Dr. Jody Campiche Oklahoma State University 2014 Farm Bill Commodity Programs

Disclaimer All analysis is based on my interpretation of the bill language. Some information in unknown since USDA has not published the regulations for implementation of farm bill programs. ARC and PLC calculations are based on various price and yield scenarios and do not reflect actual payments. The information provided in this webinar is designed to provide further understanding of new farm bill programs.

2014 Farm Bill Eliminated Programs CCP DP (except transition assistance payments for cotton) ACRE SURE New Programs Agriculture Risk Coverage (ARC) Price Loss Coverage (PLC) Supplemental Coverage Option (SCO) Stacked Income Protection Plan (STAX)

Summary of New Programs ARC – Revenue protection program similar to ACRE – used individual or county yield instead of state yield as in ACRE – sign up at FSA (not an option for cotton base) PLC- Price protection program similar to CCP – updated reference prices – sign up at FSA (not an option for cotton base) SCO – covers part of the deductible portion of an individual insurance policy – purchased through a crop insurance agent in addition to individual policy STAX – very similar to SCO but only for cotton

Cotton Since cotton is not eligible for ARC/PLC and STAX isn’t available until 2015, cotton producers will receive transitional payments Payment on 60% of base acres in 2014 Payment on 36.5% of base acres in 2015 (if STAX isn’t available in the county)

Choices 2014: 1. Retain or update base acres 2. Retain or update payment yields 3. Enroll in PLC or ARC (individual or county) 4. Chose individual insurance policy (RP, YP, other) coverage 2015: 1. If enrolled in PLC, option to enroll in SCO 2. Option to enroll cotton in SCO or STAX 3. Choose individual insurance policy (RP, YP, other) coverage

Commodity Program/Crop Insurance Choice

Base Update ARC/PLC paid on base acres (not including cotton base acres) ACRE was paid on planted acres, DP and CCP were paid on base acres Do NOT have to plant to receive ARC/PLC on base acres (not including cotton base acres) ARC/PLC payments are not automatic like direct payments Can receive ARC/PLC on cotton base acres if another crop is planted each year on those acres – year by year decision Option to retain or reallocate base acres (not including cotton base acres) to crops planted in

Base Update Reallocation is in proportion to the ratio of the 4-year avg of planted acres for each covered commodity Ex: Producer has 80 acres of wheat base In the past 4 years, has 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) Reallocation cannot increase base acres (still have the same amount in effect on Sept 30, 2013)

Cotton (or Generic) Base All existing cotton base acres on a farm are automatically converted to generic base Generic base is irrelevant unless a covered commodity is planted on the farm Cotton is no longer a covered commodity Generic base is assigned to that covered commodity for that crop year

Cotton (or Generic) Base Assume the farmer has 100 acres of generic base Example 1: Farmer plants 75 acres of peanuts. All 75 acres of generic base are assigned to peanuts. Example 2: Farmer plants 150 acres of peanuts. All 100 acres of generic assigned to peanuts. NOTE: The farmer cannot receive more than 100 acres of payments on generic base because he/she only has 100 acres of generic base. Example 3: Farmer plants 35 acres of peanuts and 35 acres of soybeans, for a total of 70 acres of covered commodities. Since that is less than the 100 acres of generic base, the farmer is paid on 35 acres of peanuts and 35 acres of soybeans. Example 4: Farmer plants 80 acres of peanuts (50%) and 80 acres of soybeans (50%), for a total of 160 acres of covered commodities. Since 160 acres is in excess of the 100 acres of generic base, the farmer is paid on a pro-rata share. Since 50% of the covered commodity acres are in peanuts, 50% of the generic base (or 50 acres) goes to peanuts. Since the other 50% of the covered commodity acres are in soybeans, the other 50% of the generic base (or 50 acres) goes to soybeans.

Yield Update Option to update payment yields Only applies to PLC in the 2014 farm bill ARC not tied to payment yields May still want to update yields even if enrolled in ARC Recent yields may be higher than historic yields Payment yields could be used in future farm bill programs

Yield Update Updated payment yield will be 90% of the average of the yield per planted acre for the crop years If the yield for any of the crop years is < 75% of the average of the county yields, a yield plug of 75% of the avg county yield will be used

PLC vs. ARC Commodity-by-commodity and farm-by-farm decision One time irrevocable decision in 2014 (for remainder of 2014 farm bill) All owners and tenants must make same choice (or default to PLC with no payments until the 2015 crop year – need to agree and make the decision in 2014!) Program choice follows land (in case the land is farmed by a different operator in a later year)

PLC vs. ARC Producers with cotton base will also choose ARC or PLC in 2014 in case they plant a crop other than cotton in a future year (even if they are planting cotton in 2014)

PLC: How does it work? Payment if actual price* < reference price Payment rate = (reference price – actual price 1 ) * payment yield * 85% * base acres 1 use the higher of national marketing year price or loan rate – unlikely for price < loan rate

PLC: How does it work? PLC Reference Prices PLC Payment on 85% of Base Acres Crop2008 FB CCP Target Price PLC Reference Price Barley Corn Cotton0.7125NA Grain Sorghum Peanuts Oats Rice Soybeans Wheat

PLC vs. County ARC PLCARC County Guarantee Reference PriceCounty Revenue Benchmark YieldFSA program yields5 yr Olympic Average county yield Benchmark PriceReference Price5 yr Oly Avg max (MYA Price, Reference Price) Benchmark GuaranteeReference Price86% * Benchmark Price * Benchmark Yield Actual YieldNACounty yield Actual RevenueNACounty yield * MYA Price Payment Acres85% * base acres85% * base acres (30% of PP) Maximum PaymentNone (except for $125K combined payment limit) 10% * Benchmark Revenue (and $125K combined payment limit)

ARC Individual  If ARC Individual is selected, election applies to all covered commodities on the farm  Calculations include the producer's planted acreage share in all farms for which Individual ARC has been selected  Payments triggered when actual revenue is less than the revenue guarantee  Payments on 65% of base acres

ARC Individual  Actual revenue is the weighted average of the actual revenues for each covered commodity  Weights assigned by the amount of acreage planted to each crop in each crop year  Actual revenue for each commodity = yield * MYA price  Benchmark revenue 1.Annual benchmark revenue for each commodity = yield * MYA price for each commodity for each year 2.Calculate the 5-year Olympic average benchmark revenue for each commodity (computed in #1) 3.Use Olympic average benchmark revenue for each commodity (computed in # 2) to compute a weighted average whole-farm revenue with weights based on planted acres of each commodity

Price Forecasts USDA February /142014/152015/162016/172017/ /19 Wheat Corn Soybeans Grain Sorghum FAPRI March 2013* 2013/142014/152015/162016/172017/ /19 Wheat Corn Soybeans Grain Sorghum *New FAPRI forecast available in March 2014

Wheat

PLC vs. County ARC WheatPLCARC County/Program Yield Yr Oly. Avg Price/Reference Price %/86% Coverage Revenue/Price Guarantee /15 MYA Price5.06 Actual YieldNA30 Actual RevenueNA Guarantee - Actual Payment Rate Max Payment RateNA19.57 Base Acres100 Payment Acres85 Payment$1,570.80$1,402.67

PLC vs. County ARC WheatPLCARC County/Program Yield Yr Oly. Avg Price/Reference Price %/86% Coverage Revenue/Price Guarantee /15 MYA Price6.45 Actual YieldNA22 Actual RevenueNA Guarantee - Actual Actual Payment Rate Max Payment RateNA18.27 Base Acres100 Payment Acres85 Payment$0.00$1,290.46

PLC vs. County ARC - Wheat

Corn

PLC vs. County ARC - Corn

Soybeans

PLC vs. County ARC – Soybeans

SCOSTAX PricesProjected Price = futures price at planting Harvest price = futures price at harvest County RevenueExpected county trend yield 1 * higher of (projected price, harvest price) Actual County RevenueActual county yield * harvest price Farm RevenueFarm APH yield * higher of (projected price, harvest price) NA Range of Coverage86% - individual policy coverage level Minimum of: 20% or 90% - individual policy coverage level Maximum PaymentRange of coverage * expected farm revenue Range of coverage * expected county revenue * payment multiplier Percent loss86% - (actual county revenue/expected county revenue) 90% - (actual county revenue/expected county revenue) PaymentMinimum of: maximum payment or (% loss * expected county revenue) Minimum of: maximum payment or (% loss * expected county revenue * payment multiplier) Premium Subsidy65% (producer pays 35%)80% (producer pays 20%) MultiplierNAUp to 120% 1 higher of expected county trend yield or 5 year moving avg county yield for STAX

Payment Limits/AGI $125,000 combined limit on ARC, PLC, MLG, LDP New regulations to define “actively engaged” One AGI Limitation of $900,000 for commodity and conservation programs (instead of separate farm/non-farm income limits)

Crop Insurance

Supplemental Coverage Supplemental Coverage Option (SCO) Available for commodities enrolled in PLC and cotton 65% subsidy Available in 2015 Stacked Income Protection Plan (STAX) Only available for cotton producers 80% subsidy Available in 2015

Other Permanent higher subsidy for enterprise units Separate enterprise units for irrigated/non-irrigated crops Different coverage levels for irrigated/non-irrigated crops Option to exclude certain yield history from APH database If county suffers a 50% yield loss, farmers in the county can exclude that year’s low yield out of their APH Revenue insurance for peanuts

Beginning Farmer/Rancher Premium assistance that is 10 percentage points higher Beginning farmer/rancher previously involved in farming operation assigned a yield that is the higher of APH of previous producer on the acreage Higher plug yield of 80% of applicable T-yield

NAP Producers may purchase NAP for crops/grasses used for grazing (at the CAT coverage level) Could also choose to enroll in the new Annual Forage (AF) insurance instead

Jody Campiche 528 Ag Hall