Outlook, Farm Bill, and Crop Insurance

1. Outlook, Farm Bill, and Crop Insurance ISUEO Farm Management In-Service Ames, Iowa May 8, 2012 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. U.S. Corn Supply and Use ? Source: USDA-WAOB, 2012 Unofficial Projections

3. U.S. Soybean Supply and Use ? Source: USDA-WAOB, 2012 Unofficial Projections

4. Budget Projections by Title

5. Budget Projections by Crop

6. Commodity Title

7. 2012 Senate Proposal Eliminates direct payments, countercyclical payments, and the ACRE program Keeps marketing loan program Creates the Ag. Risk Coverage program

8. ARC instead of ACRE Revenue-based support program Farmer chooses county or farm-based guarantee Choice determines the % of land covered by the program

9. ARC Guarantees Based on 5-year Olympic averages of price and yield Exception: farm-based price is 10-year average Price is national season-average price Yield is farm yield for farm-based coverage and county yield for county-based coverage Yield is per planted (and prevented planted) acre Guarantee = 89% * Ave. Price * Ave. Yield

10. ARC Set-up for Corn in 2013 10-year average 3.77

11. ARC Guarantees Benchmark Revenue = $779.00/acre = 164 bu/acre * $4.75/bu. for county $618.28/acre = 164 bu/acre * $3.77/bu. for farm In this case, the guarantee equals 89% * $779.00/acre = $693.31/acre for county 89% * $618.28/acre = $550.27/acre for farm Payments are triggered when actual revenues fall below these levels

12. ARC Actual Revenues Price is set at the higher of the crop loan rate or the mid-season price Loan rate for corn is $1.95/bu. Mid-season price is the average price over the 1st 5 months of the marketing year

13. ARC Actual Revenues Yield is the actual yield per planted acre Farm-based option uses actual farm yield County-based option uses actual county yield Actual Revenue = Price * Yield

14. ARC Payment Rate Payment Rate = Minimum of 10% of Benchmark Revenue or ARC Actual Revenue – ARC Guarantee The maximum payment rate is 10% of Benchmark Revenue In my example, that’s $77.90/acre for the county-lever and $61.83/acre for the farm-level

15. ARC Acreage Program is based on planted and prevented planted acres, but doesn’t pay on all of them Acreage limit = average of 2009-12 plantings (and prevented plantings) Treats planted and prevented planted acres differently

16. ARC Acreage For farm-based option, you get paid on 65% of your planted acres and 45% of your prevented planting acres For county-based option, you get paid on 80% of your planted acres and 45% of your prevented planting acres

17. ARC Payout Graph No ARC payments ARC pays out

18. Factors to Consider Farm-based guarantee could be higher or lower than county-based guarantee Farm-based option is generally more likely to pay out, but you get payments on 15% less acres County-based option might not trigger when farm has a loss

19. Crop Insurance Title

20. Crop Insurance Supplemental Coverage Option Can purchase area-based policy to cover deductible part of individual-based policy Payments triggered when area suffers 10% loss If you participate in ARC, you face a deductible of 21% for this option What is the deductible if you do not participate in ARC? 70% premium subsidy for actuarially fair premium

21. Crop Insurance Enterprise discounts are now permanent Separate enterprise units for irrigated and nonirrigated land Change t-yield percentage from 60% to 70% Any renegotiation of the Standard Reinsurance Agreement shall be budget neutral

22. Crop Insurance Allows private insurance company pilot of index-based weather insurance Allows premium subsidy of 60% or less Waives CAT fee, adds 10% to premium subsidy rates, and sets yield bound at 80% of the t-yield for beginning farmers

23. Conservation Title

24. Not the Last Word on the 2012 Farm Bill Senate proposal is just the start of the process There will likely be several changes/modifications ARC may or may not be in the final farm bill But now we know the starting point for negotiations