Farm Bill 2014 “Agricultural Act of 2014” Commodity Title Options Crop Insurance Changes for 2015

DISCLAIMER  The following information is provided utilizing the current understanding of recently passed legislation  As the rulemaking process has not been completed at this time, it needs to be understood that changes can occur once all rules are finalized  Farmers choices will be affected by implementation rules currently being developed

FARM BILL OVERVIEW  Signed into law February 7, 2014  5 year bill  Covers crop years 2014 – 2018  Enrollment expected to begin fall of 2014  $956 billion total cost over 10 years  79% ($756 b) of expected cost in SNAP  Cut $8.6 billion from SNAP over 10 years by closing heating aid loophole-will not lead to any cuts in Illinois  Can double SNAP $ value at farmers markets

USDA’S ESTIMATED TIMELINE  April 15: Livestock Indemnity Program signup  Fall: publicize final program rules/regulations for PLC & ARC this fall  End of 2014/early 2015: Enrollment for PLC & ARC  End of 2014/early 2015: Farmers allowed to update yields & bases  End of 2014: Implementation of beginning farmer provisions to make credit more easily available  End of 2014: Propose Actively Engaged definition  Early 2015: New crop insurance provisions implemented by RMA

KEY COMMODITY TITLE PROVISIONS  Eliminates Direct Payments  Modifies target price program  Replaces CCP with Price Loss Coverage  Modifies revenue safety net  Replaces ACRE with 2 Ag Risk Coverage (ARC) options: 1.County ARC 2.Individual Farm ARC

KEY COMMODITY TITLE PROVISIONS  Payment limits: $125,000 for all payments combined (not including crop insurance claims)  Can double if married, joint operation  Eligibility: 3 year Adjusted Gross Income of $900,000  USDA has ability to modify Actively Engaged in Farming rules in rule making process-define “significant contribution of active personal management”

2 UPDATE OPTIONS 1.Base Acreage: One time choice to maintain or reallocate base  Not mandatory, voluntary option  Cannot increase total base  If updated, crop years average planted acres on each farm for harvest, haying, grazing and silage  Also includes prevent plant acres  Failure to make election defaults to current base allocation  Base can be adjusted for acreage coming out of CRP

2 UPDATE OPTIONS 2.Payment Yields: Used only in PLC  One time choice to: 1.Maintain current payment yields used in 2008 farm bill for Counter-Cyclical Payment program 2.Update payment yields;  90% of yields

NON-RECOURSE MARKETING LOANS  Same loan rates as 2008 farm bill (except cotton)  $1.95 Corn (national average)  $5.00 Soybeans  $2.94 Wheat  Loan Deficiency Payments (LDPs)  Loans available regardless of PLC or ARC choice

SAFETY NET OPTIONS For each FSA farm, safety net options include one time irrevocable choice of PLC (price) or ARC (revenue)  On a covered crop by covered crop basis; 1.Price Loss Coverage (PLC)  Only choice if you want SCO 2.County level Ag Risk Coverage (ARC-County)  On a whole farm basis; 3.Farm level Ag Risk Coverage (ARC-Individual)

SAFETY NET OPTIONS  ARC offers revenue coverage, county or farm  ARC choice must be unanimous amongst all farm partners  Default choice is PLC  If no choice is made, 2014 payments are forfeited and all commodities are in PLC beginning with 2015 crop year

PRICE LOSS COVERAGE (PLC) Target price program in which prices are established for life of bill, do not change  Reference Prices:  $3.70 corn  $8.40 soybeans  $5.50 wheat  $2.50 Oats Payment rate = 85% of base acres

PRICE LOSS COVERAGE (PLC) Payments occur when the higher of: a)crop year’s National Average Market Price, or b)loan rate, is below the reference price NAMP = average price received by producers during 12 month marketing year for that crop (starting Sept. 1 for corn & beans)

PLC EXAMPLE NAMP = $3.55/bushel for corn Farm’s payment yield = 150 bushels/acre Corn base = 100 acres Payment rate: $.15/bu ($3.70-$3.55) Payment = $1,913 ($.15 x 150 x 100 x.85) Payment/acre = $19.13

ARC - COUNTY  County level revenue protection  Benchmark revenue guarantee = 86% of:  Yield = 5 year Olympic rolling average (Individual yields cannot be less than 70% of t-yield)  Price = 5 year Olympic rolling average of higher of NAMP or loan rate (Individual prices cannot be less than reference price)

ARC - COUNTY  Actual county revenue:  Final county yield, times  NAMP for that crop year  Payment rate:  Benchmark Revenue – Actual Revenue  85% of farms base acres  Maximum payment = 10% of benchmark revenue

ARC – COUNTY Benchmark Revenue Calculation O. Avg. County Yield Price$3.70*$5.18$6.22$6.89$4.50$5.30 * NAMP was actually $3.55, replaced with minimum of $3.70 Benchmark Revenue = $912/acre (172 x $5.30)  Max payment = $91/acre ($912 x 10%) Guarantee: $784/acre ($912 x 86%)

ARC – COUNTY Payment Example NAMP: $3.90 (USDA estimate) Final county yield: 180 (trend) Corn base: 100 acres  Actual revenue = $702 ($3.90 x 180)  Payment Rate: $82/acre ($784 - $702 = $82)  Payment = $6,970 ($82 x 100 x.85)  Payment/acre = $69.70

ARC – INDIVIDUAL (FARM LEVEL)  Farm level revenue protection  Whole farm revenue  Sum of revenue from all covered commodities combined across all FSA farms in the state that you have a share in  Planted acres determine weighting in benchmark revenue  Payment rate: 65% of base acres

ARC – INDIVIDUAL (FARM LEVEL)  ARC-Individual will make payments when a farm’s actual revenue falls below 86% of benchmark revenue  Benchmark revenue equals sum of each crops’ benchmark weighted based of planted acres  Actual revenue equals sum of each crops’ revenue ( NAMP x farm yield) weighted base of planted acres

ARC – INDIVIDUAL EXAMPLE In the following example one FSA farm with 100 total base acres will be used No other farms are enrolled in ARC – Individual in this example In 2014, the farm plants:  60% of acres in corn  40% of acres in soybeans

ARC – INDIVIDUAL EXAMPLE EACH CROP’S BENCHMARK REVENUE CornSoybeans YearPrice Farm YieldRevenue*Price Farm YieldRevenue* 2009$ $688$9.5954$ $ $881$ $ $ $995$ $ $ $758$ $ $ $855$ $675 *Revenue equals maximum of NAMP or reference price ($3.70 for corn, $8.40 for soybeans) times farm yield Each crop’s benchmark revenue equals Olympic average of revenues:  Corn: $831 = ($881 + $758 + $855) / 3  Soybeans: $681 = ($667 + $700 + $675) / 3

ARC – INDIVIDUAL EXAMPLE BENCHMARK REVENUE & GUARANTEE Benchmark Revenue weights each crop’s benchmark revenue by proportion of program crop acres planted on ARC-Individual farms Corn Soybeans $831 x.60 + $681 x.40 = $771 Guarantee = 86% of benchmark revenue: $771 x.86 = $663 guarantee

ARC – INDIVIDUAL EXAMPLE ACTUAL REVENUE A farm’s revenue equals each crop’s revenue weighted by proportion of acres:  $3.90 NAMP corn price (USDA est.)  180 bushel per acre corn yield (trend)  $9.65 NAMP soybean price (USDA est.)  56 bushel per acre soybean yield (trend) Actual Revenue = $637.6 x ($3.90 x 180) +.4 x ($9.65 x 56)

ARC – INDIVIDUAL EXAMPLE PAYMENT RATE Payment rate equals guarantee minus revenue: $663 Guarantee - $637 Revenue = $26 Rate Rate cannot be more than 10% of benchmark revenue ($771 x.10 = $77) Rate cannot be less than one

ARC – INDIVIDUAL EXAMPLE PAYMENT Payment equals payment rate x 65% of base acres:  $26 payment rate  100 base acres Payment = $1,690 ($26 x 100 x.65) Payment/acre = $16.90

SUMMARY OF CHOICES Price Loss Coverage  Fixed reference target price program  Max payment rate: Reference price – national loan rate  Payments on 85% of a crop’s base acres ARC – County  Revenue program: 5 year Olympic avg. of county yields &NAMP  Separate guarantee for each crop  Guarantee = 86% of benchmark revenue  Max payment = 10% of benchmark revenue  Payments on 85% of crop’s base acres ARC – Individual  Revenue program: 5 year Olympic avg. of farm yields & NAMP  Whole farm program for covered crops  Max payment: 10% of benchmark revenue  Payment on 65% of total base acres

CHANGES TO CROP INSURANCE Going into effect in 2015:  Enterprise unit subsidies made permanent  In 2015 separate enterprise units for irrigated vs. non- irrigated  Can have separate coverage levels for irrigated vs. non- irrigated  Yield plugs increase from %  An individual year’s yield can be dropped from APH database if that years yield is at least 50% below 10 year county average

CROP INSURANCE CONT’D:  Supplemental Coverage Option (SCO):  Available beginning in 2015  Coverage = between 86% and crop insurance coverage level selected  Triggered only if losses exceed 14%  SCO is county based coverage  Matches underlying crop insurance coverage (yield or revenue, HPO)  SCO only available with PLC, no SCO if ARC is chosen

PROS & CONS OF SCO Pros  Offers 1 st time ever ability to insure part of crop insurance deductible  65% subsidy level  Provides protection on planted acres as opposed to base (PLC & ARC)  Not subject to payment limits  Not subject to AGI eligibility test Cons  County based coverage, not popular in IL crop insurance usage  Eliminates ARC options  Will be tough to fully evaluate without knowing true cost  Normally crop insurance rates aren’t established and known until December and premiums until March and farm bill sign up will likely occur and end before that

CROP INSURANCE CONT’D:  Beginning farmers:  Yield plug of 80% rather than 70%  Extra 10% premium assistance  No AGI test  Conservation Compliance  Re-tied to crop insurance for first time since 1996  Rules still being written

CONSERVATION COMPLIANCE  Most producers already in compliance  First timers;  Highly erodible lands-5 reinsurance years to develop and comply with an approved conservation plan to remain eligible for insurance subsidies Those determined to be in violation have two reinsurance years to develop and comply with an approved conservation plan

CONSERVATION COMPLIANCE  First timers, cont’d;  Wetlands - 1 reinsurance year to begin to remedy a violation before being declared ineligible However, if you convert a wetland to cropland from now on, you will be ineligible for a premium subsidy in future years unless you mitigate the conversion  New requirements are prospective rather than retrospective  What counts is what you do after start of new farm bill

FARM BILL WEBINARS 1.Commodity Title Options: Wednesday, April 2 at 8:00 a.m., Doug Yoder  Marketing Loans  PLC  ARC County  ARC Individual 2.Crop Insurance Changes/Supplemental Coverage Option (SCO) Wednesday, April 9 at 8:00 a.m., Doug Yoder 3.Dairy Provisions/Livestock Disaster Provisions Late April, Jim Fraley Check or FarmWeekNow.com for more information and to registerwww.ILFB.org/farmbill