Farm Bill 2014 Agricultural Act of 2014 What You Need To Know Doug Yoder, IFB 309-557-2993 yoder@ilfb.org
FARM BILL OVERVIEW Signed into law February 7, 2014 5 year bill Covers crop years 2014 2018 $956 billion total cost over 10 years 79% ($756 b) of expected cost in SNAP
Titles: 12 TITLES 452 SEPARATE PROVISIONS 1. Commodities 2. Conservation 3. Trade 4. Nutrition 5. Credit 6. Rural Development 7. Research, Extension, and Related Matters 8. Forestry 9. Energy 10.Horticulture 11.Crop Insurance 12.Miscellaneous
(9.4%) (6.0%) (4.6%) (79.1%) (0.8%)
KEY COMMODITY TITLE PROVISIONS Eliminates Direct Payments Provides one time option to: Reallocate Base Acreage Update Payment Yield Modifies target price program Replaces CCP with Price Loss Coverage Modifies revenue safety net Replaces ACRE with 2 Ag Risk Coverage (ARC) options: 1. County ARC (ARC-CO) 2. Individual Farm ARC (ARC-IC)
FARM BILL DECISIONS (STEPS) One-time, irrevocable decision; per FSA farm 1. Retain or reallocate base acreage; 2. Retain or update payment yield; 3. Safety net election decision; Price Loss Coverage (PLC) + SCO? ARC-CO ARC-IC
ARC/PLC TIMELINE 1. Base Acre Reallocation and Yield Updates September 29, 2014 February 27, 2015 2. ARC/PLC Election November 17, 2014 March 31, 2015 3. ARC/PLC Enrollment Mid-April 2015 Summer 2015 (Producers sign contracts to participate in ARC/PLC for 2014 and 2015 crop years)
WHO MAKES THESE REALLOCATION/UPDATE DECISIONS? Base Reallocation As soon as practicable after the date of enactment of this Act, the Secretary (USDA) shall provide notice to the current owners of a farm regarding their opportunity to make an election Yield Update At the sole discretion of the current owner of a farm, the owner of a farm shall have a 1-time opportunity to update, on a covered commodity-by-commodity basis, the payment yield that would otherwise be used in calculating any Price Loss Coverage payment for each covered commodity on the farm for which the election is made
WHO MAKES THESE ARC/PLC DECISIONS? ARC/PLC For the 2014 through 2018 crop years, all of the current producers on a farm shall make a 1-time, irrevocable election to obtain--- Definition: The term producer means an owner, operator, landlord, tenant, or sharecropper that shares in the risk of producing a crop and is entitled to share in the crop available for marketing from the farm, or would have shared had the crop been produced. This includes anyone with an interest/share in CRP acreage
BASE ACREAGE One time choice to maintain or reallocate base Not mandatory, voluntary option Cannot increase total base If reallocated, 2009-2012 crop years average planted acres on each farm for harvest, haying, grazing and silage will be used Also includes prevent plant acres Base can be adjusted for acreage coming out of CRP Failure to make election defaults to current base allocation
BASE ACREAGE REALLOCATION EXAMPLES
SHOULD I REALLOCATE BASE ACREAGE? Approaches to consider: 1. Risk Management Consideration would be given to elect base acreage allocation most closely matching expected planting patterns/crop rotations during the 2015-2018 crop years to enhance/supplement your risk management coverage; or, 2. Maximizing payments Use available decision tools to determine highest likelihood of program payments over time Consideration should also be given to the uncertainty of what future farm programs will consist of including the unknown ability to reallocate base acreage again in the future
PAYMENT YIELDS All farms eligible to update payment yields but used only on farms electing PLC One time choice to: 1. Maintain current payment yields used in 2008 farm bill for Counter-Cyclical Payment program 2. Update payment yields; 90% of 2008-2012 yields
PAYMENT YIELD UPDATE, CONT D A year is excluded from the calculation if no acres were planted to the covered crop A substitute yield is used when the FSA farm yield for a year is less than 75% of the 2008-2012 average county yield List of IL counties Substitute Yields available on www.ilfb.org/farmbill for corn, beans, wheat, oats, grain sorghum
PAYMENT YIELD UPDATE EXAMPLE 2008 2009 2010 2011 2012 Average Yield (Divide by 4) Payment Yield (90%) Yield per Planted Acre Planted: no evidence 154 175 No planted acres 100 Substitute Yield 112 112 112 112 112 Yield Used 112 154 175 112 138 124 2008: Substitute yield is allowed since the covered crop was planted 2011: Excluded since no acreage was planted to covered crop Substitute Yield: 75% of 2008-2012 county average = 112 bpa
SHOULD I UPDATE PAYMENT YIELDS? Only 1 consideration: 1. Choose the higher yield-no reason not to Even if you elect ARC and are thus not allowed to utilize updated yields, still update if updated yields are higher for potential future programs We don t know when our next chance to update yields will be The payment yield update decision is independent of the base acreage reallocation decision-payment yield can be updated without reallocating base acreage, and vice versa
YIELD CERTIFICATION Yield and production records are not required with the yield certification form However, owners must be prepared to submit records used to certify yields if requested Use of crop insurance production data to certify is encouraged The individual farm yields used to develop the farm APH are allowed, but not the APH 4-10 year average itself Cannot use Trend-Adjusted yields
YIELD CERTIFICATION Allowable production/yield evidence include: Crop insurance APH records Settlement sheets/scale tickets On-farm storage measured by FSA or crop insurance rep Livestock feed records FSA: loan records, ACRE records, NAP Other *FSA will not copy or store yield or production records
NON-RECOURSE MARKETING LOANS Same loan rates as 2008 farm bill (except cotton) $1.95 Corn (national average) $5.00 Soybeans $2.94 Wheat $1.39 Oats Loan Deficiency Payments (LDPs) Loans available regardless of PLC or ARC choice
SAFETY NET OPTIONS For each FSA farm, safety net options include one time irrevocable choice of PLC (price) or ARC (revenue) On a covered crop by covered crop basis; 1. Price Loss Coverage (PLC) Only choice if you want SCO 2. County level Ag Risk Coverage (ARC-CO) On a whole farm basis; 3. Farm level Ag Risk Coverage (ARC-IC)
SAFETY NET OPTIONS ARC offers revenue coverage, county or farm ARC/PLC choice must be unanimous amongst all farm partners Default choice is PLC If no choice is made, 2014 payments are forfeited and all commodities will be in PLC beginning with 2015 crop year
PRICE LOSS COVERAGE (PLC) Target price program in which prices are established for life of bill & do not change Reference (trigger) Prices: Commodity 2014 Bill 2008 Bill % Change Corn $3.70 $2.35 57% Soybeans $8.40 $5.56 51% Wheat $5.50 $3.65 51% Oats $2.40 $1.766 36% Payment rate = 85% of base acres
PRICE LOSS COVERAGE (PLC) Payments occur when the higher of: a) crop year s Market Year Average (MYA) price, or b) loan rate, is below the reference price MYA = average price received by producers during 12 month marketing year for that crop (starting Sept. 1 for corn & beans)
PLC EXAMPLE MYA = $3.50/bushel for corn (latest USDA estimate: November 10, 2014) Farm s payment yield = 150 bushels/acre Corn base = 100 acres Payment rate: $.20/bu ($3.70 - $3.50) Payment = $2,550 ($.20 x 150 x 100 x.85) Payment/base acre = $25.50 **Payment would be distributed by farm share percentage
ARC-COUNTY (ARC-CO) County level revenue protection ARC-CO payments will be based on FSA administrative county, not physical location of land! Benchmark revenue guarantee = 86% of: Yield = 5 year Olympic rolling average of county yield Price = 5 year Olympic rolling average of higher of MYA or loan rate (Individual prices cannot be less than reference price)
ARC-CO Actual county revenue: Final county yield, times MYA for that crop year Payment rate: Revenue Guarantee Actual Revenue 85% of farms base acres Maximum payment = 10% of benchmark revenue
ARC CO Benchmark Revenue Calculation 2009 2010 2011 2012 2013 O. Avg. County Yield 186 170 160 110 190 172 MYA Price $3.70* $5.18 $6.22 $6.89 $4.46 $5.29 * MYA was actually $3.55, replaced with minimum of $3.70 Benchmark Revenue = $910/acre (172 x $5.29) Max payment = $91/acre ($910 x 10%) Guarantee: $783/acre ($910 x 86%)
ARC CO Payment Example MYA: $3.50 (November 10, 2014 USDA estimate) Final county yield: 180 (trend) Corn base: 100 acres Actual revenue = $630 ($3.50 x 180) Payment Rate: $91/acre*($783 - $630= $153*) Payment = $7,735 ($91 x 100 x.85)** Payment/base acre = $77.35 *(Max payment for this county in 2014 = $91/acre) **Payment would be distributed by farm share percentage
ARC-CO DATA SHEETS FOR IL COUNTIES Data sheets available at www.ilfb.org/farmbill showing ARC-CO data including: County yields for 2009-2013 County Olympic Yields Benchmark Revenues Revenue Guarantees Maximum Payments for corn, soybeans, wheat, oats, and grain sorghum for every IL county
ARC-CO VS. PLC PRICES FOR 2014 2014 Crop Year Price Comparison Commodity ARC-CO Price (5-Yr. O.A.) PLC Reference Price Corn $5.29 $3.70 Soybeans $12.27 $8.40 Wheat $6.60 $5.50 Oats $3.25 $2.40 Sorghum $5.10 $3.95
Source: farmdoc
Source: farmdoc
ARC INDIVIDUAL (ARC-IC) Whole farm level revenue protection Provides farm level revenue loss coverage, weighted to the producer s share of the covered commodities planted, across ALL farms enrolled in ARC-IC in the state Must plant at least 1 covered commodity to be eligible that year Planted acres determine weighting in benchmark revenue Payment rate: 65% of base acres
ARC INDIVIDUAL (ARC-IC) ARC-IC will make payments when a farm s actual revenue falls below 86% of benchmark revenue Benchmark revenue equals sum of each crops benchmark weighted base of planted acres Actual revenue equals sum of each crops revenue (MYA x farm yield) weighted base of planted acres Maximum payment = 10% of benchmark revenue
ARC-IC REVENUE BENCHMARK ARC-IC farm revenue benchmark guarantee = 86% of: 5 year rolling Olympic Average of annual farm revenues, weighted by planted acreage ratio (all covered crops, all farms) Annual Farm Revenue: The higher of the individual farm yield or Substitute Yield, or Assigned Yield, times The higher of MYA price or loan rate
ARC IC REVENUE BENCHMARK When building the ARC-IC farm benchmark: Substitute Yield: 70% of the county average may be substituted for the farm yield for any years in which the farm yield is less than the transitional yield; and, Assigned Yield: For any year with zero planted acres, an assigned yield of 100% of the county average will be used for that crop
ARC IC ARC-IC requires production records for both: Benchmark revenues; and, Actual revenues ARC-IC revenue calculations, both benchmark and current year, do not include Prevent Plant acres, unless; 100% of an ARC-IC farm is prevented planting of covered commodities
ARC IC EXAMPLE In the following example one FSA farm with 100 total base acres will be used No other farms are enrolled in ARC IC in this example In 2014, the farm plants: 60% of acres in corn 40% of acres in soybeans
ARC IC EXAMPLE EACH CROP S BENCHMARK REVENUE Corn Soybeans MYA Farm MYA Farm Year Price Yield Revenue* Price Yield Revenue* 2009 $3.70* 186 $688 $9.59 54 $518 2010 $5.18 170 $881 $11.30 59 $667 2011 $6.22 160 $995 $12.50 56 $700 2012 $6.89 110 $758 $14.40 52 $749 2013 $4.46 190 $847 $13.00 54 $702 *Revenue equals higher of MYA or reference price ($3.70 for corn, $8.40 for soybeans) times higher of farm yield, 70% of transitional yield, or assigned yield Each crop s benchmark revenue equals Olympic average of revenues: Corn: $829 = ($881 + $758 + $847) / 3 Soybeans: $690 = ($667 + $700 + $702) / 3
ARC IC EXAMPLE BENCHMARK REVENUE & GUARANTEE Benchmark Revenue weights each crop s benchmark revenue by proportion of program crop acres planted on ARC-IC farms Corn Soybeans $829 x.60 + $690 x.40 = $773 Guarantee = 86% of benchmark revenue: $773 x.86 = $665 guarantee
ARC IC EXAMPLE ACTUAL REVENUE A farm s revenue equals each crop s revenue weighted by proportion of acres: $3.50 MYA corn price* 180 bushel per acre corn yield (trend) $10.00 MYA soybean price* 56 bushel per acre soybean yield (trend) Actual Revenue = $602.6 x ($3.50 x 180) +.4 x ($10.00 x 56) *USDA November 10, 2014 estimate
ARC IC EXAMPLE PAYMENT RATE Payment rate equals guarantee minus revenue: $665 Guarantee - $602 Revenue = $63 Rate Rate cannot be more than 10% of benchmark revenue ($773 x.10 = $77)
ARC IC EXAMPLE PAYMENT Payment equals payment rate x 65% of base acres: $63 payment rate 100 base acres Payment = $4,095 ($63 x 100 x.65)* Payment/base acre = $40.95 *Payment would be distributed by farm share percentage
ARC-IC DATA SHEETS FOR ILLINOIS COUNTIES Data sheets available at www.ilfb.org/farmbill showing ARC-IC data including : Assigned Yields for 2009-2013 Substitute Yields for 2009-2013 for corn, soybeans, wheat, oats, and grain sorghum for every IL county
SUMMARY OF CHOICES Price Loss Coverage Fixed reference target price program Max payment rate: Reference price national loan rate Payments on 85% of a crop s base acres Only option that will utilize updated payment yields Only option eligible for SCO ARC CO Revenue program: 5 year Olympic avg. of county yields & MYA Separate guarantee for each crop Guarantee = 86% of benchmark revenue Max payment = 10% of benchmark revenue Payments on 85% of crop s base acres Not eligible for SCO ARC IC Revenue program: 5 year Olympic avg. of farm yields & MYA Whole farm program for covered crops Max payment: 10% of benchmark revenue Payment on 65% of total base acres Not eligible for SCO
CONSIDERATIONS ARC-CO & PLC are 2 different risk programs: ARC-CO multiple year shallow revenue loss coverage PLC multiple year disaster price loss coverage How bearish are you? Should producers with multiple FSA farms consider a diversified approach with a mix of coverages? If so, consider putting farms with highest ratio of FSA farm payment yields to county average yields in PLC
CONSIDERATIONS ARC-IC: Is it really individual coverage? Only if you have one farm. If all ARC-IC farms are combined across the state, may lose the advantage of localized, individual coverage Designed for farms with yields not highly correlated to county averages Still would need to overcome 20% loss of payment acres compared to ARC-CO & PLC Don t forget if you pick up another ARC-IC farm it will be combined Allows additional Fruit & Vegetable plantings
KEY COMMODITY TITLE PROVISIONS Payment limits: $125,000 for all payments combined (not including crop insurance claims) Can double if married, joint operation Eligibility: 3 year Adjusted Gross Income of $900,000 USDA has ability to modify Actively Engaged in Farming rules in rule making process-define significant contribution of active personal management
SUPPLEMENTAL COVERAGE OPTION Supplemental Coverage Option (SCO): New crop insurance tool Administered by RMA, not FSA Purchase from your crop insurance agent Available beginning in 2015 Coverage = between 86% and crop insurance coverage level selected Triggered only if losses exceed 14%
SCO continued: SCO is county based coverage (no multiplier) Will operate similarly to GRIP/Ag Risk Protection Insurance (ARPI) Different band of coverage Coverage level established (86%) Availability in 2015: Corn all counties in IL Soybeans all counties in IL
SCO AVAILABILITY FOR WHEAT IN 2015 28 Counties in IL: Bond Clay Clinton Crawford Edwards Franklin Greene Hamilton Jackson Jefferson Kankakee Lawrence Livingston Macoupin Madison Marion Mason Monroe Montgomery Perry Randolph Richland Schuyler Shelby St. Clair Washington Wayne White USDA/RMA may expand coverage in 2016 and following years
SCO Yields & Prices SCO will use: Same Expected County Yield as GRIP/Area Risk Protection Insurance (ARPI) Same base and harvest prices as GRIP/ARPI
SCO & Other Provisions Just like GRIP/ARPI, SCO will not offer: Replant provisions; Prevent plant provisions; and, Coverage for quality losses (aflatoxin, vomitoxin)
SCO and Underlying Crop Insurance Matches underlying crop insurance coverage (Yield or Revenue Protection must be purchased) If Yield Protection (YP), is purchased SCO provides county based yield coverage If Revenue Protection (RP) is purchased, SCO provides county based revenue coverage If Revenue Protection with Harvest Price Exclusion (RP-HPE) is purchased, SCO provides county based revenue protection that only uses the crop insurance base price
SCO & Other Farm Bill Provisions SCO only available with PLC, SCO is not available if ARC is chosen Since SCO is a crop insurance product: Not subject to 3 year Adjusted Gross Income test (like PLC & ARC are) Not subject to payment limit (like PLC & ARC are)
SCO Band of Coverage SCO Coverage level established at 86% Indemnities triggered when county revenues/yields fall below 86% of guarantee SCO coverage ends at the coverage level selected by the producer for underlying crop insurance Band of coverage = 86% down to the coverage level chosen on crop insurance
SCO & RP at Various Coverage Levels 85% 80% 75% 70% Revenue *SCO coverage is area (county) based coverage
RP & SCO EXAMPLE Assumptions for RP coverage: TA-APH of 190 bpa & Base price of $4.62 Expected Revenue = $878 (190 x $4.62) Coverage level chosen = 80% RP Guarantee of $702 (190 x $4.62 x.80) Assumptions for SCO coverage: Expected County Yield = 180 bpa Base price of $4.62 Expected County Revenue = $832 (180 x $4.62) SCO trigger of $715 (180 x $4.62 x.86)
Example: RP 80% and SCO Revenue Expected Farm Revenue $878 (190 x $4.62) SCO trigger = $715 (180 x $4.62 x.86) SCO coverage Individual RP deductible RP deductible = $176 ($878 - $702) SCO lower coverage band = $665 (180 x $4.62 x.80) 80% RP coverage RP guarantee = $702 (190 x $4.62 x.80) SCO coverage range = $50/acre ($715 - $665) Max SCO payment:$52.67 (190 x $4.62 x 6%) SCO (county) RP (farm)
EXAMPLE: SCO CLAIM CALCULATION Actual Revenue: Harvest price = $3.49 Final county yield = 200 bpa Final county revenue = $698 ($3.49 x 200) $715 SCO trigger - $698 final = $17 shortfall $17 = 34% of max coverage range ($17/$50) $53 max payment x 34% shortfall = $18 claim
POSSIBLE RP & SCO CLAIM OUTCOMES Actual County Revenue Below SCO Trigger Actual County Revenue Above SCO Trigger Actual Farm Revenue Below RP Guarantee RP Payment SCO Payment RP Payment No SCO Payment Actual Farm Revenue Above RP Guarantee No RP Payment SCO Payment No RP Payment No SCO Payment
CONSIDERATIONS FOR SCO Offers 1 st time ever ability to insure part of crop insurance deductible 65% subsidy level Provides protection on planted acres as opposed to base (PLC & ARC) Not subject to payment limits Not subject to AGI eligibility test If you plant a crop without base, you may purchase SCO for that crop on that farm
CONSIDERATIONS FOR SCO County based coverage, not popular in IL crop insurance usage IL farmers use high coverage levels, limiting impact of SCO Since it s county based, SCO won t offer: Replant provisions Prevent Plant provisions Quality loss adjustments (aflatoxin) Eliminates ARC as an option SCO has premium cost, ARC does not Will be tough to fully evaluate without knowing true cost
EXTRA CONSIDERATIONS FOR WHEAT Wheat crop insurance deadline is September 30 prior to the enrollment window for PLC & ARC and possibly prior to PLC & ARC rules being published/known, so: For 2015 only, farmers will be allowed to purchase SCO with agent by Sept. 30 and then subsequently withdraw acres enrolled in SCO if they later decide to enroll in ARC and not PLC Withdrawals of acres from SCO will be allowed until December 15th or the acreage reporting date, whichever is earlier
CHANGES TO CROP INSURANCE Going into effect in 2015: Enterprise unit subsidies made permanent Can have separate coverage levels for irrigated vs. non-irrigated In 2015 separate enterprise units for irrigated vs. non-irrigated Available where EU s are available Both separate units must meet EU eligibility rules Premium discount will be determined for each EU separately (less acreage could lead to less discount)
CHANGES TO CROP INSURANCE Going into effect in 2015: Yield Exclusion: Yields can be dropped from APH database when the county average yield for that crop year is at least 50% below the 10 previous consecutive crop years rolling county average Contiguous counties would also be eligible
CROP INSURANCE CONT D: Beginning farmers-defined as being Actively Engaged in a farming operation less than 5 years: Yield plug of 80% rather than 60% Extra 10% premium assistance No administrative fee Can use past operator s production history
CONSERVATION COMPLIANCE Re-tied to crop insurance for first time since 1996 Compliance will focus on: Highly erodible lands (HEL) Wetlands Rules still being written New requirements are prospective rather than retrospective What counts is what you do after start of new farm bill
CONSERVATION COMPLIANCE To be eligible for premium subsidy: 1. Completed Form 1026 must be filed with USDA/NRCS/FSA 97% of farmers nationwide already have 1026 on file 2. Must be in compliance with a conservation plan approved by NRCS for all HEL 3. Not plant on a wetland converted after 02/07/2014 4. Not have converted a wetland after 02/07/14
CONSERVATION COMPLIANCE Winter of 2014/15 initial list of producer s status with Form 1026 will be provided to AIP s (crop insurance companies) Prior to July each succeeding year No loss of premium discount until 2016 If producer deemed out of compliance on any part of their land, they lose premium assistance (subsidy) on all of their crop insurance, starting the next crop insurance year-you must be in compliance on all your land
CONSERVATION COMPLIANCE Exception examples: 1. There will be a phase-in period for insureds who have never been subject to HEL and Wetland provisions previously 2. If producer attempts to implement compliance measures but a landlord won t cooperate, an exception can be made 3. If in an appeal, loss of premium discount won t be implemented until final decision ruling has been made by NRCS
RESOURCES ILFB Farm Bill Page: www.ilfb.org/farmbill Fact sheets Data sheets Substitute county yields for updating payment yields ARC-CO: Illinois county data for corn, soybeans, wheat, oats, and grain sorghum ARC-IC: Illinois county data for benchmark calculations; Assigned Yields Substitute Yields Recorded webinars PowerPoint presentation
RESOURCES farmdoc Farm Bill Toolbox: http://farmbilltoolbox.farmdoc.illinois.edu/index.html FSA Farm Bill Page: www.fsa.usda.gov/arc-plc Online Decision Tool: http://fsa.usapas.com/ RMA Farm Bill Page: http://www.rma.usda.gov/news/currentissues/farmbill/ RMA Crop Insurance Decision Tool: http://prodwebnlb.rma.usda.gov/apps/cidt/
THANK YOU Contact Information: Doug Yoder-Sr. Director of Affiliate and Risk Management Office: 309-557-2993 yoder@ilfb.org