By Steve Johnson
The 2014 Farm Bill is now law and USDA Farm Service Agency (FSA) officials are writing rules and regulations to carry out the new programs. The five-year farm bill eliminates direct payments, and the Counter-Cyclical Payment (CCP) and Average Crop Revenue Election (ACRE) programs for commodity crops. Replacing them are some new risk management options farmers must choose from by FSA farm serial number.
In this article I summarize the new programs and impending decisions Iowa farmers face. Since FSA is still writing the final rules, those rules may eventually differ from current interpretations. But basically, here's how the new farm bill will affect your crop risk management decision-making.
Crop insurance is still the backbone
Crop insurance remains the backbone of the farm financial safety net. It will be augmented by the new farm program. Farmers can invest in their own risk management by buying crop revenue insurance so they are protected annually should a decline in yield and/or a drop in futures price occur.
To protect farmers from multiple year downturns in cash prices or a decline in revenue, the new bill introduces two new programs. Farmers will choose between a revenue program that covers price and yield losses (Agricultural Risk Coverage, or ARC), and a price-only program known as Price Loss Coverage, or PLC. USDA officials indicate the sign-up period for the new USDA programs won't likely begin until next winter.
Crop coverage options: ARC vs. PLC
Farmers who choose ARC will have to make another decision. That is, whether to enroll in "county ARC" on a commodity-by-commodity basis or choose an individual "farm ARC" that combines all the program commodities on the farm together.
Payments for the county ARC occur when actual county yield times the national marketing year average cash price for a commodity is below the ARC revenue guarantee for that crop year. Farm ARC would issue payments depending on whole farm revenue, since program commodities are combined. The program covers losses on 85% of the base acres for the county option and 65% of base acres for farm coverage.
The ARC guarantee provides a range of revenue protection from 76% to 86% of historical revenue, with farmer-purchased crop insurance expected to cover deeper losses. If either of these ARC options is chosen, the farm is not eligible to buy the Supplemental Coverage Option, or SCO, insurance. That's because ARC and SCO are very similar products.
PLC is a target-price program that makes payments when national average cash crop prices drop below a "reference price" set in the farm bill. The reference prices are: $3.70 per bushel for corn, $8.40 per bushel for soybeans and $5.50 per bushel for wheat. Beginning in 2015, PLC enrollment allows the purchase of SCO insurance to reduce the traditional crop insurance deductible levels. Only farmers enrolled in the PLC program may buy SCO insurance and county yields are used. Keep in mind the SCO insurance as an option in the new farm bill will not be available until 2015.
You'll have to make a one-time decision
Farmers along with their landowners on rented ground have to make a one-time, irrevocable decision to enroll a farm in ARC or PLC for the life of the five-year farm bill. If a farm is not enrolled in either program for 2014, it will be automatically enrolled in PLC beginning in 2015.
To help decide which program to use, farmers may have to review historical planted base acres due to the one-time choice of reallocating base acres using the average for the years 2009 through 2012. However, the reallocation of acres by farm cannot exceed the total historical base acreage. In addition, farmers might want to compare yield information for their farms to their county yields for the years 2008 through 2012.
Payment triggers for both the ARC and PLC programs are based on marketing year average cash prices. Thus, any payments for revenue or price losses won't be made until the year following the loss.
More information to come from FSA
It is too early to know for sure which program will be best for Corn Belt farmers, as the final rules and regulations are not yet known. Once USDA releases the information, farmers and landowners should have time to make enrollment decisions.
A preliminary analysis of the two programs suggests, for 2014, ARC's price coverage level is more favorable for corn and soybeans while PLC's reference price is more favorable for other crops such as peanuts, rice, barley and wheat. However, farmers will need to consider how the two programs will work over the life of the five-year farm bill; or through the 2018 crop year.
ISU Extension is planning to hold meetings to explain the status of the new commodity and conservation programs in the new 2014 Farm Bill. FSA and other Iowa farm groups will likely be involved in these meetings for farmers and landowners, which will probably be held this summer and fall.
For more farm management information and analysis visit www.extension.iastate.edu/agdm; ISU farm management specialist Steve Johnson's site is available at www.extension.iastate.edu/polk/farm-management.
Editor's note: Steve Johnson is an Iowa State University Extension farm management specialist.