2012 or 2013 FarmBill For 2014 and Beyond

Signed Feb 7, years late 956 Billion over 10 years Farm Bill is a mis-nomer

Spending Breakdown Food Stamp Nutrition756 Billion Crop Insurance89 Billion Conservation56 Billion Commodity Programs44.4 Billion Everything Else 8.2 Billion

We are interested in 2 areas Crop Insurance 89 Billion – 66% Premium Subsidy for 75% RP – 65% Premium Subsidy for SCO Commodity Programs44.4 Billion – Replace Direct Payment – PLC or ARC to replace Direct Payment

Grain Producers did Well Gave up Direct Payment to get 5 year guarantee on crop insurance subsidy Opportunities and Decisions to replace Direct Payment - What we will spend the rest of the time on.

Models of the Commodity Title Very Complex and Complicated Gossip The final goal is to simplify these models so everyone can follow along

Choose ARC Choose PLC County Can choose to Update Payment Yield Base Reallocation Decision Choice Between ARC and PLC Individual Beginning in 2015 can choose SCO insurance option Flow Chart of Title I Producer Choices for Covered Commodities (Does Not Include Upland Cotton) Crop Insurance Title XI Title I

15% 10% 75% RISK MANAGEMENT Risk Left Over Risk 85% Covered by Normal Crop Insurance ARC/PLC tries to Handle this 10%

How do we handle this 10 % 3 Decisions you need to make – Update yieldsYes or No – Re-allocate Base Acres Yes or no – Make Election between PLC, ARC County or ARC Individual

Update Yields Yields come from 1985 Some were redone in % of the Average ( ) Only used for PLC, but would get lower yield off the books for future farm bills Almost everyone will want to update yield

Yield Updating YearCornWheat 2008DNP DNP DNP % T Yield CC Yield8520 Could Update to: ( )/2*.9 =112.5( )/5*.9 =21.6??

Re-Allocate Base acres Base acres also come from 1985 Our farming practices have changed since then You may not make new base acres on the farm Definite disadvantage to new grain producing areas Can get rid of Grain Sorghum, Barley, Etc. to reflect current cropping history

Base Acres (cont.) Current thinking – Corn payment> Wheat payment > Soybeans To maximize payments – maximize corn acres Unless you want the bases to more accurately reflect your farming operation for the future You can not pick and choose – just keep old or take new bases

15 Example 1. Multiple years corn Example 2. Alfalfa 2009 – 2011, corn in 2012 Example 3. Overplant base, same acres

Example

Should I reallocate? ARC-COPLCPLC + SCO CropReallocate BaseYesNoYesNoYesNo Grain Corn$9,537$12,176$11,489$14,670$15,432$18,612 Soybeans$6,953$8,506$2,745$3,358$4,184$4,797 Wheat$2,760$0$2,518$0$4,923$2,406 Reallocate BaseNo Reallocation CropProgramExpected PaymentProgramExpected Payment Grain CornPLC + SCO$15,432PLC + SCO$18,612 SoybeansARC-CO$6,953ARC-CO$8,506 WheatPLC + SCO$4,923PLC + SCO$2,406 Total$27,308Total$29,524 Combinations of ARC-CO, PLC, and PLC+SCO to Maximize Total Payments for the Farm

These are Land Owner Decisions As a tenant, you need to work together as these decisions will also help you General Rules Everyone update yields Update bases to maximize corn acres If Power of Attorney is worded correctly, producer can sign for decision

Producer Driven Decisions Election between PLC, Arc county and Arc Individual This is how you handle the 10 % Decision is determined by what you think prices will do in the next five years If you pick the wrong one – not the end of the world - remember crop insurance is the main safety net

Handling the 10% Do it yourself – buy up 85% revenue coverage -expensive Let the USDA do it for you – 75% revenue + ARC or PLC – cheaper 75 to 85% revenue coverage, PLC plus add SCO insurance

Price Loss Coverage (PLC) Based on Marketing Year Average Price – Sept to August for corn, soybeans – July to June for wheat Reference Price RP- MYAP x payment yield x 85% of base acres Reference Price – Corn $3.70 – Sbean$8.40 – Wheat$5.50 – G Sorghum$3.95 – Barley$4.95

SCO Insurance Supplemental Coverage Option Have to pick PLC Revenue insurance policy that covers from 75% to 86% (sounds good) Based on County yield - not your yields (not so good) You can have a loss – no county loss – no payment or vice versa Supposedly cheaper – seemed expensive for wheat this year

Average Revenue Coverage County (ARC county) Similar to old ACRE Program Based on county yields Marketing Year Price Sets up Rolling Average Revenue level – Olympic Average of Yield and Price – 86% of Benchmark Revenue – Payment limited to 10% of Benchmark – Paid on 85% of Base Acres

ARC Example Olympic Avg. MYA Corn Price = $5.30 and Olympic Avg. County Yield = 151 bu/ac. Benchmark Revenue = $800 = ($5.30 x 151) Revenue Guarantee = $688 = ($800 x 0.86) Maximum ARC-C Payment = $80 = ($800 x base acres Actual County Yield = 160 bu/acre and Actual MYA price = $4/bu. Actual County Revenue = $640 = (160 x $4) ARC-C Payment = $4,080 = ($688 - $640) x 100 x 85%

ARC Individual Extremely Complicated Uses your own farm data (that sounds good) Payments limited to 65% of base acres instead of 85% (that’s the bad part) Also it puts all crops on that farm together (that is bad) So if corn is bad but beans are good may not get a payment

Arc Individual Might be good if farm has only 1 crop Might be good if yields do not follow county yields Written for west of Mississippi where counties are huge and see major variances in county yields

Which Should I Choose for My Farm Everything depends on where you think prices are going to be in the next five years For PLC to make any payment – prices have to be below reference price Maybe for corn and wheat – probably not for soybeans For Arc county to make payment – yield or price down – Starting with a good revenue average

Decision Aids 2 decision aids to help farmers make decision Texas A&M and Illinois Texas A&M very in depth – will show the differences in re-allocating base acres – tends to steer to PLC – SCO Illinois tends to steer to ARC county If you fill out information sheet – you can enter in both relatively easy to compare

Information Sheet

Decision Aids Texas A&M – Illinois -

Conclusions Only effects 10% - not the end of the world Update yields – take the higher number Update bases – take more corn acres except for other reasons If you think prices will be below reference price next 5 years – PLC If you think prices may be above reference price – ARC county