Dr. Jody CampicheOklahoma State University

September 11, 2012

2012 Farm Bill Update

Current Situation

2008 Farm Bill expires on Sept. 30, 2012

Senate has passed its version of the farm bill Reform, Food and Jobs Act of 2012

House Ag Committee passed its version of the farm billFederal Agricultural Reform and Risk

Management Act” (FARRM)Bill has not been debated on the House floor

June 19 Senate passed its version of the farm bill

July 12 House Ag Committee passed its version of the farm bill Bill has not received floor time in the House

July 27 House announced that it would consider a 1 year extension of

the 2008 farm bill and a disaster assistance package Aug. 2

House Ag Committee dropped the 1 year farm bill extension and passed the Agricultural Disaster Assistance Act of 2012

Aug 3 – Sept. 10 House & Senate scheduled to go out of session Senate has not considered the drought assistance bill

Timeline

Revive expired disaster relief programs for cattle and sheep producers Livestock disaster assistance programs

in the 2008 farm bill expired in Oct. 2011

To make supplemental agricultural disaster assistance available for fiscal year 2012costs offset by changes to certain conservation

programs

House Disaster Relief Bill

Livestock Indemnity ProgramPayments to eligible producers on farms that

have incurred livestock death losses in excess of the normal mortalityattacks by animals reintroduced into the wild by the

Federal Government or protected by Federal law, including wolves and avian predators

adverse weather (including losses due to hurricanes, floods, blizzards, disease, wildfires, extreme heat, and extreme cold)

House Disaster Relief Bill

Livestock Forage Disaster Program An eligible livestock producer may receive assistance

under this subsection only for grazing losses for covered livestock that occur on land that is:Native or improved pastureland with permanent vegetative

coverPlanted to a crop planted specifically for the purpose of

providing grazing for covered livestock

House Disaster Relief Bill

Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish

Emergency relief to eligible producers of livestock, honey bees, and farm-raised fish

Aid in the reduction of losses due to disease, adverse weather, or other conditions, such as blizzards and

wildfires

House Disaster Relief Bill

Farm Bill Negotiations

FARRM will likely be reworked by the House once it gets floor time

When the House passes its version of the 2012 farm bill, it will have to be reconciled with the Senate farm bill through a joint conference committee

Budget issues will continue to be a factor in these negotiations.

Senate Ag Risk Coverage (ARC) STAX Supplemental Insurance Coverage (SCO) Marketing Loan

House Revenue Loss Coverage (RLC) Price Loss Coverage (PLC) STAX Supplemental Insurance Coverage (SCO) Marketing Loan

Senate vs House Bill

Commodity/Crop Insurance Programs

Option to choose coverage at the individual level (based on individual farm yields) or at the county level (based on average county yields)

Can also enroll in the Supplemental Coverage insurance option with a coverage level of up to 79%

Once chosen, the decision is irrevocable for the life of the farm bill

Upland cotton is not eligible

Senate ARC

Additional ARC Rules$50,000 payment limit on ARC payments

$750,000 AGI limit from farm and non-farm sourcesnot eligible for farm payments if AGI >

$750,000

Senate ARC

Producers can purchase an area-wide policy to cover a portion of the crop insurance deductible

Producers pay 30% of the premium for this coverage

2 options1) if they enroll in ARC, they get SCO coverage up

to 79% (coverage can’t exceed 79% - insurance plan coverage level)

2) if they opt out of ARC, they get SCO coverage up to 90% (coverage can’t exceed 90% - insurance plan coverage level)

Triggered if county losses exceed 10% of normal levels

Not available for producers enrolled in STAX

Senate SCO

Price Loss Coverage

Revenue Loss Coverage

STAX

Supplemental Insurance Coverage

Marketing Loan

House Bill Commodity/Insurance Programs

Choice between 2 optionsAvailable on a commodity by commodity basis

but once selected are irrevocable

(1) Price Loss Coverage price loss triggered similar to the counter-cyclical payment (CCP)

program

(2) Revenue Loss Coverage revenue loss triggered

Upland cotton not eligible for PLC or RLC

House Commodity Programs

Risk management tool that addresses deep, multiple-year price declinesComplements federal crop insurance, which is not

designed to cover multiple-year price declines. Limits budget exposure by only addressing

deep, multiple-year price lossesPrevents the need for costly and unbudgeted

bailouts when markets collapse

House PLC

Risk management tool that addresses revenue losses, similar to the Senate ARC program Requires a producer to experience at least a 15 percent loss

ensures that all risk is not removed from farming and that no growers are guaranteed profits

Offers coverage based on county-wide losses to ensure that a government program is not set up to duplicate, for free, what farmers should pay for under crop insurance

Uses yield plugs and an index of below cost-of-production prices as a benchmark in establishing this revenue-based risk management tool for producers

Provides full planting flexibility to ensure that producers plant for market and agronomic conditions

PLC and RLC apply to planted acres up to total base acres on a farm in order to contain costs

House RLC

Reference prices provided to determine lossessimilar to target prices

Payment triggered if the “effective price” of a commodity is less than the “reference price” of that commodity for the marketing year

House PLC

Additional RLC & PLC Rules $125,000 payment limit on combined PLC and RLC

payments (peanuts have separate limit) $950,000 AGI limit from farm and non-farm sources (not

eligible for farm payments if AGI > $950,000)

RLC is similar to the county ARC option in the Senate farm bill ARC only has reference prices for rice and peanuts

where RLC has reference prices for all program crops RLC lowers the trigger point by 4%, requiring producers

to incur a 15% loss before receiving assistance

 

House RLC

Producers enrolling in PLC can purchase an area-wide policy to cover a portion of the crop insurance deductible

Coverage up to 79%

Triggered if county losses exceed 10% of normal levels

Not available for producers enrolled in STAX

House SCO

Stacked Income Protection Plan Separate insurance program for upland cotton

Shallow-loss, area-wide revenue insurance Voluntary program whereby farmers could supplement existing

revenue insurance with an area-wide insurance product subsidized at 80%

“Stacked” feature Provides shallow-loss coverage that would sit on top of the producer’s

individual crop insurance deep-loss product

Uses an area-wide revenue product or group risk income protection (GRIP) program where losses are determined at the county level rather than the farm level Area-wide policies such as GRIP are generally cheaper than

farm-level policies since the risk of loss is pooled at a more aggregate level

STAX

Delivered through crop insurance, providing protection against shallow losses—between 10% to 30% loss of average revenue—by riding on top of existing crop insurance policies

Can elect coverage between the individual insurance deductible and 90% of expected county revenue

If individual insurance not purchased, STAX coverage can be elected between 70% and 90%

Multiplier factor up to 120% is allowed

Premium subsidy is 80%

STAX is not available to upland cotton acres in the Supplemental Coverage Option

STAX

Main difference between the House and Senate version of STAX inclusion of a reference price in the House Ag. version of

$.6861/lb

No Limits on STAX premium subsidies or acres covered No insurance products are subject to limits or eligibility

restrictions

House vs. Senate STAX

Streamlines and consolidates 23 programs into 13

Improves conservation delivery by simplifying the numerous programs available to producers

Still provides farmers, ranchers, foresters, and landowners with voluntary, incentive-based financial and technical assistance for conservation practices

Senate & House Conservation

Passing a Bill by October?

Disaster Declarations

Many Oklahoma counties have been designated as primary natural disaster areas

Producers in these counties are eligible for low-interest emergency loans

Interest rate for emergency loans has been reduced from 3.75% to 2.25%

Disaster Assistance

Emergency Haying and Grazing CRP participants may be able to hay and graze acres

that have previously been ineligible – extended for 2 months

Additional acres have wetland-related characteristics and may contain better quality hay and forage than on other CRP acres

CRP acres can already be used for emergency haying and grazing during natural disasters

Lands that are not yet classified as "under severe drought" but that are "abnormally dry" can now be used for haying and grazing

Reduction in annual rental payment reduced from 25% to 10%

Disaster Assistance

Environmental Quality Incentives Program (EQIP) Producers may be able to modify their current EQIP

contracts prescribed grazing livestock watering facilities water conservation other conservation activities to address drought

conditions NRCS will work closely with producers to modify existing

EQIP contracts to ensure successful implementation of planned conservation practices

Wetlands Reserve Program (WRP) May receive authorization to hay/graze WRP easement

areas in drought-affected areas

Disaster Assistance

Grace Period for 2012 Federal Crop Insurance Premiums

Crop insurance companies have agreed to provide a 30 day grace period for 2012 insurance premiums

Producers will have an extra 30 days to make payments without incurring interest penalties on unpaid premiums

Disaster Assistance

Crop Insurance for wheat and small grains – Oct. 1

Pasture, Rangeland, Forage insurance – Nov. 15USDA subsidized insurance program offered by

RMA designed specifically for hay and livestock producers

Drought insurance based on a Rainfall Index where you insure your pasture as grazing land or hay land

Insurance Deadlines

Initially, it did not look like OK wheat would trigger for an ACRE payment based on the state yield of 22 bu/acre reported by NASS earlier this year

FSA also considers failed acres when calculating the average state yield for the ACRE payment calculationdivide NASS total production by NASS harvested

acres plus FSA’s “failed” acres and that lowers the state yield

2011 ACRE Payments

The prices and yields used in the 2011 ACRE calculation for OK wheat and oats are final

An ACRE payment will be made on wheat, but not for oats

It is very likely that a few other crops will also trigger, but the prices and yields are not final yet

2011 ACRE Payments

Oklahoma producers enrolled in the 2011 ACRE program may receive an ACRE payment for enrolled wheat acres

For ACRE payments to be made, both the state and farm level trigger must be met

State trigger has been met – state yield = 18.3 bu/acre

For the farm trigger to be met, the Farm ACRE Revenue Guarantee > Actual Farm Revenue

Actual ACRE payment for each producer will vary based on the farm benchmark yield

2011 ACRE Payments

Wheat- $19

Soybeans – max payment $55/acrefarm/state benchmark ratio

actual state yield = 13, benchmark yield = 23.5

Corn - ? – NASS doesn’t publish irrigated/non-irrigated yields for OK

Sorghum-$34/acrefarm/state benchmark ratio

actual state yield = 21, benchmark yield = 51

Canola -$0

2011 ACRE Payments

State benchmark yield is 27.5 bu/acre

If the farm benchmark yield = state benchmark yield, the payment will be $19.27/acre

Payment will be higher or lower than $19.27 if the farm benchmark yield is higher or lower than 27.5 bu/acre

Max ACRE payment is $37.94/acre

2011 ACRE Payments

To determine if the farm trigger is met, need Farm benchmark yield 2011 actual farm yield 2011 crop insurance per acre premium (this will be $0 if

you don’t have crop insurance (not required for ACRE participation but it does increase the farm guarantee)

ACRE guarantee price ($5.29) National average market price ($7.24)

2011 ACRE Payments – Farm Trigger

2006 402007 362008 45 (highest)2009 20 (lowest)2010 39

    Farm Benchmark Yield = average (40,36,39) = 38.3 bu/acre

2011 ACRE Payments – Farm Benchmark Yield

• Olympic average of farm yields per planted acre for the five most recent crop years (excludes high and low yields)

• So for 2011, it is the Olympic average of the 2006-2010 yields

Here is an example calculation to determine if the farm trigger is met:

Farm ACRE Guarantee = 38.3 * $5.29 + $0 = $202.61

Actual Farm Revenue = 20 * $7.24 = $144.80

The farm ACRE guarantee > Actual Farm Revenue, so the farm trigger is met

2011 ACRE Payments

ACRE Payment CalculationAverage payment is $19.27/acre but ACRE only

pays on 83.3% of planted acres

Actual ACRE payment calculation is:83.3% of farm planted or considered planted acres

(not to exceed total base acres)* (Farm Benchmark Yield/State Benchmark Yield) * $19.27

.833 * (38.3/27.5) * $19.27 = $22.35/acre or .833 * 1.3927273 * $19.27 = $22.35/acre

 

2011 ACRE Payments

ACRE county plug yields are on the FSA website. Click on this link http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landing and then click on 2011 Program Year County Yields (as shown below) to open the Excel file.

 

2011 ACRE Payments

Pasture and Hay Insurance (PRF)

Pilot federal crop insurance program that provides insurance protection for forage produced for grazing or harvested for hay Administered by RMA and sold through private crop insurance companies

Due to difficulties quantifying price and yield for forage crops, particularly for grazing, standard crop insurance products are generally not an option.

Similar to group risk insurance and provides area-wide coverage

RMA established a base value of forage for each county using multiple data sources

Initially available in 2007 in OK and 5 other states and was based on a vegetation index

Now expanded to many states and based on a rainfall or vegetation index

Pasture and Hay Insurance (PRF)

For OK and the majority of the US, now based on a rainfall index

Insures producers based on average rainfall in their geographic area instead of the producers’ individual farm

Producers receive an indemnity payment when rainfall in their area falls below the normal historical level

Pasture and Hay Insurance (PRF)

Rainfall Index uses National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA CPC) data Each grid is 0.25 degrees in latitude by 0.25 degrees in longitude Does not directly reflect the rainfall amounts measured at a specific weather station within a particular

grid Reflects a smoothed result of nearby weather station estimates in order to obtain an estimate for the grid Most group risk insurance provides coverage at the county level, but this product provides coverage at the

grid level.   Select at least two, 2-month time periods, called index intervals, when rain is important to the

operation

Insurance payments are calculated using NOAA CPC data for the grid(s) and the chosen index interval(s)

If the final grid index < trigger grid index (coverage level * expected grid index), loss payment may be issued

Only covers lack of rainfall

Producer may have low rainfall on their own farm and not receive a payment under the PRF policy

Does not measure direct production or loss

Do not have to insure all acreage

Pasture and Hay Insurance (PRF)

Producers will be asked to make several choices Intended Use Productivity Factor Coverage Level Insurable Interest Insured Acres Index Intervals

A decision tool is available allowing producers to estimate premiums and indemnities from 1948 to the current year to see how the program would have performed if they were enrolled in previous years

Can also view the historical rainfall indices for their area using the tool

The PRF decision tool can be accessed directly through the following website: http://agforceusa.com/rma/ri/prf/maps or through the following RMA website:http://www.rma.usda.gov/policies/pasturerangeforage/. If you open the RMA website, click on the Grid ID Locator, Decision Support Tool, Historical Indices link as shown below.

Grid Location Determination

Once you open this website, you will see the grid locator screen

Enter the location of your acreage to find the appropriate grid

You can also click on the Zoom to Grids button and it will show all of the grids in the area

Grid Location Determination

Pasture and Hay Insurance (PRF)

1) Intended Use – Choose haying or grazing

2) Coverage Level RMA has established a county baseline level of normal rainfall Choose a level of 70, 75, 80, 85, or 90% of the baseline county value Premium cost will increase with higher coverage levels

3) Productivity Factor RMA has established a per acre productivity value for each county based on

income received for haying/grazing operations under normal rainfall conditions

Choose a factor between 60 and 150 % of the county value

Select the amount of protection based on the forage value that best represents the specific grazing or hay operation, as well as the productivity of the land

Premium cost will increase/decrease depending on the protection factor selected

Producers can only select one productivity factor for each crop type and county

Pasture and Hay Insurance (PRF)

4) Insurable Interest Choose the appropriate insurable interest for the acreage Insurable interest is the insured’s percentage of the insured crop

that is at financial risk based on: 

(1) Interest in the livestock to be grazed on the insured acres, if the acres are cash leased

(2) Of the value gained of the livestock being grazed on the insured acres if the acres are share leased -Lessors under a cash lease are not considered to have a share in the insured crop

5) Insured Acres Same acreage cannot be insured for both haying and grazing in the

same crop year Same acres cannot be insured in more than one grid ID or county If acreage is located in more than one grid, producers can choose to

put all acreage in one grid or divide the acreage into separate grids

Pasture and Hay Insurance (PRF)

6) Sample Year Choose any year from 1948 to the current yearRecent data from the current year will likely be

missing(for example, during the first of September 2012, only the data for the Jan-Feb to May-Jun intervals is available to view)

 7) Index Intervals

Choose at least two, 2-month time periods (out of a total of 11), that are most important to the operation

Cannot choose 2 intervals in a row because can’t double insure acreagefor example, if you choose the May-June interval,

you cannot choose the June-July interval and you will see a N/A in the unavailable interval

Grid Location Determination

Grid 1

County A

County B

Grid 2

Grid 3 Grid 4

Use USDA Grid LocatorTract A

Grid 2 – 75 ac grazingTract B: Option 1

Grid 1 – 85 ac grazingGrid 3 – 155 ac grazing

Tract B: Option 2Grid 1 or 3 – 240 ac

grazingTract C

Grid 4165 ac grazing50 ac hay

A

B

C

Hay Meadow 50 Ac

75 acres

240 Total Acres

85 acres

155 acres

165 acres

Questions?

Jody Campiche528 Ag Hall

405-744-9811jody.campiche@okstate.edu

http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters