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

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 ( ) TitleEstimated Expenditures (Billion Dollars) $ Change (Billion Dollars) % Change Nutrition$ % Commodity$ % Conservation$ % Crop Insurance$ % Total$ %

2014 Farm Bill ($956 billion/10 years) Source: CBO

Major Ag Components of the 2014 Farm Bill  Covers 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 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 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 if no decision, no payments for 2014, and default to PLC for (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 YearPriceCounty Yield 2009$ $ $ $ Year Olympic Avg.$ 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 Corn COUNTY U.S. Market Average Price$4.00 County Yield160 bu/acre Base Acres100 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 YearPriceFarm Yield Farm Revenue 2009$ $ $ $ $ $ $6.8975$ $ $810 SOYBEANS YearPriceFarm Yield Farm Revenue 2009$9.5945$ $ $ $ $ $ $ $ $625 Benchmark Revenue (Corn) ($685+ $ )/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 Yield170 bu/acre Soybean Yield45 bu/acre Base Acres100 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 ?