1. F ARM B ILL C HOICES : W HAT S HOULD C ROP F ARMERS D O ? Paul D. Mitchell Associate Professor, Ag and Applied Economics Farm Bill Update for Crop Producers November 11, 2014 Elmwood and Alma, WI Email pdmitchell@wisc.edu Office: 608-265-6514 http://www.aae.wisc.edu/pdmitchell/extension.htm Follow me on Twitter: @mitchelluw

2. Goal Today Overview how PLC (+SCO) and ARC work General rules of thumb to guide your decisions Decision aids you can use to work through your specific farms

3. Farm Safety Net $15 B Risk Management (field & specialty crops) $8.4 Billion Commodity Programs (field crops) $5.9 Billion Disaster Assistance (crops & livestock) $0.8 Billion Supplemental Revenue Assistance Payments Program (SURE) Ad hoc disaster payments Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program Emergency Disaster Loans Tree Assistance Program Livestock Forage Disaster Program Livestock Indemnity Program Crop Insurance $8.3 Billion Non-insured Disaster Assistance (NAP) $0.1 Billion Direct Payments (DP) $4.9 Billion Counter-Cyclical Payments (CCP) $0.559 Billion Average Crop Revenue Election (ACRE) $0.311 B Marketing Assistance Loans $0.225 B Loan Deficiency Payments (LDP) $0.225 B OR Average Annual Outlays Under 2008 Farm Bill Source: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdf

4. Farm Safety Net $15 bil Risk Management (field & specialty crops) $8.4 bil Commodity Programs (field crops) $5.9 bil Disaster Assistance (crops & livestock) $0.75B Supplemental Revenue Assistance Payments Program (SURE) Ad hoc disaster payments Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program Emergency Disaster Loans Tree Assistance Program Livestock Forage Disaster Program Livestock Indemnity Program Crop Insurance $8.3B Non-insured Disaster Assistance (NAP) $0.1B Direct Payments (DP) $4.9B Counter-Cyclical Payments (CCP) $0.559B Average Crop Revenue Election (ACRE) $0.311B Marketing Assistance Loans $0.225B Loan Deficiency Payments (LDP) $0.225B OR Average Annual Outlays Under 2008 Farm Bill Source: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdf $9.0B (+ 6%) $4.4B (-25%) $13.4B (- 10%) 2014 No Change

5. New Commodity Support Programs Price Loss Coverage (PLC) Establishes a price floor based on national marketing year average price Essentially Counter-cyclical payments, but higher prices Can buy Supplemental Coverage Option (SCO) crop insurance as an add-on option [later] Agriculture Risk Coverage (ARC) Establishes a revenue floor Essentially a new and improved ACRE program 1) County revenue by Crop (County ARC or ARC-CO) 2) Individual revenue for Whole Farm (ARC-IC)

6. Multi-Step Process with Different Deadlines Step 1: Keep or Update Yields Step 2: Maintain or Reallocate Base Acres Step 3: Elect PLC/ARC-CO/ARC-IC By 3/31/2015 Step 4: Consider SCO By 3/15/2015 Step 5: Enroll in PLC/ARC By Summer 2015 Farmers and land owners will have to choose PLC, County ARC by Crop or Individual ARC for Whole Farm Irrevocable choice for 2014 – 2018 crop years Plenty of time to make decisions By 2/27/15

7. Updating Yields and Base Acres Land owners and renters should have received a letter this summer Reported current base acres and yields by crop for each FSA farm Had 60 days to report errors

8. “If you determine that any of the data is incorrect, incomplete or missing, you must contact the county office where the farm is administratively located to provide documentation of your acreage as soon as possible, but no later than 60 days after receipt of this letter.” If correct data, do nothing!

9. Updating Base Acres Base acres haven’t been updated since 2002 Farm Bill, based on 1998-2001 plantings 2 Options 1. Keep current base acres 2. Keep same total base acres, but update shares to match 2009-2012 average shares Recommendation: Choose option that puts more acres into Corn: crop with the highest expected payments Pierce and Buffalo Corn > Soy > Oats Farm cannot increase total base acres, only reallocate total based on acreage shares planted during 2009-2012

10. Existing base acres: 57.0 soybean and 85.8 corn 2009-2012 Average Planted Acres: 81.45 corn, 67.15 soybeans, and 4.75 oats Farm shift: less corn, more soybeans, added oats Farm Payment Yields are quite low for Iowa: 32 bu/ac for soybeans and 109 bu/ac for corn Should this farm update Base Acres? (Yields?)

11. Base Acre Updating Tool http:/www.fsa.usda.gov/Internet/FSA_File/evaluate_arc_plc.pdf Scroll down, hit link, zip file to get Excel spreadsheet

12. Alternative enter data into an online tool: http://fsa.usapas.com/ http://fsa.usapas.com/

13. Alternative enter data into an online tool: http://fsa.usapas.com/ http://fsa.usapas.com/

14. Updating Payment Yields Payment yields haven’t been updated since 2002 Farm Bill, based on 1997-2001 yields 3 Options 1. Keep current yields 2. Update yields 3. Take FSA option if no yield data or don’t want to report Recommendation: Choose option that gives you the highest Program Yields Need production data to document yields, if insufficient records, get substitute yield = 75% county average

15. Yield Updating 1. Keep current yields 2. Update yields to 90% of your 2008-2012 average, with 75% county average as “substitute yield” if your actual yield lower 3. Take FSA offered option if no yield data = 75% of 90% of county average http://www.fsa.usda.gov/Internet/FSA_File/plc_subyields_web.xls Substitute Yields by Crop CountyCornWheatSoybeansOats Waupaca97.041.030.038.0 Waushara103.039.028.039.0 Winnebago97.050.032.049.0

16. Alternative enter data into an online tool: http://fsa.usapas.com/ http://fsa.usapas.com/

17. Alternative enter data into an online tool: http://fsa.usapas.com/ http://fsa.usapas.com/ Automatically uses substitute yields for your county

18. Multi-Step Process with Different Deadlines Step 1: Keep or Update Yields Step 2: Maintain or Reallocate Base Acres Step 3: Elect PLC/ARC-CO/ARC-IC By 3/31/2015 Step 4: Consider SCO By 3/15/2015 Step 5: Enroll in PLC/ARC By Summer 2015 Recommendations Choose option that puts most Base Acres into Corn Choose option that gives you the highest Program Yields Questions? By 2/27/15

19. New Commodity Support Programs 3 Options 1) Price Loss Coverage (PLC) Agriculture Risk Coverage (ARC) 2) County ARC (ARC-CO) by crop 3) Individual ARC (ARC-IC) for whole farm General Rule: Most farmers will find County ARC the best option Are you an exception?

20. Price Loss Coverage (PLC) Same as Counter-Cyclical Payments, but with higher “Reference Prices” Corn $3.70, Soybeans $8.40, Wheat $5.50, and Oats $2.40 If National Marketing Year Average Price is less than the Reference Price, PLC payments made PLC PaymentRate = ReferencePrice – MYAPrice PLC Payment = 85% x BaseAcres x PaymentYield x PLC PaymentRate Option to buy Supplemental Coverage Option (SCO), a new type of crop insurance [later]

21. Simple PLC Example Suppose National Marketing Year Average Price of corn is $3.50 The corn Reference Price is $3.70, so PLC Payment Rate = $3.70 – $3.50 = $0.20/bu If have 100 corn Base Acres with a Payment Yield of 110 bu/ac, then your PLC payment would be 85% x 100 ac x 110 bu/ac x $0.20/bu = $1,870

22. Supplemental Coverage Option (SCO) If you sign up for PLC, you have the option to buy SCO: allows you to insure part of your RP/YP deductible with a county policy (ARP/AYP) Layer individual & county coverage Can’t exceed 86% total coverage Add SCO to an RP policy to increase coverage up to the 86% maximum SCO will not pay until county loss exceeds 14% 65% SCO premium subsidy (farmer pays 35%) SCO available in 2015, only if choose PLC

23. Possible outcomes with RP plus SCO 1. SCO pays, but not RP 2. RP pays, but not SCO 3. Both SCO and RP pay 4. Neither SCO nor RP pays

24. Agriculture Risk Coverage (ARC) County ARC payments made if Actual County Revenue is less than County Guarantee County Benchmark = 5-Year Olympic Average County Yield x 5-Year Olympic Average MYA Price Use PLC Reference Price if higher than MYA Price Use 70% County T Yield if higher than County Yield County Guarantee = 86% of County Benchmark Actual Revenue = County Average Yield x MYA Price ARC Payment Rate = County Guarantee – Actual County Revenue, up to 10% of County Benchmark ARC Payment = 85% x Base Acres x ARC Payment Rate

25. Unofficial 2014 Corn Example St. Croix County YearYieldPrice 201385.44.46 2012165.66.89 2011164.66.22 20101725.18 20091673.55 Olympic Average Yield = 165.7 Olympic Average Price = 5.29 ARC County Benchmark = 5.29 x 165.7 = $876.55 ARC Guarantee = 86% x $876.55 = $753.83 Maximum ARC Payment = 10% x $753.83= $75.38

26. Unofficial 2014 Corn Example St. Croix County Hypothetical Example: Suppose 2014 County ARC Guarantee is $753.83 for corn in St. Croix County Suppose 2014 actual USDA yield in St. Croix County is 160 bu/ac and 2014 MYA corn price is $3.50 Actual revenue is 160 x 3.50 = $560/ac, triggers payment ARC Payment Rate = 753.83 – 560.00 = $193.38/ac, but exceeds max payment, so ARC Payment Rate = $75.38 ARC Payment = 85% x BaseAcres x ARC Payment Rate ARC Payment = $75.38 per corn base acre ARC pays well in times of long-term declining prices due to 5-year Olympic averages

27. Main Point County ARC is complicated and varies by county Main idea: like county-level revenue insurance with an 86% coverage level Difference Uses 5-Year Olympic Average prices and yield to determine guarantee Uses national marketing year average price as the actual price

28. Decision Aids: U of IL with USDA Funding http://fsa.usapas.com/ http://fsa.usapas.com/

29. ARC-CO SCO PLC

30. St Croix County

31. Buffalo County ARC-CO PLC + SCO

32. Pepin County ARC-CO PLC + SCO

33. Dunn County ARC-CO PLC + SCO

34. Eau Claire County ARC-CO PLC + SCO

35. Comparing Average ARC Payments ($/Ac) Across Counties (with CBO prices)

36. Main Point When choosing Base Acre Reallocation Corn > Soybean ≥ Wheat >Oats Get as many Corn base acres as you can What about County ARC versus PLC? Depends on prices use/assume, but generally ARC does better Tool has 3 options for average price 1) CBO futures prices: higher 2) USDA WASDE prices: lower 3) FAPRI price estimates: just below CBO

38. CORN SOYBEAN

39. ARC-CO PLC + SCO

40. ARC-CO

41. PLC + SCO ARC-CO

42. ARC versus PLC for Corn and Soybean If your focus is on total payments, which is better depends on where you think crop prices are going over the next 5-6 years If you are optimistic on corn prices, ARC does better than PLC + SCO: (Pierce ~$15) If you are pessimistic on corn prices, PLC + SCO does a better than ARC: (Pierce ~$3) ARC on soybean always does better than PLC + SCO by $5-$10/ac Similar trends for corn and soybeans in different counties, but dollar amounts differ

43. ARC versus PLC Corn & Soybean: ARC much higher than PLC if average to high prices, only a little less than PLC if low prices If PLC beats ARC, on average it will not be by a lot For most farms, ARC will do just fine and not be much less than PLC payments if PLC turns out to be better Note: PLC also requires buying SCO too: more money up front and more paperwork Wheat/Oats: PLC seems better: about same as ARC if average to high prices, much better than ARC if low prices Reduce crop insurance coverage level and rely more on SCO to increase payments and reduce insurance costs? Can mix ARC and PLC across crops if you want

44. Individual ARC Based on revenue from all program crops as a whole for an FSA farm, not crop by crop Create a whole farm revenue guarantee and receive payment if actual revenue less than guarantee 65% of the payment gap, up to 10% of County ARC guarantee Like 86% whole-farm revenue coverage Acreage-weighted average of each crop’s revenue Use farm historical yields and national prices, but use Olympic averages Complicated and detailed program: if interested, use the tool and try your farm details and see what you get

45. Multi-Step Process with Different Deadlines Step 1: Keep or Update Yields Step 2: Maintain or Reallocate Base Acres Step 3: Elect PLC/ARC-CO/ARC-IC By 3/31/2015 Step 4: Consider SCO By 3/15/2015 Step 5: Enroll in 2014 PLC/ARC By Summer 2015 By 2/27/15

46. Quick Summary Relax, plenty of time to make decisions 2/27/15 for base acre/yield updates 3/31/15 for PLC/ARC election choice 3/15/15 if want SCO crop insurance with PLC Summer 2015 to signup Start playing with the tool: http://fsa.usapas.com/http://fsa.usapas.com/ For most farms 1) Updating yields will be worth it 2) Updating base acres if you can get more corn or soy/wheat base acres will be a good idea 3) County ARC a fine selection for corn & soybeans, but consider PLC + SCO for wheat/oats

47. Quick Summary More presentations will be occurring around the state Expect/watch for announcements We are doing training sessions with several county agents so they can do presentations and answer questions Focus will be on the decision tool http://fsa.usapas.com/http://fsa.usapas.com/ Great outreach information http://farmbilltoolbox.farmdoc.illinois.edu/

49. FarmDoc Webinars http://farmbilltoolbox.farmdoc.illinois.edu/webinars.html

50. Thanks for Your Attention! Questions? Paul D. Mitchell Agricultural and Applied Economics University of Wisconsin, Madison, WI pdmitchell@wisc.edu 608-265-6514 http://www.aae.wisc.edu/pdmitchell/extension.htm Follow me on Twitter: @mitchelluw

51. SCO sold for winter wheat earlier this fall Could sign up for wheat SCO this fall Problem: Can’t sign up for PLC to be eligible for SCO Have until Dec 15 th to make final decision, which is still before PLC deadline Corn and soybeans next spring: can signup for SCO, then decide on PLC/ARC signup by March 31 Counties with SCO available for winter wheat