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New farm bill programs likely to cause confusion

February 23, 2014
By LARRY KERSHNER, kersh@farm-news.com , Messenger News

The most important decision for farmers in the next several weeks will be crop insurance.

After that, farmers will need to make a decision on consolidated farm bill programs that may, at first, be confusing to them, according to Dennis Johnson, an Iowa State University Extension farm management specialist, based in Polk County.

The real clincher, Johnson said, is they get only one chance to decide on safety net protections through the new farm bill.

Once they decide which way to go, they're locked in for the life of the farm bill.

The 2014 farm bill sets a two-pronged safety net with programs called Agricultural Risk Coverage and Price Loss Coverage.

Those who choose PLC will be able to get a shallow-loss coverage called Supplemental Coverage Option. SCO is not available to those who chose ARC.

Those who fail to sign up for a safety net program in 2014 will be automatically defaulted into the PLC option for the life of the farm bill.

Choosing ARC or PLC is primarily a choice between revenue protection and price-only protection. However, Johnson indicated, there are secondary considerations in making the choice.

With ARC, producers can choose between basing their coverage on their average county yield history or their actual farm yield history.

If county coverage is chosen, producers have the option to make the decision on ARC versus PLC by individual crops.

According to the National Corn Growers Association, the new farm bill eliminates controversial direct payments while maintaining decoupled farm support programs that will minimize the possibility of planting and production distortions that could trigger new World Trade Organization challenges.

It allows producers to either maintain existing crop acreage base or to reallocate their current base to reflect average acres planted to covered commodities in 2009-2012, "a reform that will make programs more relevant and more defensible while not tying them to current-year plantings," reports NCGA.

ARC

Agriculture Risk Coverage is revenue protection for either corn and/or soybeans with two options - based on county yield average or farm yield average.

If the county yield average is selected, farmers can cover 85 percent of base acres, with a revenue trigger at 86 percent, multiplied by the Olympic average of the past five years of county average, multiplied by the Olympic average of the marketing year average.

An Olympic average is taking five years of data, kicking out the high and low, and averaging the three remaining numbers.

If the farm yield average option is selcted, farmers can get 65 percent of base acres covered, with the trigger at 86 percent.

Johnson said if this option is selected, revenue is summarized across all commodity crops on the farm.

"Most producers are heading for 85 percent (coverage) and don't know it yet," Johnson said, "because the premiums are coming down."

ARC provides assistance in the deductible range of crop insurance utilizing indications of actual losses (county-wide or multiple-commodity revenue movements from a recent average) and an emphasis on multi-year price risk.

If county ARC is elected for a covered commodity it is ineligible to receive PLC and SCO payments. SCO was created in the crop insurance title of the bill.

If individual ARC is selected, it applies to all covered commodities and they would all be ineligible for PLC and SCO.

PLC

Price Loss Coverage is a price protection option that covers 85 percent of base acre and triggers payments if U.S. average market price for the crop year is less than the crop's reference price - $3.70 per bushel for corn and $8.40 per bushel for soybeans.

Those who choose PLC can also opt into SCO, which will be adminstered through crop insurance, and not Farm Service Agency.

Farmers will have to spend some considerable thought on which option is best for them, Johnson said. But they have through the summer to make the one-time decision.

Comparing ARC and PLC, including updated yields and SCO, for commodities and farms, looking at farm finances, break even price levels, production costs, market expectations and how the programs fit with crop insurance are essential to the decision making process.

If ISU is correct in its estimate for 2014 corn production at $4.30 per bushel, it raises a question about whether the $3.70 per bushel PLC corn reference price will be effective.

A similar question exists for soybeans where the ISU estimate of the break-even is $10.70 per bushel; it's well below the PLC reference price of $8.40 per bushel.

By comparison, the benchmark levels for ARC need to be calculated. The ARC structure also needs to be evaluated for how it relates to break-even prices

Johnson said he doesn't envy those at FSA offices who will have to explain these options to virtually every farmer who walks in.

He said ISU will also be doing workshops through the growing year assisting farmers with the decisions they need to make, which will lock them in for crop years 2015 through 2018.

 
 

 

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