The 2014 Farm Bill implemented major changes to commodity programs for United States farmers. Under this new bill, there are numerous decisions that must be made by farmers in the coming months that will impact payments they will receive in the next several years. It is important for farmers to understand the decisions that must be made and be aware of the decision-aid tools available to help analyze the best decision possible for their operation.
Initially, it is important for farmers to determine if their crops are “covered commodities” under the bill, and thus eligible for payment. The following crops are covered under the 2014 Farm Bill: barley, canola, corn, crambe, flaxseed, garbanzo, grain sorghum, lentils, mustard seed, oats, peanuts, peas (dry), rapeseed, rice (long grain and medium grain), safflowers, sesame seed, soybeans, sunflower, and wheat. Cotton is no longer a covered commodity under this bill. Cotton farmers, then, will not receive payments pursuant to the ARC/PLC programs below, but are available for the STAX insurance program, administered by RMA.
There are essentially four decisions that must be made by farmers in the coming months.
Reallocation of Base Acres. Under the current Farm Bill, landowners have the option to reallocate their current FSA base acres. This is an irrevocable, one time decision that will remain in place through at least 2018. Program payments are based not on the acres actually planted, but on the base acres on file with FSA, so farmers should carefully consider this option. Farmers may leave their base acres as they currently are, or may reallocate the distribution between the crops they have grown in the last four years (2009-2013). Importantly, although base acres may be reallocated, the total base acres may not be increased. Generic base acres, that is the old cotton base acres, may not be reallocated or expanded.
Because cotton is no longer a covered commodity, base acres previously designated as cotton are now considered “generic base acres” and producers will receive payments on these acres if they are actually planted to a covered commodity. This designation of generic base acres to a covered commodity is made on an annual basis.
For anyone involved in a farm lease, it is the landowner who makes the decision whether to reallocate base acres. The deadline for this decision is February 27, 2015.
Updating Yields. Landowners also have the opportunity to update their farm program yields. Like the reallocation decision, this is an irrevocable one time decision remaining in place through at least 2018. Farm program yields are considered in determining payments to farmers under both the ARC and PLC programs in the 2014 Farm Bill. Farmers have the option of utilizing the current yield numbers at FSA, or updating their yields to 90% of the yields for planted crops from 2008-2012. Basically, a farmer would want to update yields if he or she had good years from 2008-2012 and doing so would increase the yields on which the farmer is paid.
As with the reallocation of base acres, this decision is made by landowners (as opposed to tenants) and the deadline is February 27, 2015.
ARC or PLC. Under this Farm Bill, the previous direct payments, counter-cyclical (CCP) payments, and ACRE are no longer available to farmers. Instead, there are two separate payment programs between which farmers of covered commodities must select: ARC or PLC. This is a one-time decision and whichever program is selected will remain in place until 2018 through the life of the farm bill. This decision is made by crop, by farm. This means that one farmer could, for example, place his or her corn field in the ARC program and his or her sorghum field in PLC.
Price Loss Coverage (PLC) is essentially a counter-cyclical payment program that is considered to provide deep loss coverage. Payments are issued to producers when the effective price (greater of the national market average price or the loan rate) of a covered commodity is less than the established reference price. For example, the reference price for grain sorghum is $7.05/cwt ($3.95/bu). If the effective price is only $6/cwt, the producer will receive a payment. If, on the other hand, the effective price is $8/cwt, no payment will be made.
Ag Risk Coverage (ARC) is a revenue based, shallow loss program. Payments will be issued to producers if the actual county revenue for a particular crop is less than the ARC guarantee for the covered crop. The guarantee is based on 86% of the previous five-year Olympic average national farm price and county yields, and therefore will likely change from year to year.
This decision must be made between November 17, 2014 and March 31, 2015. Failure to make a selection will result in the farm being placed in PLC beginning in 2015 and will receive no programs payments for 2014.
A note for landlords and tenants: For anyone involved in a farm lease, please take note of who makes this decision. The ARC/PLC election is made by “producers.” Producers are defined as anyone sharing in the risk of production. For example, if a landowner and a tenant enter into a crop share lease, both the landowner and tenant must make a unanimous decision on which program will be selected. If a unanimous selection is not made, the farm will not be eligible for 2014 payments and will be placed in PLC for the remainder of the 5 year period.
If, however, a cash lease is used, the landowner is not considered a “producer.” This means that the landowner would have no input into this decision, even though it would impact his farm for the next 5 years. For example, if the landowner and tenant had only a one year cash lease, which ended in 2015, the land would remain in the plan selected by the tenant through 2018 although the lease terminated and the tenant moved on. This is extremely important for cash lease landowners to be aware of.
SCO Insurance Option. Lastly, there is a crop insurance option called the supplemental coverage option “SCO.” This insurance is available only for crops that are not enrolled in the ARC program. This would include any crops placed in the PLC program as well as cotton. Crop insurance deadlines apply to this decision.
Texas A&M Agriculture and Food Policy Center Decision Aid
There are several decision aid tools available to assist producers in making the above listed decisions. The Agriculture and Food Policy Center at Texas A&M University has developed a decision aid that will allow farmers to enter their information and evaluate each of these decisions. The decision aid is available free of charge here. Additionally, Dr. Joe Outlaw has recorded a series of podcasts addressing these issues, which are available here.
In order to effectively utilize the decision aid, a farmer will need the following information: (1) FSA reported crop history summary report; (2) 2014 schedule of insurance for all crops; and (3) insurance actual production history (APH) report for all crops. The decision aid will also require basis information be included, but estimates of this information are available within the decision aid.