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New Farm Bill Offers Choices

Written by: Kent Thiesse

The new Farm Bill, which will govern farm commodity programs for the next five years (2014-2018) will offer several new farm program choices for producers to consider. Direct payments will be eliminated, as will potential counter-cyclical payments, the average crop revenue (ACRE) program, and the permanent disaster program for crops (SURE), which were all part of the last Farm Bill. These programs will be replaced by either a new revenue-based Ag Risk Coverage (ARC) program, or a Price Loss Coverage (PLC) program.

 

Crop producers will be offered several one-time choices for their farm program participation, which will be in place through the 2018 crop year. Following are some of the choices that producers will need to consider at farm program sign-up time later this year :

 

  • Crop Base Acres.

All farm program payments for both the ARC and the PLC programs will be calculated on crop base acres, rather than on year-to-year planted crop acres. Producers will be given a one-time opportunity to update crop base acres, based on average planted acres from 2009-2012, or they can choose to continue with the current crop base acres. Total crop base acres in the new farm program can not exceed the total crop base acres that existed in 2013, under the last Farm Bill. The option to update crop base acres may be an opportunity for producers to increase corn and soybean base acres on farm units that previously had low base acres for those crops.

  • Payment Yields.

Producers that chose the new PLC program will have a choice of keeping their existing counter-cyclical payment yields on a farm unit from the previous farm program, or updating to 90 percent (.90) of the 5-year (2008-2012) average crop yields on planted crop acres on that farm unit. For the County ARC program, the most recent county 5-year “olympic average” yield, which drops the highest and lowest annual yields for a crop, will be used. For the Individual ARC program, the program yield will be the farm unit “olympic average” yield for each crop in the most recent five years.

  • ARC or PLC Program.

Producers will have a one-time choice between the revenue-based Agriculture Risk Coverage (ARC) program, and the Price Loss coverage (PLC) program. Producers failing to make a choice will be in the PLC program for 2015-2018, and will have no farm program coverage for 2014. If the ARC program is chosen, there will be a choice between the County ARC program, or the Individual ARC program. Producers that opt for the County ARC can choose between the ARC program and the PLC program for different crops on a farm unit. Producers choosing the Individual ARC program will need to have all crops on that farm unit in the ARC program. Any potential PLC or ARC payments for the 2014 crop year will not occur until October, 2015.

 

The PLC program will function similarly to the previous counter-cyclical program, with payments made if the 12-month market year average (MYA) price falls below the established reference price (target price) for a given crop. The marketing period for the 12-month price for corn and soybeans is September 1 in the year that the crop was produced until August 31 of the following year. PLC payments would be made in October of the following year, and will be made on 85 percent of eligible crop base acres for a given crop. (Corn example --- 100 acres x 165 bu./acre payment yield x $.30/bu. payment level x .85 = $4,207.50 payment.)

 

The new PLC reference (target) prices for 2014-2018 will be $3.70 per bushel for corn, $8.40 per bushel for soybeans, and $5.50 per bushel for wheat. Previous target prices were $2.63 per bushel for corn, $6.00 per bushel for soybeans, and $4.17 per bushel for wheat. CCC national loan rates will remain at current levels for the next five years, which are $1.95 per bushel for corn, $5.00 per bushel for soybeans, and $2.94 per bushel for wheat. Provisions for CCC crop loans and potential loan deficiency payments (LDP’s) under the new Farm Bill will remain the same as in previous years.

 

  • County or Individual ARC Program.

Producers that choose the ARC program option will have another choice to make, whether to have benchmark revenues and potential ARC payments determined by county-level yields or individual farm-level yields. There are several aspects to consider regarding this decision.

 

County ARC program payments will occur for a given crop when the actual county-level calculated revenue (county yield x 12-month MYA price) is below 86 percent of the county benchmark revenue for that year. The maximum County ARC coverage is 10 percent, from 76 to 86 percent, of the county benchmark revenue for a crop. The county benchmark revenue for any crop in a given year is the 5-year “olympic average” county yield times the 5-year MYA crop price for the preceding five years. The MYA crop prices are based on the 12-month national average crop prices for each of the five years, with the high and low price removed. In any year that the MYA price is lower than the new reference price for a crop, the reference price will be used for calculations for that year. County ARC payments will be paid on 85 percent of eligible crop base acres.

(Corn Example --- 100 base acres x $50/acre payment x .85 = $4,250 payment.)

 

The individual ARC program combines all crops on a farm unit to calculate payments, rather than the crop-specific approach used in the County ARC program. The Individual ARC benchmarks are based on 5-year “olympic average” farm-level yields for each crop times the “olympic average” 5-year MYA price for each crop. The total revenue is the sum of all crops, which is then factored by the average percentage of acres for each crop on that farm, in order to arrive at a final benchmark revenue for that farm unit. The actual revenue for a crop in a given year is a “weighted” average of the actual farm-level crop yield times the 12-month MYA price. Similar to the County ARC program, payments are made when the actual “weighted” farm-level revenue is between 76 and 86 percent of the benchmark revenue, a maximum of 10 percent. Individual ARC payments are made on 65 percent of the eligible crop base acres on a farm unit. (Example --- 100 acres x $60/acre payment x .65 = $3,900 payment.)

 

The basic commodity farm programs in the new Farm Bill will be implemented by USDA for the 2014 crop year, so farm operators will have some big decisions to make in the coming months.  Since the farm program decisions are for multiple years, land owners will also be required to sign-off on farm program choices on cash rental farms, and will need to be part of the decision making process. Farm program sign-up will likely not begin until sometime this Summer at local Farm Service Agency (FSA) offices, and will probably continue into the Fall months. This should allow farm operators and land owners plenty of time to research and evaluate the various options and alternatives that will be available under the new Farm Bill. Local FSA offices do not yet have the sign-up dates, or other official details on the new farm program options.

 

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Note --- For additional information contact Kent Thiesse, Farm Management Analyst and

              Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone --- (507) 381-7960); 

              E-mail --- kent.thiesse@minnstarbank.com)  Web Site --- http://www.minnstarbank.com/