Transcript Slide 1

2012 Farm Bill Update
Dr. Jody Campiche
Oklahoma State University
September 11, 2012
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 bill
 Federal Agricultural Reform and Risk Management Act”
(FARRM)
 Bill has not been debated on the House floor
Timeline
 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
House Disaster Relief Bill
 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 2012
 costs offset by changes to certain conservation programs
House Disaster Relief Bill
 Livestock Indemnity Program
 Payments to eligible producers on farms that have
incurred livestock death losses in excess of the normal
mortality
 attacks 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 cover
 Planted 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
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 vs House Bill
Commodity/Crop Insurance Programs
 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 ARC
 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
sources
 not eligible for farm payments if AGI > $750,000
Senate SCO
 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 options
 1) 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
House Bill Commodity/Insurance Programs
 Price Loss Coverage
 Revenue Loss Coverage
 STAX
 Supplemental Insurance Coverage
 Marketing Loan
House Commodity Programs
 Choice between 2 options
 Available 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 PLC
 Risk management tool that addresses deep, multiple-year
price declines
 Complements federal crop insurance, which is not designed
to cover multiple-year price declines.
 Limits budget exposure by only addressing deep,
multiple-year price losses
 Prevents the need for costly and unbudgeted bailouts
when markets collapse
House RLC
 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
House PLC
 Reference prices provided to determine losses
 similar 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 RLC
 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 SCO
 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
STAX
 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
House vs. Senate 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
Senate & House Conservation

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, incentivebased financial and technical assistance for conservation practices
Passing a Bill by October?
Disaster Assistance
 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
Insurance Deadlines
 Crop Insurance for wheat and small grains – Oct. 1
 Pasture, Rangeland, Forage insurance – Nov. 15
 USDA 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
2011 ACRE Payments
 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 calculation
 divide 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/acre
 farm/state benchmark ratio
 actual state yield = 13, benchmark yield = 23.5
 Corn - ? – NASS doesn’t publish irrigated/non-
irrigated yields for OK
 Sorghum-$34/acre
 farm/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 – Farm Trigger
 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 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 20062010 yields
2006
2007
2008
2009
2010
40
36
45 (highest)
20 (lowest)
39
Farm Benchmark Yield =
average (40,36,39) = 38.3 bu/acre
2011 ACRE Payments
 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 Calculation
 Average 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.

 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
 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

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
 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
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
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
6) Sample Year
 Choose any year from 1948 to the current year
 Recent 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 acreage
 for 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
 Use USDA Grid Locator
Grid 1
Grid 2
 Tract A
 Grid 2 – 75 ac grazing
 Tract B: Option 1
 Grid 1 – 85 ac grazing
 Grid 3 – 155 ac grazing
 Tract B: Option 2
County
A
A
County B
75 acres
240 Total Acres
B 85 acres
155 acres
Hay Meadow 50 Ac
 Grid 1 or 3 – 240 ac grazing
165 acres
 Tract C
 Grid 4
 165 ac grazing
 50 ac hay
C
Grid 3
Grid 4
Questions?
Jody Campiche
528 Ag Hall
405-744-9811
[email protected]
http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters