(The Agricultural Act of 2014 ) Will Snell – University of KY

General Info About Farm Bill/Today’s Session

• USDA is working on regs … much still unknown •Signup anticipated later this fall/winter •Calculators and decision tools being devolved

2014 Farm Bill

•Today’s focus will be primarily on program crops

The 2014 Farm Bill Political Environment

•Record Federal Budget Deficit •Record Farm Income •Challenging Political Make-up in Congress

The Nutrition Title Dominated the Debate on the Current Farm Bill

•

Senate: - $4 billion of cuts funding over 10 years in SNAP

•

House: - $40 billion of cuts in SNAP funding over 10 years

•

Final Result: 8 billion of cuts in SNAP funding over 10 years

2014 Farm Bill Expenditures (2014-2023)

Title Nutrition Commodity Conservation Crop Insurance Estimated Expenditures (Billion Dollars) $ Change (Billion Dollars) % Change $756 $44 $58 $90 - 8.0

- 14.3

- 4.0

+ 5.7

- 1% - 24% - 6% + 7% Total $956 -16.6

- 2%

2014 Farm Bill ($956 billion/10 years) Nutrition 79% Source: CBO Crop Insurance 9% Other 1% Commodity 5% Conservation 6%

Major Ag Components of the 2014 Farm Bill

 

Covers 2014-2018 Crop Years Eliminates Direct Payments, Countercyclical Program, and ACRE

   

Creates a new price support (PLC) and a new revenue program (ARC) Creates a new insurance option (SCO) Revises the Dairy Program Consolidates Conservation Programs

• Establishes a permanent livestock disaster

program.

2014 Farm Bill

Grain Farmers Will Have to Make 3 Decisions Up Front For the Life of the 2014 Farm Bill

2014 Farm Bill Decisions for Program Crops (Corn, Soybeans, Wheat …)

1. Retain OR Reallocate Base Acres

 

Reallocation based on share of 2009 2012 acres planted for program crops Reallocation can’t exceed 2013 base acres 2. Retain OR Update Program Payment Yields



Update based on 90% of farm’s 2008 2012 average yields

2014 Farm Bill Decisions Cont.

3. One-time, Irrevocable Option to Select One of the Following



Price Loss Coverage (PLC) prices – (crop by crop decision) safety net for



Agricultural Risk Coverage (ARC) – net for revenue



County (crop by crop decision)



Individual farm (whole farm safety – all crops) Decision must be agreed upon by all owners/tenants and will be in effect through 2018. --- if no decision, no payments for 2014, and default to PLC for 2015-2018.

Price Loss Coverage (PLC)



Payment made when national marketing year average price is less than the fixed “reference” price Reference Prices ($/bu) Corn Soybeans Wheat $3.70

$8.40

$5.50

 

Payment Rate: Reference Price – Marketing Year Avg. Price Payment = Payment Rate x Payment Yield x 85% x Base Acres



Option of purchasing additional subsidized insurance protection called Supplemental Coverage Option Insurance in 2015

Price Loss Coverage (PLC) Corn Example

Assumptions • U.S. Market Year Average Price: $3.50/bu • Reference Price for Corn: $3.70/bu • Farm’s Payment Yield: 150 bu. • Farm’s Base Acres: 100 acres Payment Calculations Payment Rate = $3.70 (Reference Price) - $3.50 (Market Price) = $0.20/bu PLC Payment = $0.20 (Payment Rate) x 150 (Payment Yield) x 100 (Base Acres) = $3000 x 85% = $2550 or $25.50/acre

Agricultural Risk Coverage (ARC) Two Options – County or Individual Farm

• County Coverage: • Payments made when

Actual County Revenue is below County Revenue Guarantee

– Actual County Revenue

= (actual average county yield) x (U.S. average market price)

– County Revenue Guarantee

= 86% x benchmark revenue which is calculated as (average county yield over last five years (dropping high and low)) x (U.S. average price over last five years (dropping high and low))

– Payment Rate

is capped at 10% of benchmark guarantee

– Payment acres

= 85% of base acres

• Individual Farm Coverage: • Payments made when

Actual Crop Revenue fall below Individual Revenue Guarantee

– Actual Crop Revenue

summed for all crops = (national average price) x (farm yield) x (weighted crop acres)

– Individual Revenue Guarantee

= 86% x benchmark revenue which is calculated as weighted average revenue of crops over last five years dropping out high and low

– Payment Rate

is capped at 10% of benchmark guarantee

– Payment acres

= 65% of base acres

Agricultural Risk Coverage (ARC) for Corn COUNTY Year 2009 2010 2011 2012 2013 5 Year Olympic Avg.

Price $3.70 $5.18

$6.22

6.89

$4.50

$5.30

County Yield 152 151 150 60 175 151 Benchmark Revenue County Guarantee 86% of Benchmark Revenue $800 $688 $5.30 * 151 $800 * 86% Maximum Payment is 10% of Benchmark Revenue or $80/acre in this example

Agricultural Risk Coverage (ARC) for Corn

COUNTY

U.S. Market Average Price County Yield Base Acres Actual County Revenue Benchmark Revenue Benchmark Revenue Guarantee Payment Rate Payment $4.00

160 bu/acre 100 acres $4.00 x 160 = $640/acre $800/acre $688/acre (86% x $800) $688 (Guarantee) - $640 (County) = $48/acre $48 (Payment Rate) x 100 (Base Acres) x 85% = $4,080 or $40.80/acre

Agricultural Risk Coverage (ARC) INDIVIDUAL (75% Corn, 25% Soybeans)

Year 2009 2010 2011 2012 2013 CORN Price $3.70 Farm Yield 185 Farm Revenue $685 $5.18

$6.22

$6.89

$4.50

175 160 75 180 $907 $995 $517 $810 Year 2009 2010 2011 2012 2013 SOYBEANS Price $9.59 Farm Yield 45 Farm Revenue $432 $11.30

$12.50

$14.40

$12.50

30 40 40 50 $339 $500 $576 $625 Benchmark Revenue (Corn) ($685+ $907+810)/3 = $800 Benchmark Revenue (Beans): ($432+ $500+$576)/3 = $502 Farm Benchmark Revenue: ($800 x 75%) + ($502 x 25%) = $725 Farm Revenue Guarantee: $725 x 86% = $624 Maximum Payment is 10% of Benchmark Revenue or $72.50/acre in this example

Agricultural Risk Coverage (ARC) INDIVIDUAL (75% Corn, 25% Beans)

U.S. Market Avg. Price for Corn $3.75/bu $11.00/bu U.S Market Avg. Price for Soybeans Corn Yield Soybean Yield Base Acres 170 bu/acre 45 bu/acre 100 Individual Farm Revenue Farm Benchmark Revenue Farm Revenue Guarantee $3.75/bu x 170 bu/acre) x 75% + $11.00/bu x 45 bu/acre) x 25% = $602 $725 $624 ($725 x 86%) Payment Rate Payment

Agricultural Economics

$624 (Guarantee) - $602 (Indvidual) = $22 $22 (Payment Rate) x 100 (Base Acres) x 65% = $1430 or $14.30 /acre

Early Observations on PLC vs ARC

• Selection on PLC vs ARC will depend

on individual’s price expectations (and individual yields relative to county yields) PLC Reference Prices ($/bu) Corn $3.70

Soybeans Wheat $8.40

$5.50

• “If multi-year average prices for corn are expected to be over

$3.70 over the next five years, ARC will provide better protection since PLC will never trigger payments. If prices are expected to be very low, averaging less than $3/bu, PLC will provide better support. Corn prices between $3 and $3.70 are more of a toss-up.” Jonathan Coppess and Nick Paulson, University of Illinois

• Decision-Making Tools being developed to assist producers

Source: FAPRI Briefing Book, March 2014

Payment Limitations

• Producers whose AGI exceeds $900,000 are not eligible to

receive payments/benefits from FSA or NRCS programs

• Annual payment limits for PLC, ARC, LDPs, capped at

$125,000/person or $250,000/ couple

• Separate $125,000 cap for livestock programs • 2014 calls for USDA to define “actively engaged” to

determine eligibility for payments

Conservation Programs

• Condenses the number of conservation programs from 23 to 13. • Reduces the Conservation Reserve Program (CRP) maximum

enrollment from 27.5 million acres in 2014 to 24 million acres in 2018

• Conservation Programs Reduced $4 billion/10 years, but EQIP

funding increased by $0.5 billion/10 years

• Requires conservation compliance with highly erodible land and

wetland conservation practices to be eligible for crop insurance premium subsidies.

Other Components

• Authorizes colleges, universities, and state departments

of agriculture to develop pilot research projects for industrial hemp in states that have passed legislation supporting hemp production.

• Establishes a

new dairy policy protecting dairy profit margins (based on difference of milk prices and feed costs) with an insurance product

• Reauthorizes a

Beginning Farmer and Rancher Development Program

• Provides additional assistance for

livestock disaster and specialty crop grants

Questions ?