Extension Agent Follow-up Webinar by Robin Reid, Mykel Taylor, and G. Art Barnaby, Jr., 1

Please note… New webpage created for AGENTS ONLY that has all resources/presentations Posted for this training: Glossary of Farm Bill Terms, ARC/PLC tradeoff spreadsheet, FAPRI price list, Step-by-step decision tool instructions, this presentation! List of agents & KFMA willing to do county presentations Work with FSA to schedule meeting Help find a speaker for them if you cannot do it Don’t forget to report! Status of Decision Tool 2

Giving the Presentation FSA should do their presentation first Focus on the broad economics, not just the tool The following presentation is a template for what a presentation in your county CAN look like Feel free to cater the presentation how you feel it would be best for your county Fill in your own county numbers using commodities specific to your county (Use ARC/PLC spreadsheet posted in Agent Resources for this training) MYA price estimates will be updated periodically as well. New versions will be posted of these slides as prices are available. 3

The 2014 Farm Bill Program Selection 4 Name Title Extension Unit

Disclaimer This information is based on my understanding of the 2014 Farm Bill This information is intended for educational purposes only Keep checking for updated information

Decisions to be made… Update your program yields on base acres ( ) New yields would be 90% of updated average (with plug yields) Can increase your program payments in PLC If audited, will require proof (e.g. crop insurance records) If updated yield is higher than previous program yield= UPDATE! Reallocate your program base acres ( ) If you have been planting a different crop/rotation than your base, can reallocate Cannot increase base Two strategies: Align payments with risk, maximize payments LANDOWNERS

7 Decisions to be made… TENANT OR BOTH IF SHARED RISK PRICE LOSS COVERAGE (PLC) AGRICULTURAL RISK COVERAGE - County Level - (ARC-CO) AGRICULTURAL RISK COVERAGE - Individual Level - (ARC-IC) Supplemental Coverage Option (SCO) Elect a Program Decision for each Commodity All Commodities on Farm

Wheat: Marion County Payout for ARC-CO at $6.60/bu County yield < 37 bu/ac ARC-CO payment maxes out at $29.92/ac PLC < ARC-CO max unless prices fall below $ Farm Bill 8 **Units are $/acre. Remember payment is only on 85% of base acres**

Corn: Marion County Payout for ARC-CO at $5.29/bu County yield < 65 bu/ac ARC-CO payment maxes out at $42.50/ac PLC < ARC-CO max unless prices fall below $ Farm Bill 9 **Units are $/acre. Remember payment is only on 85% of base acres**

Sorghum: Marion County Payout for ARC-CO at $5.07/bu County yield < 52 bu/ac ARC-CO payment maxes out at $32.45/ac PLC < ARC-CO max unless prices fall below $ Farm Bill 10 **Units are $/acre. Remember payment is only on 85% of base acres**

Soybean: Marion County Payout for ARC-CO at $12.28/bu County yield < 21 bu/ac ARC-CO payment maxes out at $32.34/ac PLC < ARC-CO max unless prices fall below $ Farm Bill 11 **Units are $/acre. Remember payment is only on 85% of base acres**

Test Comparing the 2014 MYA Reference Price for 2014 ARC-CO vs. PLC Statute Price for Wheat *The monthly prices in black are NASS published prices, monthly prices in red are KSU estimates and all of the weights are KSU estimates.

Comparing the 2014 MYA Reference Price for 2014 ARC-CO vs. PLC Statute Price for Corn

*The monthly prices in black are NASS published prices, monthly prices in red are KSU estimates and all of the weights are KSU estimates. Comparing the 2014 MYA Reference Price for 2014 ARC-CO vs. PLC Statute Price for Sorghum

*The monthly prices in black are NASS published prices, monthly prices in red are KSU estimates and all of the weights are KSU estimates. Comparing the 2014 MYA Reference Price for 2014 ARC-CO vs. PLC Statute Price for Soybeans

What to choose? Election is for the life of the Farm Bill! Best fit for your farm will depend on your preferences for risk management Protection against catastrophic price declines (PLC) Protection against shallow revenue losses (ARC) Or…. Maximize Program payments (if any) Payment likely for some crops under ARC-CO (wheat-yield loss, others-price loss) and PLC (corn?/sorghum) How good you are at guessing where prices and yields will be in future years? 16

PLC vs. ARC PLC on wheat and soybeans is unlikely to pay in first year. ARC payment on wheat possible with low yields Sorghum MYA price at current levels will trigger PLC and ARC payments in first year. Corn is very close to the PLC reference price. The spread in PLC and ARC sorghum strike prices is less than it is for corn. Higher program yields increase the PLC. Major price drop ($2.50 corn) makes for a large PLC payment, ARC will max out quickly 17

ARC-CO vs. ARC-IC 85% of base vs. 65% of base All crops per FSA farm serial # count towards the guarantee, can’t pick and choose Paperwork will be more cumbersome Producers may see higher payments from ARC-IC if their individual yields are much greater than the county yield, assuming the stop loss is reached County Revenue Benchmark = $5.29 X 90 bu/acre = $ (stop loss $47.61) Individual Benchmark = $5.29 X 150 bu/acre = $ (stop loss $79.35) Less beneficial to diversified farms ARC-IC is based on the prior 5 year history of the crop that is planted, the crop planted determines the guarantee All farm serial numbers in the state of Kansas will be combined for the guarantee if all are enrolled in ARC-IC 18

Supplemental Coverage Option (SCO) Covers the deductible of the underlying insurance contract up to 86%. Triggers on losses at the county level. Some counties don’t have coverage offers greater than 75%, so SCO covers 11 points of deductible or more. Adds more protection. Can be purchased on all planted acres, so farmers with significantly more crop acres than base acres can add more protection. No payment limit, so large farmers that will hit the $125,000 cap on commodity programs can offset more risk with SCO. Risk averse corn-soybean farmers who are willing to forego a “likely small” ARC payment because they want to avoid a catastrophic price collapse by selecting PLC & SCO over ARC. 19

Maximum Payments $125,000 cap on payments ($250,000 husband/wife) $25/acre=5,000 acres $45/acre= 2,778 acres $65/acre= 1,923 acres Large Farmers may want to put enough commodity acres in to ARC to max out the $125K payment limit and the balance of other commodity acres in PLC, i.e. hedge their bets. 20

OSU-KSU Farm Bill Decision Aid 21  Microsoft Excel spreadsheet that can be downloaded to your computer at no cost  Input you own farm acres and yields to look at updated payment yield and reallocating base  Run scenarios with different price outlooks to evaluate program payouts for ARC, PLC, and SCO using your own farm data  The Marion County Extension office will be able to run the decision tool for your own farm numbers at a rate of $ per farm serial number

OSU-KSU Farm Bill Decision Aid by J. Campiche, E. DeVuyst, G.A. Barnaby, and M. Taylor 2014 Farm Bill

Excel-based spreadsheet Can be downloaded from Information you will need FSA report 156EZ for each farm FSA program yields Commodity base acres Farm yields APH/crop insurance information Expected plantings Updates continuously posted Monthly update of prices Please report errors or questions

Input your farm information Select your state, county Select your crops Data in spreadsheet for all states, counties, and crops Updates to these data will be made as FSA makes data available Data for each farm can be saved spreadsheet Allows you to run different yield and price scenarios without re- entering your farm data

APH From crop insurance records Will be used for SCO calculations FSA data Enter your base acres and program yields for all crops Decision to update based on calculations Notes in spreadsheet help

Updating yield and base? Results presented with higher of current/updated yields Results with both reallocated and current base

Next steps require your expectations of the future… Enter your plans for planted acres by crop Enter expected prices

Planting rotation going forward Kept the same here Matters if you want to buy SCO or opt for ARC-IC Price expectations Try good prices and bad 2017 has low prices (below the reference prices)

Now you can work on the programs…

ARC-IC Input projected yields Yields Use linear trend, average Custom yields (used APH) Prices Use FAPRI (2014) Custom prices (low in 2017)

ARC-IC Payments made on 65% of total base acres Penalty will be too high for most farms Other notes Paperwork burden higher for this program Changing your planted acres will change the coverage (not decoupled) Comparison to ARC-CO depends heavily on scenarios you pick

ARC-CO Input projected yields Yields Use linear trend, average Custom yields (in 2015) Prices Use FAPRI (for 2014) Custom prices (low in 2017)

ARC-CO Example 2015 is a drought year 2017 has low prices (below the reference prices) Payments in both years Either low yields or low prices will trigger ARC-CO Payment limits at 10% of county revenue NPV of payouts is greater for updated base acres ARC-CO will trigger for either low yields (2015) or low prices (2017) because it is based on revenue.

PLC example Payments triggered when prices fall below reference prices No per acre payments limits Highest payout 2017 due to low prices (below the reference prices) Updating base acres not impactful

SCO Stacked on your existing crop insurance Coverage up to 86% Same product as underlying crop insurance (e.g. RP, RP-HPE, Y) Coverage by county Only certain crops available More crops in future years Decision to enroll is annual Only get SCO with PLC! SCO payout for low county yield year only. Rest of years are a net cost (premium).

Results Calculated using the NPV of payments across all years for each crop and program combination Comparison of results using updated and current base acres Optimal program may vary by crop Differences between payouts may not be large and are highly dependent on data you enter.

Farm Bill In-Depth Educational Meetings: January 12: Wichita January 13: Pittsburg January 14: Emporia January 15: Ottawa January 20: Salina January 21: McPherson January 22: Pratt January 26: Goodland January 27: Scott City January 28: Liberal January 29: Dodge City February 10: Phillipsburg February 11: Hays February 12: Frankfort February 13: Atchison Thank you to our Premier Sponsors: Ag Risk Solutions ARMtech Insurance Services Farm Credit Associations of Kansas ProAg 37 Resources for you… Click on the Farm Bill Icon! Frequently Asked Questions Reallocating Base Updating Program Yield Articles on Price Forecasts Decision Tool Much more!!! USDA-FSA decision aids: ARC/PLC, Dairy

Questions? More information available at: 38