Associate Professor/Crop Markets Specialist The 2014 Farm Bill Ag Credit School Ames, Iowa June 6, 2014 Chad Hart Associate Professor/Crop Markets Specialist chart@iastate.edu 515-294-9911 1 1

Farm Bill Titles Commodities IX. Energy Conservation X. Hort. & Organic Ag. Trade XI. Livestock Nutrition XII. Crop Insurance Credit XIII. Commodity Futures Rural Development XIV. Miscellaneous Research XV. Trade & Taxes Forestry

Farm Bill Projected Spending 2014-2018 $489 Billion

Old vs. New Direct Payments (DP) Countercyclical Payments (CCP) Marketing Loans (LDP) Revenue Countercyclical Payments (ACRE) Countercyclical Payments (PLC) Marketing Loans (LDP) Revenue Countercyclical Payments (ARC) New programs, but they have strong similarities to previous programs

What Stayed the Same? Loan Rates Set by law Corn $1.95 Wheat $2.94 Soybean $5.00 Sorghum $1.95 Barley $1.95 Oats $1.39

Two Waves First wave: Choice on base acreage and yield updating Probably occurs late summer timeframe Second wave: Choice on farm bill programs Probably late fall/early winter Harvest the crop and farm bill at the same time

Base Acres Keep current base acres or do a one-time “reallocation” of base acres Reallocation allowed to covered commodities planted between 2009 and 2012 Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings Total number of base acres limited to total of existing base acres

Payment Yields Keep current CCP payment yield or do a one-time “update” of payment yield on a commodity-by-commodity basis Update: 90% of 2008-2012 yield per planted acre on the farm If the farm yield is below 75% of the 2008-2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield

Payment Acres For PLC and ARC at the county level, 85% of base acres For ARC at the individual level, 65% of base acres

Reference Prices Old Target Prices Reference Prices Corn $2.63 Wheat $4.17 Soybean $6.00 Sorghum $2.63 Barley $2.63 Oats $1.79 Reference Prices Corn $3.70 Wheat $5.50 Soybean $8.40 Sorghum $3.95 Barley $4.95 Oats $2.40

PLC instead of CCP Price-based support program Reference prices establish targets Works like CCP Payment rate = Max(0, Reference price – Max(MYA price, Loan rate)) Payment = Payment rate * Payment yield * Payment acres

PLC vs. CCP and DP

ARC instead of ACRE Revenue-based support program Revenues based on 5-year Olympic average yields and prices Yields and prices have cups (County T-yields and reference prices) Triggers at county or individual farm level, instead of state level

ARC Payment Rate Payment rate = Max(0, Min(10% of Benchmark revenue, Actual crop revenue – ARC guarantee)) So the basic payment structure is the same as it was under ACRE

Revenue Programs Think of ARC-County as crop-by-crop ARC-Individual Benchmark revenue 5-yr OA county yield * 5-yr OA MYA price Sum across crops of [5-yr OA (farm yield * MYA price) *crop acreage] Actual crop revenue County yield * Max(MYA price or loan rate) Sum across crops of [Farm production * Max(MYA price or loan rate)] / Total planted acres of all covered crops Revenue guarantee 86% of benchmark Think of ARC-County as crop-by-crop Think of ARC-Individual as whole farm

Producer Choice Have one-time choice between: PLC or ARC (can pick by commodity) If ARC is chosen, pick between county and individual coverage If individual coverage is chosen, must be taken for all covered commodities on the farm 2014-2018 crop years

The red line is the ARC-County payment trigger The red line is the ARC-County payment trigger. ARC payments are triggered when the combination of price and yield is below and to the left of the red line.

Supplemental Coverage Option (SCO) An additional policy to cover “shallow losses” Shallow loss = part of the deductible on the producer’s underlying crop insurance policy SCO has a county-level payment trigger Indemnities are paid when the county experiences losses greater than 14% Premium subsidy: 65% Starts in 2015 Can’t have ARC and SCO together

Supplemental Coverage Option (SCO) RP RPHPE YP

Three Choices PLC + SCO ARC-County ARC-Individual Price protection with top-up county-level insurance protection ARC-County County-level revenue protection based on historical averages ARC-Individual Farm-level revenue protection based on historical averages

Dairy Source: futurefordairy.com

Conservation Conservation Reserve Program 27.5 million acres in 2014 24 million acres in 2017 and 2018 Grassland enrollment capped at 2 million acres

Thank you for your time. Any questions. My web site: http://www. econ Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/~chart/ Iowa Farm Outlook: http://www.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/