research and development, as well as support for local farmer’s markets and organic food production.

 

The Commodity Title of the new Farm Bill will eliminate the guaranteed direct payments, which have existed since the 1996 Farm Bill, as well as eliminating counter-cyclical payments, the average crop revenue (ACRE) program, and the permanent disaster program (SURE), which were all part of the last Farm Bill. The new legislation will give crop producers a one-time choice between the revenue-based Ag Risk Coverage (ARC) program, and the Price Loss Coverage (PLC) program, based on revised target prices for the eligible crops. Both the ARC and PLC programs will be calculated on crop base acres, rather than on year-to-year planted crop acres.

 

Crop producers will have several other choices to make with the new Farm Bill. Producers will be given a one-time opportunity to update crop base acres, based on average planted acres from 2009-2012, or can choose to continue with the crop base acres that existed under the last Farm Bill. Producers that choose the ARC program, will have a choice of basing potential payments on county data or individual farm data. If they choose the County level, potential ARC payments will made on 85 percent of crop base acres, as compared to a payment level of 65 percent of crop base acres with farm-level data calculations.  

 

County ARC payments will made when the actual crop revenue falls to 86 percent or lower of the county benchmark ARC revenue guarantee. Payments will be made on actual revenue levels between 76 and 86 percent, up to a maximum of 10 percent. The ARC guarantees will be updated each year, and will be based on the “olympic” average (high year and low year removed) county benchmark revenue, which is calculated by taking the average county yield times the national average price for each year, for the preceding five years.

 

The PLC program option will be based on set reference (target) prices. Reference price levels for major crops were raised to the following levels for the next five years (2014-2018): corn - $3.70 per bushel; soybeans - $8.40 per bushel; and wheat - $5.50 per bushel. If the 12-month national average price for a commodity falls below those levels, payments will be made on 85 percent of eligible crop base acres. Crop payment yield levels will be based on the counter-cyclical payment yields that existed under the previous Farm Bill. Beginning in 2015, producers that enroll in the PLC program can also enroll in supplemental crop option (SCO) program, which will allow the purchase of additional subsidized county-level crop insurance coverage to cover part of the deductible under their individual crop insurance policy. Producers will pay additional crop insurance premiums for the SCO coverage.

 

Overall, crop insurance provisions under the new Farm Bill remained largely the same as current provisions, with continuation of the higher subsidy levels for enterprise crop insurance units. The new Farm Bill will require producers that purchase subsidized crop insurance policies to meet federal conservation compliance policies, similar to other participation in farm programs. The new Farm Bill lowers the maximum amount of acres in the Conservation Reserve Program (CRP) to 24 million acres, as compared to a maximum of 32 million acres in the last Farm Bill. As of October 31, 2013, there were a total of 25.6 million acres in the CRP program, so total CRP acreage will likely decline at fairly small levels over the next few years.

 

2014 farm program sign-up under the new Farm Bill will likely not begin until April of this year, and will likely continue into the Summer months. This will allow farm operators plenty of time to research and evaluate the various options and alternatives that will be available under the new Farm Bill. The implementation of the new Farm Bill will involve big decisions for crop producers, so farm operators will want to take the time necessary to get informed about the various program options, and to make the best choices for their farms.