2014 FARM BILL COMMODITY PROGRAMS AND DECISION TOOLS

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1 2014 FARM BILL COMMODITY PROGRAMS AND DECISION TOOLS Dr. Jody Campiche Dr. Eric DeVuyst OSU Extension Commodity Programs FSA Option to Reallocate Base Owners Option to Update Yields Owners Crop Insurance Insurance Agent Commodity Program Election/Enrollment Producers Option to Purchase Individual Insurance Policy Producer ARC Revenue PLC Price Option to Purchase SCO Producer ARC-CO Crop/Farm ARC-IC Farm 1

2 Who makes the Decisions? Owners choose to update yields and/or reallocate bases (one-time decision) September 29, February 27, 2015 Producers decide to elect ARC or PLC (one-time decision) November 17, 2014 March 31, 2015 Producers enroll on an annual basis in ARC or PLC (must enroll in the elected program cannot change from year to year) Mid-April 2015 Summer 2015 Producers choose to purchase an individual crop insurance policy and SCO (if the crop is not enrolled in ARC) Annually in Spring or Fall (depending on the crop) Yield Update Retain current CC yields or update yields Current farm CC yield was included on July letter from Farm Service Agency yield history for planted crops Simple average of certified yields for crop years If any year is < 75% of county average, substitute 75% of the county average Exclude zero planted years Yield update option is available per crop/farm for owners regardless of the PLC/ARC election 2

3 Base Reallocation Proration of average planted acres of covered commodities compared to total planted acres of all covered commodities on the farm Crop Current Base Avg Planted Reallocation % Reallocated Base Corn % Grain Sorghum Wheat % Total % 450 Crop Avg Reallocation % Planted History Corn /4 = 50 50/350 = 14.29% Sorghum Wheat /4 = /350 = 85.71% Total % 3

4 What to choose? ARC vs PLC Depends on your preferences for risk management Protection against catastrophic price declines PLC and/or SCO Protection against shallow revenue losses - ARC Price Loss Coverage (PLC) Provides an income safety net when prices of covered commodities are below reference prices set in the farm bill Payment if actual price < reference price No payment for yield losses Similar to CCP in 2008 farm bill Key difference: Higher reference prices 4

5 PLC Price Protection Crop PLC Reference Price Barley 4.95 Corn 3.70 Cotton NA Grain Sorghum 3.95 Peanuts 535 Oats 2.40 Rice Soybeans 8.40 Wheat 5.50 Oilseeds (Canola) Agricultural Risk Coverage (ARC) Provides revenue protection (price or yield losses) Option to choose individual farm (ARC-IC) or county level (ARC-CO) coverage ARC-IC covers farm revenue shortfalls across all covered commodities planted on the farm level across all farms enrolled in ARC-IC in the state ARC-CO protects against revenue shortfalls at the county level 5

6 Agricultural Risk Coverage (ARC) Similar to ACRE in 2008 farm bill Key differences: County level trigger (ACRE had a STATE/farm trigger) Payment limited to 10% of the benchmark revenue (ACRE payment limited to 25% of benchmark) Huge difference for OK wheat ($45-$60 ACRE payment compared to $16-$20 ARC payment) Covered Commodities Crops for which base acres exist 21 Covered Commodities COVERED COMMODITIES Barley Canola Corn Crambe Flaxseed Garbanzo, Large Garbanzo, Small Grain Sorghum Lentils Mustard Seed Oats Peanuts Peas, Dry Rapeseed Rice, Long Grain Rice, Medium Grain Safflowers Sesame Seed Soybeans Sunflower Seed Wheat For 2014 and subsequent crop years, cotton is not a covered commodity Cotton base become GENERIC base acres 6

7 Comparing Programs Program PLC ARC-CO ARC-IC Price MYA Price MYA Price MYA Price Yield PLC yield County yield Farm yield Payment Determined by individual covered commodity base acres Determined by individual covered commodity base acres Determined by all crops planted of covered commodities combined on the farm(s) in the State Acres Planting required? Paid on 85% of base acres of each covered commodity Paid on 85% of base acres of each covered commodity Paid on 65% of total base acres on the farm No No Yes, must plant covered commodities PLC vs. ARC PLC ARC Protection Price Price and Yield Maximum Payment None (except for $125K combined payment limit) 10% * Benchmark Revenue (and $125K combined payment limit) 7

8 Estimated 2014/15 Wheat MYA Price Source: Art Barnaby, KSU Wheat MYA Price $8.00 $7.00 $6.00 Reference $5.50 Reference Price = $5.50 Price $5.00 $4.00 $3.00 $2.00 $1.00 $ Price > $5.50 in 7 years 8

9 Garfield County ARC-CO Yields for Benchmark Revenue Maximum ARC-CO Payment Corn: $5.29 * 57 = $300 10% * $300 = $30 Sorghum: $5.10 * 49 = $252 10% * $252 = $25 Soybeans: $12.27 * 16 = $196 10% * $196 = $20 Wheat: $6.60 * 32 = $211 10% * $211 = $21 Source: Art Barnaby, KSU 9

10 Required Compliance with Adjusted Gross Income (AGI) $900,000 historical average AGI limitation Note: 2014 AGI is determined using tax years 2012, 2011 and 2010 AGI. Payment Limits The ARC and PLC programs are subject to a $125,000 payment limitation. This limitation will include all payments received directly or indirectly for all covered commodities except peanuts. A separate payment limitation of $125,000 is provided for payments received directly or indirectly for peanuts only. Note: This $125,000 Payment Limitation includes any payments received through Marketing Loan Gains and Loan Deficiency Payments 10

11 SCO/RP/YP/ARC/PLC Decisions Is SCO offered for the crop/county for 2015? Is ARC-CO or ARC-IC a better option for the crop/farm? Is the base acreage different than the current planted acreage? Will the producer reallocate base acreage? What is the current RP/YP coverage level? What is the cost of higher RP/YP coverage? DECISION TOOLS FSA website Simple yield update and base reallocation tools OSU-KSU decision tool Simple Excel-based (no simulation) A&M/FAPRI (NAAFP) Web-based (simulation, probabilities, and advanced crop insurance tool) Illinois (NCPE) Web-based (simulation and sample farms) 11

12 Why should a producer use the decision tools? Understand how the programs work Analyze different price/yield scenarios Compare options if the owner retains current base acreage or reallocates base acreage Analyze FSA commodity choices and crop insurance choices together for more effective risk management Where do I find this website? FSA Website 12

13 What data is needed? FSA Number Crop CC Payment Yield Base Acres Historical Planted Acres ( ) APH Yield Historical Crop Yields ( ) Insurance Policy Type (YP, RP, RP-HPE) and Coverage Level Current/Future Planted Acres ( ) Get this from the Reported Commodity Crop History Summary from FSA Get this from your Insurance Yield/Acreage Report from your agent 13

14 Insurance Yield & Acreage Report Source: James Richardson, AFPC; Pat Westhoff, FAPRI; Peter Zimmel, FAPRI Presentation: 2014 Farm Bill and Insurance Decision Aid Developed by the NAAFP Where do I find this decision tool? OSU Farm Bill Website: 14

15 Excel-based Decision Tool Enter data into yellow cells NAAFP Decision Tool (A&M/FAPRI) Where do I find this decision tool? 15

16 Farm with Two Crops and One FSA Number NCPE Decision Tool (Illinois) Where do I find this decision tool? 16

17 Source: Gary Schnitkey, Jonathan Coppess, Nick Paulson 17