The 2012, 2013, 2014 Farm Bill (The Agricultural Act of 2014)Will Snell – University of KY

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General Info About Farm Bill/Today’s Session

• USDA is working on regs … much still unknown

•Signup anticipated later this fall/winter

•Calculators and decision tools being devolved

•Today’s focus will be primarily on program crops

2014 Farm Bill

The 2014 Farm Bill Political Environment

•Record Federal Budget Deficit•Record Farm Income•Challenging Political Make-up in Congress

The Nutrition Title Dominated the Debate on the Current Farm Bill

• Senate: -- $4 billion of cuts in SNAP funding over 10 years

• House: -- $40 billion of cuts in SNAP funding over 10 years

• Final Result: 8 billion of cuts in SNAP funding over 10 years

2014 Farm Bill Expenditures (2014-2023)

Title Estimated Expenditures

(Billion Dollars)

$ Change (Billion Dollars)

% Change

Nutrition $756 - 8.0 - 1%

Commodity $44 - 14.3 - 24%

Conservation $58 - 4.0 - 6%

Crop Insurance $90 + 5.7 + 7%

Total $956 -16.6 - 2%

2014 Farm Bill ($956 billion/10 years)

Source: CBO

Other1%

Conservation6%

Nutrition79%

Crop Insurance

9%

Commodity5%

Major Ag Components of the 2014 Farm Bill

Covers 2014-2018 Crop Years Eliminates Direct Payments, Countercyclical

Program, and ACRE Creates a new price support (PLC) and a new

revenue program (ARC) Creates a new insurance option (SCO) Revises the Dairy Program Consolidates Conservation Programs

• Establishes a permanent livestock disaster program.

2014 Farm Bill

Grain Farmers Will Have to Make 3 Decisions Up Front For the Life of the 2014 Farm Bill

2014 Farm Bill Decisions for Program Crops (Corn, Soybeans, Wheat …)

1. Retain OR Reallocate Base Acres Reallocation based on share of 2009-

2012 acres planted for program crops Reallocation can’t exceed 2013 base

acres

2. Retain OR Update Program Payment Yields Update based on 90% of farm’s 2008-

2012 average yields

2014 Farm Bill Decisions Cont.

3. One-time, Irrevocable Option to Select One of the Following

Price Loss Coverage (PLC) – safety net for prices

Agricultural Risk Coverage (ARC) – safety net for revenue

County Individual farm

Decision must be agreed upon by all owners/tenants and will be in effect through 2018. --- if no decision, no payments for 2014, and default to PLC for 2015-2018.

(crop by crop decision)

(crop by crop decision)

(whole farm – all crops)

Price Loss Coverage (PLC)

Payment made when national marketing year average price is less than the fixed “reference” price

Reference Prices ($/bu)

Corn $3.70

Soybeans $8.40

Wheat $5.50

Payment = Payment Rate x Payment Yield x 85% x Base Acres

Option of purchasing additional subsidized insurance protection called Supplemental Coverage Option Insurance in 2015

Payment Rate: Reference Price – Marketing Year Avg. Price

Price Loss Coverage (PLC)Corn Example

Assumptions

• U.S. Market Year Average Price: $3.50/bu• Reference Price for Corn: $3.70/bu• Farm’s Payment Yield: 150 bu. • Farm’s Base Acres: 100 acres

Payment Calculations

Payment Rate = $3.70 (Reference Price) - $3.50 (Market Price) = $0.20/bu

PLC Payment = $0.20 (Payment Rate) x 150 (Payment Yield) x 100 (Base Acres) = $3000 x 85% = $2550 or $25.50/acre

Agricultural Risk Coverage (ARC)Two Options – County or Individual Farm

• County Coverage: • Payments made when Actual County Revenue is below County Revenue Guarantee

– Actual County Revenue = (actual average county yield) x (U.S. average market price)

– County Revenue Guarantee = 86% x benchmark revenue which is calculated as (average county yield over last five years (dropping high and low)) x (U.S. average price over last five years (dropping high and low))

– Payment Rate is capped at 10% of benchmark guarantee

– Payment acres = 85% of base acres• Individual Farm Coverage:

• Payments made when Actual Crop Revenue fall below Individual Revenue Guarantee– Actual Crop Revenue = (national average price) x (farm yield) x (weighted crop acres)

summed for all crops

– Individual Revenue Guarantee = 86% x benchmark revenue which is calculated as weighted average revenue of crops over last five years dropping out high and low

– Payment Rate is capped at 10% of benchmark guarantee

– Payment acres = 65% of base acres

Agricultural Risk Coverage (ARC) for Corn COUNTY

Year Price County Yield

2009 $3.70 152

2010 $5.18 151

2011 $6.22 150

2012 6.89 60

2013 $4.50 175

5 Year Olympic Avg. $5.30 151

Benchmark Revenue $800

County Guarantee 86% of Benchmark Revenue

$688

$5.30 * 151

$800 * 86%

Maximum Payment is 10% of Benchmark Revenue or $80/acre in this example

Agricultural Risk Coverage (ARC) for CornCOUNTY

U.S. Market Average Price $4.00

County Yield 160 bu/acre

Base Acres 100 acres

Actual County Revenue $4.00 x 160 = $640/acre

Benchmark Revenue $800/acre

Benchmark Revenue Guarantee $688/acre (86% x $800)

Payment Rate $688 (Guarantee) - $640 (County) = $48/acre

Payment $48 (Payment Rate) x 100 (Base Acres) x 85% = $4,080 or $40.80/acre

Agricultural Risk Coverage (ARC)INDIVIDUAL (75% Corn, 25% Soybeans)

CORN

Year Price Farm Yield

Farm Revenue

2009 $3.70 185 $685

2010 $5.18 175 $907

2011 $6.22 160 $995

2012 $6.89 75 $517

2013 $4.50 180 $810

SOYBEANS

Year Price Farm Yield

Farm Revenue

2009 $9.59 45 $432

2010 $11.30 30 $339

2011 $12.50 40 $500

2012 $14.40 40 $576

2013 $12.50 50 $625

Benchmark Revenue (Corn) ($685+ $907+810)/3 = $800

Benchmark Revenue (Beans): ($432+ $500+$576)/3 = $502

Farm Benchmark Revenue: ($800 x 75%) + ($502 x 25%) = $725

Farm Revenue Guarantee: $725 x 86% = $624

Maximum Payment is 10% of Benchmark Revenue or $72.50/acre in this example

Agricultural Economics

Agricultural Risk Coverage (ARC)INDIVIDUAL (75% Corn, 25% Beans)

U.S. Market Avg. Price for Corn $3.75/bu

U.S Market Avg. Price for Soybeans

$11.00/bu

Corn Yield 170 bu/acre

Soybean Yield 45 bu/acre

Base Acres 100

Individual Farm Revenue $3.75/bu x 170 bu/acre) x 75% + $11.00/bu x 45 bu/acre) x 25% = $602

Farm Benchmark Revenue $725

Farm Revenue Guarantee $624 ($725 x 86%)

Payment Rate $624 (Guarantee) - $602 (Indvidual) = $22

Payment $22 (Payment Rate) x 100 (Base Acres) x 65% = $1430 or $14.30 /acre

Early Observations on PLC vs ARC

• Selection on PLC vs ARC will depend on individual’s price expectations (and individual yields relative to county yields)

PLC Reference Prices ($/bu)

Corn $3.70

Soybeans $8.40

Wheat $5.50

• “If multi-year average prices for corn are expected to be over $3.70 over the next five years, ARC will provide better protection since PLC will never trigger payments. If prices are expected to be very low, averaging less than $3/bu, PLC will provide better support. Corn prices between $3 and $3.70 are more of a toss-up.” Jonathan Coppess and Nick Paulson, University of Illinois

• Decision-Making Tools being developed to assist producers

Source: FAPRI Briefing Book, March 2014

Payment Limitations

• Producers whose AGI exceeds $900,000 are not eligible to receive payments/benefits from FSA or NRCS programs

• Annual payment limits for PLC, ARC, LDPs, capped at $125,000/person or $250,000/ couple

• Separate $125,000 cap for livestock programs

• 2014 calls for USDA to define “actively engaged” to determine eligibility for payments

Conservation Programs

• Condenses the number of conservation programs from 23 to 13.

• Reduces the Conservation Reserve Program (CRP) maximum enrollment from 27.5 million acres in 2014 to 24 million acres in 2018

• Conservation Programs Reduced $4 billion/10 years, but EQIP funding increased by $0.5 billion/10 years

• Requires conservation compliance with highly erodible land and wetland conservation practices to be eligible for crop insurance premium subsidies.

Other Components

• Authorizes colleges, universities, and state departments of agriculture to develop pilot research projects for industrial hemp in states that have passed legislation supporting hemp production.

• Establishes a new dairy policy with an insurance product protecting dairy profit margins (based on difference of milk prices and feed costs)

• Reauthorizes a Beginning Farmer and Rancher Development Program

• Provides additional assistance for livestock disaster and specialty crop grants

Questions ?