2014 Farm bill COMMODITY programs

2014 FARM BILL COMMODITY PROGRAMS

Dr. Jody Campiche

Dr. Eric DeVuyst

Department of Agricultural Economics

Oklahoma State University

Disclaimer

This information is based on my reading of the 2014 farm bill and discussions with Congressional Agriculture Committee staff

I know there will likely be differences in my interpretation and the final rules and regulations

This information is intended to be for educational purposes only

Additional information will be available before most decisions need to be made

2014 Farm Bill

One-time decision to reallocate base acres **total base acres cannot increase (will be the

same as on Sept. 30, 2013)

One-time decision to update CC yields on a farm

One-time (5 year) election of: Price Loss Coverage (PLC) Ag Risk Coverage – County (ARC-CO) Ag Risk Coverage – Individual (ARC-IC)

Owner/Operator Acreage History Letters

Should have received a letter with basic background of base acreage

Should receive a Summary Acreage History Report Acreage of covered commodities reported to FSA

from 2008-2012 Includes your base acreage and CC yield as of

9/30/13 Contact your local FSA office if your acreage history

is incorrect Collect your 2008-12 yield data

Decisions at the FSA office

Do you want to update your base acreage?

Do you want to update your FSA payment yields?

Do you want to enroll each crop/farm in ARC or PLC?

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)

PLC calculation uses the FSA payment yield

Decisions at the crop insurance office

If you chose not to enroll a crop/farm in ARC, do you want to purchase SCO?

Are you comfortable with a county-level product

SCO only pays if the county has a loss but the premium is much cheaper than an RP policy

Reallocation of Base Acres

Option to retain or reallocate total base acres to crops planted in 2009-2012

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

Reallocation of Base Acres

Example: Producer has 80 acres of wheat base

In 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)

Base Reallocation Example

2009 2010 2011 2012

Corn 0 0 200 200

Grain Sorghum

150 100 0 0

Wheat 250 300 200 200

Totals 400 400 400 400

Yield Update

Updated payment yield = 90% of the average of the yield per planted acre for the 2008-2012 crop yearsExclude any year when no acreage was planted

to the covered commodityWill likely use crop insurance APH yield data for

2008-2012

Producers with yields in any of the 2008-2012 years that are < 75% of the county average yield can use 75% of the 2008-2012 county average yield as a substitute The substitute yield for Garfield County Wheat = 24

Yield Update Example

Wheat CC yield = 35 bu Garfield County 75% of 2008-12 yield = 24 (75%

of 24 = 18)

2008 2009 2010 2011 2012 Avg Yield

90% of Avg Yield

Wheat 45 15 42 10 43 35 31

75% Avg Garfield County Yield

24 24 24 24 24

New Programs

ARC

SCO

PLCCROP INSURANCE

COMMODITY PROGRAMS

4 Commodity Program/Crop Insurance Choices

PLC

PLC + SCO

ARC-County

ARC-Individual

Plant a different crop than base crop

Distinction between programs tied to base acres and programs tied to planted acres

ARC/PLC paid on base acres SCO paid on planted acres

Payment limits exist for commodity programs but not for crop insurance programs

Important Points

Important Points

The decision to enroll in ARC/PLC varies by crop, region, farm size, etc…

SCO may not be an attractive option for some crops/regions/farms

ARC/PLC paid on 85% of base acres, SCO paid on 100% of planted acres

Farm Program Choices

Interaction between programs

Choices will all take place at different times

This may be particularly confusing for ARC/PLC and SCO No SCO for 2014 crop year

SCO sign-up for the 2015 crop year will occur before ARC/PLC sign-up for the 2014 crop year (for fall planted wheat)

Farm Program Choices

PLC

PLC – price protection

Payment if actual national average marketing year price < reference price

Paid on 85% of base acres

Do not have to plant to receive payment if payment is triggered

PLC

Crop PLC Reference Price

Barley 4.95

Corn 3.70

Cotton NA

Grain Sorghum 3.95

Peanuts 535

Oats 2.40

Rice 14.00

Canola 20.15/cwt

Soybeans 8.40

Wheat 5.50

ARC

ARC – revenue protection

Option to choose farm or county level coverage

Farm paid on 65% of base (includes whole farm revenue)

County paid on 85% of base

Do not have to plant to receive payment if payment is triggered

ARC

Similar to ACRE in 2008 farm billKey differences:

County level trigger (ACRE had a STATE/farm trigger)

Payment limited to 10% of the benchmark revenue Huge difference for OK wheat ($45-$60 ACRE

payment compared to $16-$20 ARC payment)

PLC vs. ARC County

Both are limited by $125K payment limit per entity

Both paid on 85% of base acreage

ARC – limited to 10% of benchmark revenue ($160-$210 for wheat)

PLC vs. ARC County

PLC – limited to:$5.50 – actual price * FSA payment yield

Ex. $5.00 price and 35 bu FSA payment yield = $17 PLC

Ex. $4.75 price and 35 bu FSA payment yield = $26 PLC

Ex. $4.50 price and 35 bu FSA payment yield = $35 PLC

Then if you add SCO and the county has a revenue loss, you could get an SCO payment

The maximum SCO payment is higher than the maximum ARC payment but you do pay a premium for SCO

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

65% subsidy

SCO

County-level policy endorsement that is in addition to an underlying crop insurance policy

Starts in 2015 – can enroll each year as long as ARC is not selected for the crop/farm

Producers who elect to participate in ARC are not eligible for SCO for the crop and farm participating in ARC

SCO Decision Tool

SCO Expected Area YieldsAlfalfa 35.3 Jackson 27.2Beaver 27.3 Kay 30.6Beckham 21.7 Kingfisher 30.2Blaine 27.5 Kiowa 26.7Caddo 30.5 Logan 31.3Canadian 30.9 Major 30.3Cimarron 20.7 McClain 31.7Comanche 23.7 Noble 25.4Cotton 24.0 Oklahoma 33.2Custer 28.5 Ottawa 33.1Dewey 26.5 Payne 26.5Ellis 21.5 Roger Mills 24.5Garfield 33.2 Texas 33.5Garvin 31.9 Tillman 26.2Grady 28.1 Wagoner 31.7Grant 32.5 Washita 27.6Greer 24.2 Woods 31.8Harmon 26.6 Woodward 26.5Harper 25.4

SCO: Slightly Confusing PLC/ARC Details

Example 1 Producer has 100 acres wheat base and

enrolls the wheat in ARC – plants 100 acres of wheat – CANNOT enroll wheat in SCO

Example 2 Producer has 100 acres of wheat base,

enrolls the wheat in ARC - plants 100 acres of corn – CAN enroll the corn in SCO

SCO/RP/YP/ARC/PLC Decisions

Is ARC a better option for your crop/farm?

Is your base acreage different than your current planted acreage?

Will you reallocate base acreage?

What is your current RP/YP coverage level?

What is the cost of higher RP/YP coverage?

Do you have enterprise units?

Are you planting a large amount of acreage over your base?

Timeline

Sept 30, 2015 – elect SCO for 2015 wheat

Late Summer/Early Fall 2015 – update yields and reallocate bases

Winter 2014 – final base and yield notices issued, elect ARC/PLC

Winter 2014 – withdraw from SCO if you elect ARC

Early 2015 – Enroll in ARC/PLC for 2014 and 2015

OSU/KSU Decision Tool

Results

Questions?

Jody Campiche

jody.campiche@okstate.edu

http://agecon.okstate.edu/agpolicy/

405-744-9811