The long-awaited Agricultural Act of 2014, otherwise known as the farm bill, signed into law on Feb. 7 ends direct payments to farmers but still provides some safety net programs – and that’s just for starters.
“This new five-year legislation means the beginning of several new programs for agricultural producers,” said Kansas State University agricultural economist Art Barnaby. “It also means the end of some familiar programs, including SURE (Supplemental Revenue Assistance) and ACRE (Average Crop Revenue Election).”
While the new legislation does away with direct payments, it includes two new safety net programs, Agriculture Risk Coverage and Price Loss Coverage, designed to help farmers when crop prices or revenue are low. Producers will have to make a one-time irrevocable decision this year to select one of the two programs. If they do not choose, the PLC is the default option and they would give up any 2014 payment.
The two programs are separate from traditional crop insurance programs, which remain largely unchanged, but with some significant improvements, Barnaby said. Improvements include separate enterprise units for irrigated versus dryland agriculture and farmers may select different coverage levels for a dryland enterprise unit versus an irrigated enterprise unit on the same crop. If the county suffers a 50-percent yield loss, then farmers in that county and contiguous counties are allowed to exclude that low yield out of their actual production history and avoid a reduction in their APH.
K-State Research and Extension will host a one-hour webinar, “The New Farm Bill,” on Friday, Feb. 21 in which Barnaby, a risk management specialist, will discuss the legislation and what it means to producers.
The presentation will include National Agricultural Statistics Service prices and yield used for the calculation of payments, as well as changes to crop insurance. More information and registration is available online here or by contacting Rich Llewelyn at firstname.lastname@example.org or 785-532-1504.
Barnaby will also discuss the new farm bill on Thursday, Feb. 27 in Scott City, Kan. in a two-part workshop, “New Farm Bill Commodities Programs and Risk-Assessed Marketing II Workshop.” More information and registration for those programs is available by contacting John Beckman at email@example.com or 620-872-2930.
Agriculture Risk Coverage – This new program covers what farmers would lose before their regular crop insurance kicks in. It provides protection when crop revenue falls just 14 percent below a five-year rolling Olympic average benchmark. A farmer chooses whether the benchmark is based on county yield times crop year average prices or his or her individual crop yield times the price. The county payment is based on 85 percent of the farmer’s base acres, but if they elect individual coverage they must enroll all crops in to ARC and payments are made on 65 percent of base acres.
“If producers think prices will trend at or near current levels over the next five years, Agriculture Risk Coverage (ARC) is more likely to pay because the five-year Olympic market average price for many crops are above current prices,” he said. “But producers can only collect 10 percent of their coverage under the ARC program, and lower prices will cause the Olympic average price to decline over the life of the ARC program.”
Olympic averages are found by removing the high and low price before calculating the average of the remaining prices.
Price Loss Coverage – In the PLC program, farmers will receive payments if the crop price falls below certain “target” or reference prices. The USDA has set a $5.50-per-bushel reference price on wheat, for example, Barnaby said. If the cash wheat price falls below $5.50, farmers will be paid the difference between $5.50 and the lower price times their updated program yield times 85 percent of their base acres. Reference prices set as part of the new legislation for some other commodities (per bushel) include $3.70 for corn; $3.95 for grain sorghum; $8.40 for soybeans; $2.40 for oats; and $4.95 for oats.
“The (PLC) potentially has the bigger payout, but is less likely to happen than an ARC payment,” he said. If prices stay above the reference price, the PLC program will not make payments to farmers.”
Farmers who select PLC will be eligible for the Supplemental Coverage Option, as well, although that program will not be available until the 2015 crop year because the crop insurance contract change date has passed for 2014. Because it is insurance, it will follow insurance rules and payments will be based on county yields and insurance prices. It will cover a share of a farmer’s deductible in their farm level crop insurance, there is no payment limit, and the payments cannot be sequestered. SCO payments will be made six months earlier than ARC or PLC payments, but farmers must pay 35 percent of the SCO premium costs.
“Producers don’t have to make decisions right away, but now would be a good time for them to gather their records together. They’ll need acreage and yield data to update their information because many farmers will want to reallocate their base acres and update their program yields when they sign up,” Barnaby said. He expects updating base acres will increase feedgrain base acres and reduce wheat base acres; in both Kansas and at the national level.
“A lot of farmers will benefit from updating their program yields because their production has increased from yields used to set those program yields many years ago,” he said.
USDA has not issued signup dates yet, but Barnaby believes that given the changes that come with the new legislation, June 1 is the earliest that farmers will have to make a decision about which program to choose. Signups could be as late as August, he added, noting that the Farm Service Agency has much work to do before signup, including writing and publishing implementation rules, software development for enrollment, and training for their county personnel.
New programs available under the new legislation include the Stacked Income Protection Plan (STAX) for cotton and a new program for dairy producers. Total commodity support program payments under the new farm bill (independent from crop insurance payments) will be limited to $125,000 per individual or $250,000 per couple.