THE 2010, 2011, 2012, 2013, 2014 FARM BILL! Michele C. Marra, Professor Agricultural and Resource Economics October 27, 2014

Why Do We Support Farmers?  The Jeffersonian Ideal - Something inherently good about tilling the soil - Something inherently good about rural life  The farm lobby and the bicameral congress Agri-Analytics, Inc.

Copyright  Nick Piggott Agriculture’s Share (Non-Nutrition) Agriculture’s Share of the U.S. Budget

Composition of Farm Bill Funding

BASIC GOALS OF THIS FARM BILL  Reduce overall funding  Move programs toward providing a safety net, rather than direct support  Provide choices for the safety net  Tie safety net to conservation

Copyright  Nick Piggott Crop Insurance  Just like car insurance or homeowners’ insurance in principle  Premiums subsidized by the Federal government – Risk Management Agency  Separate system of insurance agents and support people. Agri-Analytics, Inc.

CROP INSURANCE AND COMMODITY PROGRAM CHANGES  Expand crop insurance policies to new crops/enterprises  Provide “shallow loss” protection  Require growers to have a conservation plan filed with NRCS to be eligible for coverage.  Enhance the non-insured assistance program (NAP)

Copyright  Nick Piggott Shallow Loss Programs  Designed to complement, not replace crop insurance  Can insure against price decreases or revenue decreases  Very complicated decision process Agri-Analytics, Inc.

Copyright  Nick Piggott The Sausage Being Made … Agri-Analytics, Inc.

Copyright  Nick Piggott Agri-Analytics, Inc. Agricultural Risk Coverage (aka ARC-CO and ARC-IC)  ARC-CO is coverage on a covered commodity by covered commodity basis  Provides revenue loss coverage at the county level  Pays if county-level revenue is less than the “benchmark” revenue, which is the product of Olympic average county yield x (market year average price or 2014 loan rate)  Payment is 86% of ARC-CO benchmark

Copyright  Nick Piggott Agri-Analytics, Inc. Agricultural Risk Coverage (aka ARC-CO and ARC-IC)  ARC – IC provides revenue loss coverage at an individual farm level  Provides revenue coverage when farm level revenue (across all covered crops) falls below 86% of the farm benchmark revenue.  Farm benchmark revenue is the average of the farm’s yield for each crop x (the higher of the reference price or the MYA price). Reference prices are fixed in the law.

Copyright  Nick Piggott Agri-Analytics, Inc. Price Loss Coverage (aka PLC)  Provides protection against losses due to price only  Pays when the effective price of a covered commodity is less than the reference price for that commodity.  Effective price is the higher of the MYA price or the national average loan rate for the covered commodity  Payment amount is equal to 85% times the base attributable to the covered commodity x the payment rate for the covered commodity

Copyright  Nick Piggott Agri-Analytics, Inc. Price Loss Coverage (aka PLC) (cont.)  Payment rate is the (difference between the reference price and the effective price) x the program payment yield for the covered commodity.

Copyright  Nick Piggott Agri-Analytics, Inc. Supplemental Coverage Option (aka SCO)  Optional program to supplement individual crop insurance coverage by insuring a portion of the individual farmer’s insurance deductible  The program provides coverage based on county average yield or revenue and will be made available beginning with the 2015 crop. The program will provide subsidies to producers of 65 percent of their premiums.  SCO coverage is not available to producers who elect to participate in either the Agriculture Risk Coverage (ARC) program.  Like regular crop insurance, not subject to payment limits.

Copyright  Nick Piggott Agri-Analytics, Inc. Base and Yield Updates  All growers should update their yields for a covered commodity with FSA if 90% of their average yield (excluding yrs. when the crop wasn’t planted) is greater than their current counter-cyclical yield.  The base reallocation decision is more complicated and is intertwined with the ARC/PLC choice.

Copyright  Nick Piggott Agri-Analytics, Inc.

Copyright  Nick Piggott Agri-Analytics, Inc. Conclusions and Implications  This farm bill presents very data intensive and complex choices for each farmer.  It is evident that farmers will need to rely on decision tools for these complex choices.  Texas A&M decision tool best for our area:

Copyright  Nick Piggott  The deadline for making the decisions is February 28, 2015 Agri-Analytics, Inc.

Copyright  Nick Piggott RESOURCES AVAILABLE AT: RMA.USDA.GOV – FARM BILL AND RISK MANAGEMENT FSA.USDA.GOV- FARM BILL OVERVIEW AND DECISION TOOLS