2014 FARM BILL: COMMODITY PROGRAMS

Jody Campiche

Assistant Professor & Extension Economist

Oklahoma State University

Livestock/Forage Programs

LFP and LIP Payments

Covered Commodity Programs

Eliminated Programs

CCP

SURE

ACRE

DP

New Programs

ARC

STAXSCO

PLCCROP INSURANCE

COMMODITY PROGRAMS

Covered Commodities

Covered commodities include wheat, oats, barley, corn, grain sorghum, long grain rice, medium grain rice, pulse crops, soybeans, other oilseeds and peanuts

Upland cotton is no longer a covered commodity

Choices

2014:1. Retain or update base acres (landowner)2. Retain or update payment yields (landowner)3. Enroll in PLC or ARC (individual or county) (landowner/producer)4. Choose individual insurance policy (RP, YP, other)

coverage (producer)

2015:1. If enrolled in PLC, option to enroll in SCO (producer)2. Choose individual insurance policy (RP, YP, other)

coverage

Payment Acres

ARC/PLC paid on base acres Do NOT have to plant to receive ARC/PLC on base acres

(not including cotton base acres) ARC/PLC payments are not automatic like direct

payments

Two types of base acres:Total base acres (non-cotton acres)Generic base acres (old cotton

acres)

Reallocation of Base Acres

Option to retain or reallocate total base acres to crops planted in 2009-2012 – cannot update cotton base acres

Generic cotton acres cannot be reallocatedCan receive ARC/PLC on generic

cotton acres if another crop is planted on those acres

Reallocation of Base Acres

Reallocation is in proportion to the ratio of the 4-year avg of planted acres for each covered commodity

Ex: Producer has 80 acres of wheat baseIn the past 4 years, planted 160 acres -

40 acres of wheat (25%) and 120 acres of corn (75%)

Can retain 80 wheat base acres or reallocate 25% to wheat and 75% to corn (so 20 wheat base acres and 60 corn base acres)

Yield Update

Option to update payment yields

Only applies to PLC in the 2014 farm billARC not tied to payment yields

Updated payment yield will be 90% of the average of the yield per planted acre for the 2008-2012 crop years

If the yield for any of the 2008-2012 crop years is < 75% of the average of the 2008-2012 county yields, a yield plug of 75% of the avg 2008-2012 county yield will be used

PLC vs. ARC

Commodity-by-commodity and farm-by-farm decision(except farm-level ARC – must select

farm-level ARC for all commodities on a farm #)

One time decision in fall 2014 or early 2015 (for remainder of 2014 farm bill)

All owners and tenants must make same choice

(or default to PLC with no payments until the 2015 crop year)

PLC vs. ARC

PLC – price protectionPayment if actual price* < reference pricePayment rate = (reference price – actual

price1) * payment yield * 85% * base acres

ARC – revenue protectionOption to choose farm or county level

coverageFarm paid on 65% of baseCounty paid on 85% of base

PLC

Crop 2008 FB CCP Target Price

PLC Reference

Price

Barley 2.24 4.95

Corn 2.63 3.70

Cotton 0.7125 NA

Grain Sorghum 2.57 3.95

Peanuts 495 535

Oats 1.44 2.40

Rice 10.50 14.00

Soybeans 5.80 8.40

Wheat 3.92 5.50

ARC

Farm-level ARC is a whole-farm revenue program

Farm-level ARC might trigger payments more frequently than county-level ARC but producers would receive a payment on 20% less base acreage

With county-level coverage, a producer could have a loss on his own farm, but would not receive a payment if the county does not suffer a loss as well

Producers with yields that do not follow closely with the county average may want to consider farm-level ARC

PLC vs. County ARC

PLC ARC County

Guarantee Reference Price County Revenue

Benchmark Yield

FSA program yields

5 yr Olympic Average county yield

Benchmark Price

Reference Price 5 yr Oly Avg max (MYA Price, Reference Price)

Benchmark Guarantee

Reference Price 86% * Benchmark Price * Benchmark Yield

Actual Yield NA County yield

Actual Revenue

NA County yield * MYA Price

Payment Acres

85% * base acres

85% * base acres (30% of PP)

Maximum Payment

None (except for $125K combined payment limit)

10% * Benchmark Revenue (and $125K combined

payment limit)

SCO

Shallow loss insurance program that covers county-wide losses and complements a producer’s individual insurance policy

Requires that producers purchase an underlying insurance policy

Covers the difference between 86% and the level of coverage of the producer’s individual insurance policy

Not available for acreage enrolled in ARC

65% subsidy

RMA – SCO questions…

What if I decide I want to enroll into the ARC program after I've selected SCO coverage for winter wheat?

Producers who enroll their winter wheat in SCO may elect to withdraw from SCO prior to their acreage reporting date without any penalty. This allows producers additional time to make an informed decision related to whether to enroll in the ARC or PLC. If they choose ARC, they will not be charged a crop insurance premium so long as they withdraw from SCO prior to their acreage reporting date.

RMA – SCO questions…

Will I be able to purchase SCO for the 2015 crop year?

It depends. RMA is making every effort to offer SCO to as many producers as possible. SCO will be available for corn, grain sorghum, rice, soybeans, spring wheat, and winter wheat in selected counties for the 2015 crop year. Program details and eligible counties will be made available in the early summer of 2014.

RMA – Beginning farmer/rancher questions…

I have heard that the farm bill has provisions that will both help new and beginning farmers purchase crop insurance and enhance the crop insurance beginning farmers already have.

Yes, a beginning Farmer and Rancher will be exempt from paying the $300 fee for CAT coverage policies, and receive premium subsidy assistance for additional coverage policies that is 10 % points greater than what is otherwise available.

RMA – Beginning farmer/rancher questions…

It defines a “beginning farmer and rancher” to be a person who has not actively operated and managed a farm or ranch with a bona fide interest in a crop or livestock as an owner-operator, landlord, tenant or sharecropper for more than 5 years. In addition, in certain instances, a beginning farmer may use the production history of another farm operation they were previously involved with in the decision making or physical involvement in the production of the crop.

If the beginning farmer experiences a poor yielding crop, they may replace the poor yield in their yield history for determining next year’s guarantee with 80 percent of the county T-Yield, which is 20 percentage points higher than they previously would have received.

Upland Cotton

Cotton Safety Net

Reduced direct payment, called a transition payment, in 2014 (and possibly 2015) Since cotton is not eligible for ARC/PLC and STAX isn’t

available until 2015 Payment on 60% of base acres in 2014 Payment on 36.5% of base acres in 2015 (if STAX isn’t

available in the county)

Marketing loan support

STAX - area-wide revenue insurance program

STAX

STAX coverage can range from 90% of the county revenue guarantee to 70% or the coverage level of the underlying policy (if there is one) whichever is higher

An individual policy is not required with STAX

SCO vs. STAX

Upland cotton producers have the option to elect SCO instead of STAX for planted cotton acreage

Key differences With SCO, the producer’s APH yield is used

to calculate the liability Higher subsidy with STAX

OSU/KSU Decision Tool

Results

Results

FSA Timeline

Implementation