National ag policy, Farm Bill programs provide new options for producers
After passing the Agriculture Act of 2014, many producers are concerned about how programs will be implemented.
“We know that there is a farm bill,” said Vince Smith, professor of economics at Montana State University. “We weren’t quite sure we were ever going to get one.”
The bill, he noted is 930-plus pages long, and an additional 20,000 pages of regulations are likely to be seen after the rules and regulations, as well as the implementation handbooks, are prepared.
“Most of us haven’t read the bill, and most of us never will,” he continued. “We are pretty sure we wouldn’t understand what it means, even if we did. There are so many ambiguities present in the bill.”
“We won’t really know what is in the bill until the implementation rules have been developed and published,” Smith emphasized. “It is only then that we will fully understand the options for farms.”
A handful of programs that have been a part of the Farm Bill are no longer available.
“We know that the $4.9 billion a year of direct payments to farms are gone,” Smith said. “Counter cyclical payments are also gone, but in practice, the new Price Loss Coverage (PLC) program is essentially that program with base yield, base acres and higher prices to trigger payments.”
The Average Crop Revenue Election (ACRE) program, which Smith described as the original shallow loss program from the 2008 Farm Bill, is also gone.
“The Supplemental Revenue Assistance Payments (SURE) program for crops and the disaster aid program that is tied into a variety of other programs is also gone,” he commented.
The Dairy Margin Program has also replaced the dairy price support program and Milk Income Loss Contract (MILC) programs.
The eliminated options have been replaced by a series of other programs in the Agriculture Act of 2014.
As Smith noted, the new Farm Bill sets up several new options for farmers that are quite complicated, particularly in Title One, the farm subsidy title, and Title 11, which looks at crop insurance.
“The first program to look at is PLC,” he explained. “In that program, payments will be made when they are available on historically determined acres with higher support prices than under countercyclical payments.”
Smith added that price support falls under a significantly higher standard than before.
Essentially, PLC is very similar to the countercyclical payment program, where payments are triggered when prices fall below a reference level on the national average basis.
An additional new program, the Supplemental Coverage Option (SCO), serves as the new insurance program.
Agriculture Risk Coverage
“The Agricultural Risk Coverage (ARC) program is also a program in which payments will be made on historically-determined payment acres, again with a different structure of support than has previously existed,” Smith explained.
Under ARC, the previous five years of estimated revenue at the county or farm level is used to establish expected revenue on a per-acre basis.
“If the estimated revenue per acre falls below 86 percent of the established expected revenue, payment is made,” he said. “Payment is capped, as well.”
For both PLC and ARC, payments are notionally capped at $250,000, said Smith, assuming two eligible persons are on each farm.
“It is a little more complicated, but that is a change from what might have been expected a year ago, where payment was a great deal of focus,” he commented. “There are some restrictions on disaster aid payments that can be received, as well.”
Changes have also been made to the livestock indemnity and livestock forage disaster aid programs.
“Most of those disaster programs are funded retroactively for 2012-13,” Smith commented. “Farm Service Agency is moving very quickly on implementing those programs, with implementation rules being developed right now.”
Implementation rules are expected to be completed as soon as March 15, he added.
With the new Farm Bill programs, Smith noted that producers must choose between PLC and ARC, with each program offering different benefits.
“If the farm opts for PLC, it can also use the SCO for individually covered crops,” he said. “Payments will be made on 85 percent of farm production base for each crop, and if they opt for SCO, they have to make an additional choice about coverage.”
“If a farm opts for ARC, it cannot participate in SCO,” Smith said.
Under ARC, producers can choose to utilize county-level or farm-level estimated revenue. However, if they choose to utilize farm-level estimated revenue, only 65 percent of eligible production would be covered.
“There are lots of choices and decisions to be made,” Smith emphasized, “and those decisions will be based very much on what we expect prices to look like.”
Smith said price triggers for Farm Bill payments under the new programs are much higher than in previous bills.
“Under PLC, we have seen increases in the trigger prices,” he commented.
The trigger price increased by 57 percent for corn, 53 percent for wheat and 107 percent for barley.
“These are substantial changes intended to make PLC more attractive and more lucrative than past programs,” Smith said.
Take home message
At the end of the day, with all the changes seen in farm subsidy programs, Smith noted that they have become more complicated.
“The House and Senate Ag Committees have done their best to create lots of work for ag economists,” he joked. “The real question for the farm sector in deciding which new program to use is sorting out what will happen to the prices of major crops over the next five years.”
Smith commented, “There are lots of things to continue to sort out.”
Ag in Uncertain Times will continue to host webinars on the new Farm Bill programs. A March 17 webinar will cover the dairy margin and livestock disaster program. Commodity programs and crop insurance will be covered on March 24. The conservation title, horticulture and beginning farmers will be addressed on March 31, and the nutrition title and food policy will be detailed on April 7.