July&August Mtngs

General Overview of the Agricultural Act of 2014

DeDe JonesExtension Risk ManagementSpecialist III

2014 Farm Bill ForumAmarillo, TX

April 23, 2014

This Information is Based on OurReading of the Bill and Discussions with AgCommittee Staff

As in the Past, We Know There Will Likely Be Differences in Our Interpretation and the Final Regulations

Presentation Disclaimer

Overview

44.557.6

756.4

89.88.1

Commodity ProgramsConservation ProgramsNutrition ProgramsCrop Insurance ProgramsEverything Else

Estimated Outlays for 2014 Farm Bill (Billion $), 2014 to 2023.

Source: Compiled from CBO estimates, January 28, 2014

Change in Estimated Outlays Relative to the Baseline for 2014 Farm Bill (Billion $), 2014 to 2023

Source: Compiled from CBO estimates, January 28, 2014

Commod

ity Pr

ogram

s

Conser

vatio

n Prog

rams

Nutritio

n Prog

rams

Crop In

suran

ce-20-15-10-505

10

-$14.3

-$4-$8.6

+ $7

What’s Out??

Direct Payments

Countercyclical Payments (CCP)

ACRE Program

Cotton Program - - except for loan rate

What is Out??

What’s In??

What’s In?? Price Loss Coverage (PLC)

Agricultural Risk Coverage (ARC)

Insurance products (2015??)◉ SCO – Area wide product◉ STAX – Applies only to cotton

Other Changes & Opportuniti

es

One time opportunity to reallocate base acreage between crops that you have planted (2009-2012 crop year averages)

One time opportunity to update payment yields to 90% of the 2008-2012 crop year averages

Cotton base acres are now “Generic” base acres

Sign up should start after the first of the year

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

Changes & Opportunities

General Commodit

y Provisions

Wheat, Oats, Barley, Corn, Grain Sorghum, Long Grain Rice, Medium Grain Rice, Pulse Crops, Soybeans, Other Oilseeds and Peanuts◉ Other Oilseeds

◉ Sunflower seed, Rapeseed, Canola, Safflower, Flaxseed, Mustard Seed, Crambe, Sesame Seed, or any oilseed designated by the Secretary

◉ Pulse Crops◉ Dry peas, Lentils, Small Chickpeas and Large

Chickpeas

Covered Commodities

• $125,000 per person payment limits for (ARC, PLC, LDPs and marketing loan gains) combined

• Peanuts maintain a separate limit• $900,000 3 year average adjusted gross

income (AGI) on commodity and conservation programs

Payment Limitations

• Actively Engaged Provisions- Directs the USDA Secretary to conduct a

rulemaking to define the term “significant contribution of active personal management” and determine if a limit on the number of individuals in an entity qualifying using “management” is necessary.

- Potential changes will not apply to individuals or to entities that are made up solely of family members.

Payment Limitations (Cont.)

Base Reallocati

on

• One time base reallocation- Two choices (made by farm):

• Reallocate (cannot add base acres)• Retain existing base acres

- Reallocates base acres other than cotton that were on the farm as of September 30, 2013

Base Reallocation

Decoupled from production, only applies to program crops

Cotton base acres are now generic base acres

Producers also have the opportunity to update their payment yields to 90% of the 2008-2012 crop year averages

Base Reallocation (Cont.)

- Reallocation is in proportion to the ratio of:• The 4 year average of planted acres to

each crop from 2009 to 2012/ the 4 year average of all covered commodities planted

• Under planting does not affect the amount of base. The planted acres of covered commodities only affects the proportion of base acres that you will reallocate among commodities

Base Reallocation (Cont.)

Base Reallocation Example  Corn Sorghum Soybean

s Wheat TotalBase 0 0 0 1,000 1,000           Plantings          2009 500 250 250 0 1,0002010 500 250 250 0 1,0002011 500 250 250 0 1,0002012 500 250 250 0 1,000Average 500 250 250 0 1,000           Share 50% 25% 25% 0%  

           Reallocated Base 500 250 250 0 1,000Source: House Agriculture Committee Staff

  Corn Sorghum

Soybeans Wheat Alfalfa Total

Base 0 0 0 1,000 n/a 1,000             Plantings            

2009 600 100 100 0 200 1,0002010 600 100 100 0 200 1,0002011 600 100 100 0 200 1,0002012 600 100 100 0 200 1,000Average 600 100 100 0 200 1,000             Share 75% 12.5% 12.5% 0% n/a  

             Reallocated Base 750 125 125 0   1,000Source: House Agriculture Committee Staff

Base Reallocation Example (With a Non-program Crop)

Should you reallocate the base or not? It Depends………… Yes, if the operator’ objective is to

manage risk based on what he actually plants

Maybe no if the operator is trying to maximize the expected payments received

Base Reallocation Decision

• Base reallocation- As soon as practicable after the date of enactment of this

Act, the Secretary shall provide notice to the owners of a farm regarding their opportunity to make an election

• Yield Update- At the sole discretion of the owner of a farm, the owner of

a farm shall have a 1-time opportunity to update, on a covered commodity-by-covered-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 The Decisions?

• ARC or PLC- For the 2014 through 2018 crop years, all of

the producers on a farm shall make a 1-time, irrevocable election to obtain.

This decision stays with the farm for the life of the farm bill

Who Makes The Decisions? (Cont.)

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

Price Loss Coverage (PLC) Program

Reference PricesWheat -------------------- $5.50/buCorn ---------------------- $3.70/buGrain Sorghum ---------- $3.95/buSoybeans ----------------- $8.40/buOther Oilseeds ----------- $20.15/buPeanuts ------------------- $535/ton

Crop Target Price Effective PriceCorn 2.63 2.35Grain Sorghum 2.63 2.28Peanuts 495 459Oats 1.79 1.766Soybeans 6.00 5.56Wheat 4.17 3.65

8.405.50

PLCReference Price

2008 Farm Bill

3.703.955352.40

Price Loss Coverage (PLC) Reference Price

PLC Payment made on 85% of Base Acres

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

ARC county will allow irrigated and non-irrigated to be calculated separately

Agriculture Risk Coverage (ARC)

County Payments are made when actual revenue for the covered commodity < ARC revenue guarantee, where:

◉Actual county revenue = actual county yield per planted acre * national marketing year average price

◉ARC revenue benchmark = 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

◉ Payments cannot exceed 10% of indiv benchmark revenue

Comparing PLC and

ARC

2014/15 2015/16 2016/17 2017/18 2018/190

5

10

15

20

25

30

2527

24

161314

21

25 26 25

ARC PLC

Avg. corn ARC and PLC Payments(Dollars per base acre for participating producers)

AFPC Estimate of Average PLC and ARC Payments for Corn in Moore County, 2014 to 2018

This is a good decision to have – both appear to providesupport. What you decide is a personal choice, and may depend your insurance selection & price expectations

Market Receipts

MLG

Revenue per bu

LoanRate – $1.95

Market Price

Revenue Benchmark

Crop insurance coverage

86%76%

Illustration of Government Support for Corn Under ARC-County

[paid on base acres x .65 (individual) or .85 (county)]

Revenue Guarantee

Market Receipts

PLCMLG/LDP

Revenue per bu

Reference Price – $3.70

LoanRate – $1.95

Paid on base acres x .85

Market Price

Illustration of Government Support for Corn Under PLC

Crop insurance coverage

Supplemental Coverage Option

Major Insurance Provisions

• A new area-wide insurance program (SCO) will be available to all PLC producers to purchase beginning in 2015 that is designed to protect them against losses that would normally fall within their insurance deductible range. Must have individual policy- Up to 86% revenue guarantee. 65% premium

subsidy- Sign up on an annual basis, based on current

production

Major Insurance Provisions

Partially Available For Next Year

• 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

• SCO is not available if enrolled in ARC• Requires conservation compliance to receive

premium subsidy AND a signed AD-1026 form on file by July 2015

Supplemental Coverage Option

InsuranceGuarantee

Deductible

40%SCO

Indemnity 26%

ActualPrice

XActualYield

Example:60%

coverage

Loss 14%

Ind. Coverage Indemnity

Insu

ranc

e Pr

ice

X 10

Yea

r Av

erag

e (A

PH)

Yiel

d

Example of Price LossCoverage

(PLC)PlusSCO

CropInsuranceExpectedRevenue

+Any PLCBenefits

Other Insurance Provisions• Makes enterprise unit discount permanent.

Allows enterprise units to be split out for irrigated and non-irrigated crops

• Adjustment in actual production history to determine insurable yields.- A producer may choose to exclude any year

from their APH if their yield in that year is less than 50% of the ten year county average. This also applies to contiguous counties and allows for the separation of irrigated and non-irrigated acres.

Choose ARC

Choose PLC

County

Base/Yield ReallocationDecision

Choice BetweenARC and PLC

Individual

Beginning in 2015 can

choose SCO insurance

option

Flow Chart of Title I Producer Choices for Covered Commodities Other than Upland Cotton

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.

Crop Insurance

Title XI

Cotton Provisions

• Upland cotton producers will no longer participate in commodity programs other than the marketing loan program

• The primary government safety net for cotton producers will be a new cotton only insurance program referred to as stacked income protection plan (STAX)◉ STAX will not be available until the 2015 crop

year at the earliest so the bill provides cotton producers a transition payment for up to 2 years if needed that is similar to the direct payment in previous farm bills (5.4 cent). Deadline to sign-up is October 7th.

Upland Cotton Only

• All Cotton base on the farm as of September 30, 2013 is renamed Generic Base- Upland cotton no longer receives traditional

commodity program payments - In an attempt to resolve longstanding WTO dispute

with Brazil, the only income support upland cotton will receive is through purchased insurance

- On an annual basis, generic base acres can be assigned to other covered commodities based on the number of acres planted of the other covered crops

- Will need to make Commodity Program Choices on Generic Base

Cotton Base Becomes Generic Base

Generic Base

Original Wheat Base

100 Acre Farm – Base Acres: 50 Wheat and 50 Generic

If farmer plants 50 acres of wheat and 50 acres of sorghum

Allocated Generic Base to Sorghum

Allocated Generic Base

to Wheat

Farmer has protection on 75 acres of wheat and 25 acres of GS

Generic Base

Original Wheat Base

100 Acre Farm – Base Acres: 50 Wheat and 50 GenericIf farmer plants 100 acres of cotton

Generic Base Idled for Year

Farmer has protection on 50 acres of wheat

Generic Base Idled for Year

Generic Base

Original Wheat Base

100 Acre Farm – Base Acres: 50 Wheat and 50 GenericIf farmer plants 1 acre of wheat and 99 acres of cotton

Allo

cate

d Ge

neric

Bas

e to

W

heat

Farmer has protection on 51 acres of wheat

• “Expected” to be available beginning 2015 crop year

• An area-wide insurance program only available to upland cotton producers to purchase beginning in 2015 (similar to GRIP plan)

• 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 up to 120%

Stacked Income Protection Plan (STAX)

• 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

Stacked Income Protection Plan (STAX) (Cont.)

Loss 10%

Loss 10%

InsuranceGuarantee

Deductible

40%

STAX Indemnit

y 20%

ActualPrice

XActualYield

Example:60%

coverage

Ind. Coverage Indemnity

Insu

ranc

e Pr

ice

X 10

Yea

r Av

erag

e (A

PH)

Yiel

d

Example of STAX

CropInsuranceExpectedRevenue

Area loss only

Dryland STAX SCOIndemnity

PaidProducer Premium

Indemnity Paid

Producer Premium

2000 $37.55 $2.63 $48.81 $5.982001 $35.40 $2.48 $46.02 $5.642002 - $1.57 - $3.572003 $11.49 $2.47 $4.45 $5.612004 - $2.08 - $4.742005 - $1.60 - $3.632006 $27.84 $1.95 $36.19 $4.432007 - $2.08 - $4.732008 - $2.57 - $5.842009 - $2.31 - $5.262010 - $4.00 - $9.102011 $62.73 $4.39 $81.55 $9.992012 $51.52 $3.61 $66.98 $8.20Total $226.53 $22.72 $248.00 $76.71Average $17.43 $2.59 $21.85 $5.90Ratio 6.7 3.7

How does STAX stack up against SCO?

Irrigated STAX SCOIndemnity

PaidProducer Premium

Indemnity Paid

Producer Premium

2000 $67.54 $4.73 $85.02 $10.762001 $63.96 $4.48 $169.30 $10.182002 - $3.22 - $7.322003 $71.74 $5.55 $55.88 $12.622004 - $4.58 - $10.412005 - $3.72 - $8.462006 - $4.22 - $9.592007 - $4.63 - $10.542008 - $5.88 - $13.392009 - $5.19 - $11.812010 - $9.17 - $20.872011 $152.03 $10.64 $197.64 $24.212012 $32.75 $8.52 $8.42 $19.37Total $388.01 $74.53 $430.11 $169.54Average $29.85 $5.73 $33.09 $13.04Ratio 5.2 2.5

How does STAX stack up against SCO?

Choice of STAX

with or without

crop insurance

or SCO

with crop insurance

Can’t have both on

same acres

SCOCounty plan

on top of individual plan only,coverage<= 86%

Crop insurance: Underlying

individual or area plan coverage

determines STAX lower bound

Flow Chart of Title XI Decisions for Upland CottonSTAX

County plan alone or on

top of individual

or area plan,

coverage ≥ 70% to

90%, 1.2

multiplier Crop insuranceUnderlying

individual plan coverage level

determines SCO lower bound

How to Sort Through All the

Choices??

AFPC Decision

Aid

Why Use It???? There are a lot options and almost impossible

to evaluate them all with a pad & pencil◉Program options by Farm number, practice

and crop

You will have to live with some decisions for the life of the program and maybe beyond magnifying results

It will really simplify program signup - - Print out the results and highlight what you want

Data entry will be by far the most challenging part of using the Decision Aid but you only have to do it once!

External data required:◉FSA form 156-EZ (Base acres & yields)◉Insurance info (yields and APH)◉Crop basis information (est.)

Texas version (unofficial) is ready for you to input your data in - - when the “official” version comes out your data will automatically be transferred

AFPC Decision Aid

Producers are Asked to Create an Account So We Can Alert “if” Rules Change

Once an Accnt is Created, Login Anytime to Adjust Data, Rerun Scenarios, etc.

This Tool Provides Title I and Title IV Assistance for Producers

Sample Input Page

Data Summary Page - Yields

Sample Yield Update Results

Sample Input Page - Acres

Sample Base Acre Update Results

Must Manually Enter Prices

Results

Results

Results

Results

Commodity Program Summary• The farmer safety net is strong – but

mostly after a loss is incurred- It is going to take some farmers a while

to get used to this- If you are a new farmer or rancher,

there are additional programs that might be of benefit to you

• Crop insurance is going to take on a larger role in producer risk management decisions

• A good insurance agent will be key

Conservation and

Disaster Programs

Supplemental Agricultural Disaster Assistance program is funded permanently

Includes Livestock Indemnity Program (LIP) and Livestock Disaster Forage Program (LDFP)

Will back up and pick up 2012 and 2013 Remove the linkage with NAP on pasture

Supplemental Agricultural Disaster Assistance Programs

Contact Your Local FSA Office!

Mandatory Conservation Program Outlays

Source: FAPRI-MU U.S. Baseline Briefing Book, page 47

CRP outlays fall, other conservation programs rise

0

1

2

3

4

5

6

7

2007 2009 2011 2013 2015 2017 2019 2021 2023

Fiscal year

Bill

ion

dolla

rs

Conservation reserve Other mandatory conservation programs

Conservation Reserve Program Cap Reduced from a Current Maximum of 32 to 24 million acres by 2018

Conservation Reserve Program (CRP)

2014 2015 2016 2017 2018

Million AcresCRP Cap by Year

27.7 26 25 24 24

Annual enrollment cap of 10,000,000 acres at a national average payment rate of $18 per acre for FY 2014 through FY 2022.

Conservation Stewardship Program (CSP)

Merges Wildlife Incentive Program (WHIP) with EQIP◉Eligible lands include:

◉ Upland wildlife habitat◉ Wetland wildlife habitat◉ Habitat for threatened or endangered species◉ Habitat on pivot corners and irregular areas of

a field◉ And as determined by the Secretary

60 Percent of Funding for Livestock Producers At Least 5 Percent of Funds Targeted at Wildlife

Benefitting Practices

Environmental Quality Incentives Program (EQIP)

2014 2015 2016 2017 2018

Billion Dollars of Mandatory Funding

Environmental Quality Incentives Program (EQIP)

1.35 1.60 1.65 1.65 1.75

Environmental Quality Incentives Program (EQIP)

Livestock disaster program enrollment starts NOW

Signup for the commodity programs will begin probably early 2015◉Decision to reallocate base acres and/or yields◉Chose between PLC or ARC

Cotton Decisions to be made soon - - ◉Signup for transition payment◉Signup for what crops are eligible for Generic

acres and make PLC or ARC election for each of them

What you Need to Know- - - -

Second and final round of county level meetings by Extension will be in October & November?

Meetings will focus on:◉Major FP Provisions – especially changes◉Decision Aid Data entry◉Interpreting results produced by the

decision aid◉Analysis of options using High Plains case

studies-

More Education Opportunities Coming…..

Questions????The End……

For Now!!