2014 Farm Bill. Jay Yates Extension Program Specialist III Risk Management

Transcription

1 2014 Farm Bill Jay Yates Extension Program Specialist III Risk Management

2 Presentation Disclaimer This Information is Based on Our Reading of the Bill and Discussions with Ag Committee Staff As in the Past, We Know There Will Likely Be Differences in Our Interpretation and the Final Regulations

3 Cotton Council Producer Meetings West Texas Amarillo March 19, 2:30 p.m. AgriLife Extension Center, 6500 Amarillo Boulevard West El Paso March 21, 9:00 a.m. Wyndam Hotel Theater Room, 2027 Airway Boulevard Garden City March 18, 9:00 a.m. Glasscock County Community Center, 117 South Myrl Street Haskell March 19, 2:00 p.m. Haskell Memorial Civic Center, 202 South Avenue B Lamesa March 17, 9:00 a.m. Leroy Colgan Building, South 10th Street & South Houston Street at Forrest Park Muleshoe March 18, 2:00 p.m. Bailey County Electric Cooperative, 610 East American Boulevard Plainview March 19, 9:00 a.m. Plainview Country Club, 2902 West 4th Street Roby March 19, 9:00 a.m. Roby Community Center, near intersection of Hwy 180 & Hwy 70 San Angelo March 18, 1:30 p.m. AgriLife Extension Center, 7887 US Highway 87 North Seminole March 17, 2:00 p.m. Old City Hall Ambassador Room, 101 Avenue A Lubbock March 18, 9:00 a.m. Bayer Museum of Agriculture, 1121 Canyon Lake Drive

4 Southwest Council of Agribusiness Farm Bill Forums (West Texas) Date March 18 th (May Change) March 19 th March 20 th March 21 st Location Stamford Lamesa Lubbock Amarillo

5 The $956 billion farm bill, in one graph

6 Basic Provisions Food stamps & nutrition - $756 billion ($8 billion less) Commodity programs - $44.4 billion ($14 billion less) Crop Insurance - $90 billion ($7 billion more) Trade assistance - $3.5 billion (same) Energy - $1.1 billion (small cut) Miscellaneous - $2.3 billion Forestry Rural Development Research Extension Farmers Market

7 Basic Provisions Food stamps & nutrition - $756 billion ($8 billion less) Ending the heating loophole Heat & Eat Eligibility clarification so that affluent college students, lottery winners & undocumented immigrants don t receive SNAP Funds pilot projects to encourage SNAP recipients to look for work Increase funding to food banks Improve access to healthy foods by allowing recipients to make purchases at farmers markets by swiping SNAP cards on mobile devices

8 Source: Compiled from CBO estimates, January 28, 2014 Change in Estimated Outlays Relative to the Baseline for 2014 Farm Bill (Billion $), 2014 to Commodity Programs Conservation Programs Nutrition Programs Crop Insurance

9 Basic Provisions Commodity programs - $44.4 billion ($14 billion less) Ends Direct, Counter-Cyclical and ACRE Payments. CCP and ACRE extends through 2013 crop year. Permanent laws of 1938 and 1949 are not repealed. For the 2014 crop, producers must choose between the Agriculture Risk Coverage (ARC) program and Price Loss Coverage (PLC), even for future crops on generic base. During the farm bill debate, ARC was often referred to as a shallow loss program and PLC a deep loss program Regardless of which program is chosen the first payment (if any is due) will not be made until after September 30th 2015 for the 2014 crop

10 Basic Provisions Commodity programs Base & Yield Producers will also have the opportunity to reallocate their base acres to crops planted on the farm at any time during the 2009 to 2012 crop years (4-year average) Cotton base acres are now generic base acres If producers choose the PLC option they have the opportunity to update their payment yields to 90% of the crop year averages

11 Basic Provisions Commodity programs Participation Decision Producers will make a 1-time, irrevocable decision to participate in ARC or PLC in 2014 for the crop years If all producers on a farm fail to make a unanimous election: No payments will be made for the 2014 crop. For crop years the farm will be considered to have elected PLC.

12 Basic Provisions Commodity programs - Cotton Creates separate program for cotton starting in 2015 Stacked Income Protection Plan (STAX), with a 2014 transition payment 4.75% less than direct payment. There will also be sequester similar to 2013 off this payment DCP/ACRE direct payment sequester was 8.6% Still use marketing loan with floating loan rate of the simple moving average of the adjusted prevailing world price for the 2 immediately preceding marketing years. No less than $0.45 or more than $0.52 per pound.

13 Basic Provisions Commodity programs Payment Limits Payment limits Payments received under Title 1 limited to $125,000 per individual and $250,000 per couple (ARC, PLC, NAP, MLG and LDP). Still have separate limit for peanuts. The only Title 1 crop program not included in this single payment limit is the benefit derived from forfeiting nonrecourse loans. USDA is tasked to write new regulations defining active engagement in farming. Separates family versus non-family entities. No new rules for family entities. The 2 AGI tests are replaced with a single $900,000 3-year average AGI for commodities and conservation programs.

14 Basic Provisions Commodity programs Reference Price One-time election for either Price Loss Coverage (PLC) or county Agricultural Risk Coverage (ARC) on all crop other than cotton. PLC pays when MYA price is less than reference price Commodity Reference Price Wheat (bu) $5.50 Corn (bu) $3.70 Grain Sorghum (bu) $3.95 Barley (bu) $4.95 Oats (bu) $2.40 Soybeans (bu) $8.40 Other oilseeds (cwt) $20.15 Peanuts (ton) $535.00

15 Basic Provisions Commodity programs Loan Rate Marketing Loan will continue to operate as in the past Commodity Loan Rate Wheat (bu) $2.94 Corn (bu) $1.95 Grain Sorghum (bu) $1.95 Barley (bu) $1.95 Oats (bu) $1.39 Soybeans (bu) $5.00 Other oilseeds (cwt) $10.09 Peanuts (ton) $ Upland Cotton (lbs) $0.45-$0.52 ELS Cotton (lbs) $0.7977

16 This decision is on a crop by crop basis for each farm unless the producer chooses individual ARC then it is for all the crops on that farm. If all parties cannot agree on a choice then the farm would not be enrolled in ARC or PLC for the 2014 crop and the farm would automatically be enrolled in PLC for the 2015 crop and beyond. Flow Chart of Title I Producer Choices for Covered Commodities Other than Upland Cotton County Base Update Choice Between ARC and PLC Choose ARC Choose PLC Individual Can choose to Update Payment Yield Not your Problem but. These decisions could very likely affect crop insurance coverage decisions Beginning in 2015 can choose SCO insurance option

17 Basic Provisions Commodity programs Agricultural Risk Coverage (ARC) Covers Losses in Income for a Covered Commodity Relative to a Revenue Guarantee ARC can be Selected at the County or Individual Level

18 Basic Provisions Commodity programs County ARC County ARC pays when actual crop revenue is below the ARC revenue guarantee for a crop year. Guarantee is 86% of benchmark revenue. Coverage is capped at 10%, meaning coverage is between 76% & 86% of county ARC benchmark. County ARC benchmark revenue is based on Olympic average county yields and MYA price of preceding 5 crop years. Substitute Reference Price for MYA Price in any year MYA Price is less before calculating Olympic Average price.

19 Basic Provisions Commodity programs County ARC (The Math) Payments are made when actual revenue for the covered commodity < ARC revenue guarantee, where: Actual county revenue = actual county yield per planted acre * the higher of {National Marketing Year Price or Marketing Loan Rate}. ARC revenue benchmark is equal to the U.S. Olympic average marketing year price for the most recent 5 years * the Olympic average county yield for the most recent 5 years. If any of the 5 years of prices are lower than Reference Price then replace with the Reference Price. If the actual county yield is < 70% of T-yield replace with the T-yield ARC revenue guarantee =.86 * ARC revenue benchmark Payment = Minimum of (ARC Revenue Guarantee Actual Revenue) OR 10% of the benchmark * Base Acres *.85 ARC county will allow irrigated and non-irrigated to be calculated separately

20 Illustration of Government Support for Corn Under ARC - County Revenue per base acre 86% 76% Loan Rate $1.95 Market Price MLG Market Receipts 5 yr moving avg of revenues [paid on base acres x.85] Crop insurance coverage

21 Basic Provisions Commodity programs Price Loss Coverage (PLC) Covers Losses in Income Due to Covered Commodity Price Declines Below Established Reference Prices PLC Payment Rate = Reference Price Higher of {National Average Marketing Year Price or Marketing Loan Rate} PLC Payment = PLC Payment Rate * Payment Yield * Base Acres X.85

22 Illustration of Government Support for Corn Under PLC Revenue per base acre Reference Price $3.70 Loan Rate $1.95 Market Price PLC Supplemental Coverage Option MLG/LDP Market Receipts Paid on base acres x.85 Crop insurance coverage

23 Basic Provisions Commodity programs Individual ARC Individual ARC is a whole farm, not individual crop. It is based on the average covered commodity experience on the farm. PLC and County ARC payments are based on 85% of the farm s base acres. Individual ARC payments are based on 65% of the farm s base acres. Based on producers share of all covered commodities planted on all farms for which ARC has been selected

24 Basic Provisions Commodity programs Individual ARC ARC guarantee is 86% of benchmark revenue Benchmark revenue is average historical revenue for the most recent 5 years excluding the high and low weighted by current plantings Coverage is based on producer s share of all covered commodities planted on all farms which individual coverage was selected Payment = Minimum of (ARC Revenue Guarantee Actual Revenue) OR 10% of the benchmark * Base Acres *.65 If they select ARC individual coverage on any crop on the farm then the entire farm is in ARC individual coverage

25 Basic Provisions Commodity programs Livestock Disaster Assistance Supplemental Agricultural Disaster Assistance program is funded permanently. Includes Livestock Indemnity Program, Livestock Forage Program, Emergency Relief Program for livestock, bees and fish and a Tree Assistance Program. Will back up and pick up 2012 and Remove the linkage with NAP on pasture.

26 Basic Provisions Crop Insurance - $90 billion ($7 billion more) Supplemental Coverage Option (SCO) provides farms the option to purchase county level insurance that covers part of the deductible under their individual policy. Coverage level cannot exceed the difference between 86% and the coverage level in the individual policy. Subsidy rate for SCO is 65%. County expected yields will be calculated using GRIP formula. (Trend adjusted 20-year average) SCO is not available if enrolled in ARC.

27 Basic Provisions Crop Insurance - $90 billion ($7 billion more) Supplemental Coverage Option (SCO) has characteristics of underlying individual MPCI policy. Yield or Revenue Protection. Loss trigger is based on county loss of yield or revenue. Indemnity is county loss % times individual max indemnity. Will not pay until after county yields for both irrigated and dryland practices have been determined. (For cotton this has been around June of the following year in the past, earlier for grains) SCO is not available if enrolled in ARC.

28 Insurance Price X 10 Year Average (APH) Yield Crop Insurance Expected Revenue Deductible 40% Example: 60% coverage Insurance Guarantee Example of Price Loss Coverage (PLC) Plus SCO Loss 14% SCO Indemnity 26% Ind. Coverage Indemnity Actual Price X Actual Yield + Any PLC Benefits Area loss trigger

29 Basic Provisions Crop Insurance STAX for Upland Cotton Cotton has Stacked Income Protection Plan (STAX) which operates similar to SCO and starts in Premium rates for both STAX and SCO will be much higher than MPCI because it is first loss coverage. STAX is based entirely off the county expected revenue. Covers from 90% of revenue guarantee down to 70% or insurance coverage level (whichever is higher) in 5% increments. 80% premium subsidy and includes protection factor from 80% up to 120% STAX subsidy level is 80%. Can have STAX and SCO on the same farm but not on the same acres

30 Basic Provisions Crop Insurance STAX for Upland Cotton Revenue guarantee established based off of expected insurance price * an expected county yield (max of expected county yield for area plans or most recent 5 year Olympic average yield from RMA or NASS) Can be in addition to individual buy-up coverage or used as a stand alone policy Differentiates between irrigated and non-irrigated

31 Crop Insurance Expected Revenue Example of STAX Insurance Price X 10 Year Average (APH) Yield Deductible 40% Example: 60% coverage Insurance Guarantee Loss 10% STAX Indemnity 20% Loss 10% Ind. Coverage Indemnity Actual Price X Actual Yield Area loss only

32 Basic Provisions Crop Insurance Decisions for Upland Cotton Choice of STAX with or without crop insurance or SCO with crop insurance Can t have both on same acres STAX County plan alone or on top of individual or area plan, coverage 70% to 90%, 1.2 multiplier SCO County plan on top of individual plan only, coverage <= 86% Crop insurance: Underlying individual or area plan coverage determines STAX lower bound Crop insurance Underlying individual plan coverage level determines SCO lower bound

33 How does STAX stack up against SCO? Dryland STAX SCO Indemnity Paid Producer Premium Indemnity Paid Producer Premium 2000 $37.55 $2.63 $48.81 $ $35.40 $2.48 $46.02 $ $ $ $11.49 $2.47 $4.45 $ $ $ $ $ $27.84 $1.95 $36.19 $ $ $ $ $ $ $ $ $ $62.73 $4.39 $81.55 $ $51.52 $3.61 $66.98 $8.20 Total $ $22.72 $ $76.71 Average $17.43 $2.59 $21.85 $5.90 Ratio

34 How does STAX stack up against SCO? Irrigated STAX SCO Indemnity Paid Producer Premium Indemnity Paid Producer Premium 2000 $67.54 $4.73 $85.02 $ $63.96 $4.48 $ $ $ $ $71.74 $5.55 $55.88 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $10.64 $ $ $32.75 $8.52 $8.42 $19.37 Total $ $74.53 $ $ Average $29.85 $5.73 $33.09 $13.04 Ratio

35 How does STAX stack up against SCO? Dryland in 2011? Dryland STAX SCO Indemnity Paid Producer Premium Indemnity Paid Producer Premium 50% $62.73 $4.39 $ $ % $62.73 $4.39 $97.23 $ % $62.73 $4.39 $81.55 $ % $62.73 $4.39 $65.87 $ % $62.73 $4.39 $50.18 $ % $47.05 $3.29 $34.50 $ % $31.37 $2.20 $18.82 $2.31

36 How does STAX stack up against SCO? Irrigated in 2011? Irrigated STAX SCO Indemnity Paid Producer Premium Indemnity Paid Producer Premium 50% $ $10.64 $ $ % $ $10.64 $ $ % $ $10.64 $ $ % $ $10.64 $ $ % $ $10.64 $ $ % $ $7.98 $83.62 $ % $76.01 $5.32 $45.61 $5.59

37 Basic Provisions Crop Insurance Miscellaneous all-crop provisions Producers may exclude a crop year in which the county planted acre yield was at least 50% below the 10-yr county average. (going forward and backward, applies to contiguous counties, can be multiple years) Higher subsidy levels for enterprise insurance are made permanent.

38 Basic Provisions Crop Insurance Miscellaneous all-crop provisions Separate irrigated and dryland insurance coverage for both split and enterprise coverage. Beginning farmers are eligible for 10% higher subsidy rate on insurance. No payment limit on insurance subsidy or indemnities. No sequester of insurance subsidies or indemnities. Requires conservation compliance to receive subsidy.

39 Basic Provisions Crop Insurance Peanuts and Fruits & Veggies RMA is mandated to offer a revenue product for peanuts by the 2015 crop year. (Don t know where the prices will come from) Fruits & Vegetables No more double cropping rules. First acres will be planted on free acres (cropland acres in excess of base acres). Second acres will be planted on unpaid base (ie: generic base) Last acres will reduce base for that year only. NAP buy up coverage will be available to all un-insurable crops other than forage. (because PRF is available on forage)

40 Basic Provisions Crop Insurance NAP Buy-up coverage NAP buy up coverage Regular NAP still available at 50% of production and 55% of MYA price. Producer can buy up coverage in 5% increments from 50% to 65% at 100% of MYA price. Same rules apply for prevented planting, planted-not-harvested and harvested. (factor reductions) Title I payment limits apply to NAP.

41 Dairy Program Basic Provisions Moves dairy program to dairy margin (national milk price over feed cost (corn, alfalfa & soybean meal)) insurance program with a provision for USDA to purchase milk under the Dairy Product Donation Program when margins fall below $4 for 2 months in a row. MILC reinstated for 2014 as transition. Repeals it once margin program is operational. Repeals the dairy product price support program Repeals the dairy export incentive program Extends the dairy forward pricing program.

42 Dairy Program Basic Provisions Can purchase from $4-$8/cwt on base production Basic $4 production is free, $100 admin fee No pay limit. Low premium below 4 million lbs (200 cows) beyond that it is stepped up premium. 50 cent margin increments 25-90% production coverage levels. Probably up and running by September 2014.

43 Dairy Program Margin Calculation All Milk Price less Feed Cost The average cost of feed for a dairy operation required to produce a cwt of milk, determined in accordance with the following formula: Milk, corn and alfalfa prices reported in Agricultural Prices; soybean meal price is Central Illinois, USDA/AMS The calculation required by this subsection shall be made as soon as practicable using the full-month price of the applicable reference month. A lag in information, the January all milk price released at the end of February $100 registration fee gets $4.00 margin coverage Margin payments will occur on a bimonthly basis beginning with January/February

44 Dairy Program Historical Monthly U.S. Margin $ per cwt

45 Dairy Program Producers Assigned a Production History Highest annual milk marketings during 2011, 2012 or A producer can choose to cover 25 to 90 percent of their production history in 5 percent increments annually USDA will adjust production history annually to reflect an increase in U.S. milk production An operation s marketings growth does not matter in the adjustment to production history New dairy operations Volume of actual milk marketings extrapolated to a yearly amount Estimated from herd size

46 * - In 2014 and 2015 the premium rates for the first 4 million pounds will be reduced by 25 percent at all levels except at the $8.00 level. A producer will also pay $100 annually in administrative fees. Premium Rates For Selected Margin Level Coverage * Margin First 4 Above 4 Level million pounds million pounds ($ per cwt.) $4.00 $0.000 $0.000 $4.50 $0.010 $0.020 $5.00 $0.025 $0.040 $5.50 $0.040 $0.100 $6.00 $0.055 $0.155 $6.50 $0.090 $0.290 $7.00 $0.217 $0.830 $7.50 $0.300 $1.060 $8.00 $0.475 $1.360

47 $0.54 increase in premium For $0.50 more margin coverage * - In 2014 and 2015 the premium rates for the first 4 million pounds will be reduced by 25% at all levels except at the $8.00 level. A producer will also pay $100 annually in administration fees.

48 Dairy Program Dairy Product Donation Program Must be operational no later than 120 days after the margin program begins When the margin is less than $4.00 for the two preceding months, this feature becomes operational Secretary purchases dairy products at prevailing market prices and distributes to public and private nonprofits assisting lowincome households This program suspended: After three months of operation Margins move above $4.00 Margins between $3.00 & $4.00 AND U.S. prices exceed world prices by more than 5% Margins less than $3.00 AND U.S. prices exceed world prices by more than 7%

49 AFPC Decision Tool Help producers make decisions when there are about 100 different combinations: YP vs RP vs RP-HPE Unit structure: optional vs. enterprise Trend-adjusted APH or not Choose PLC or RLC/ARC: new, free, county-level price or revenue payments Buy supplemental revenue coverage (SCO/STAX) or not (2015 and beyond) Optimal crop insurance coverage level given interactions For all possible election combinations, this on-line tool evaluates the net revenue outcome Users can interactively explore alternative choices and their effects on the net revenue distribution afpc.tamu.edu

50 Jay Yates Extension Program Specialist III Risk Management FARM Assistance Analyst Contact Information: Texas A&M AgriLife Research and Extension Center 1102 East FM 1294 Lubbock, TX South Plains Cotton Update every Thursday at 1:00 2:30 p.m. during West Texas Ag Life on (806)