Dr. Jody Campiche Oklahoma State University

1. 2014 Farm Bill Commodity Programs Dr. Jody Campiche Oklahoma State University

2. Disclaimer • All analysis is based on my interpretation of the bill language. • Some information in unknown since USDA has not published the regulations for implementation of farm bill programs. • ARC and PLC calculations are based on various price and yield scenarios and do not reflect actual payments. • The information provided in this webinar is designed to provide further understanding of new farm bill programs.

3. 2014 Farm Bill • Eliminated Programs • CCP • DP (except transition assistance payments for cotton) • ACRE • SURE • New Programs • Agriculture Risk Coverage (ARC) • Price Loss Coverage (PLC) • Supplemental Coverage Option (SCO) • Stacked Income Protection Plan (STAX)

4. Summary of New Programs • ARC – Revenue protection program similar to ACRE – used individual or county yield instead of state yield as in ACRE – sign up at FSA (not an option for cotton base) • PLC- Price protection program similar to CCP – updated reference prices – sign up at FSA (not an option for cotton base) • SCO – covers part of the deductible portion of an individual insurance policy – purchased through a crop insurance agent in addition to individual policy • STAX – very similar to SCO but only for cotton

5. Cotton • Since cotton is not eligible for ARC/PLC and STAX isn’t available until 2015, cotton producers will receive transitional payments • Payment on 60% of base acres in 2014 • Payment on 36.5% of base acres in 2015 (if STAX isn’t available in the county)

6. Choices • 2014: • 1. Retain or update base acres • 2. Retain or update payment yields • 3. Enroll in PLC or ARC (individual or county) • 4. Chose individual insurance policy (RP, YP, other) coverage • 2015: • 1. If enrolled in PLC, option to enroll in SCO • 2. Option to enroll cotton in SCO or STAX • 3. Choose individual insurance policy (RP, YP, other) coverage

7. Commodity Program/Crop Insurance Choice

8. Base Update • ARC/PLC paid on base acres (not including cotton base acres) • ACRE was paid on planted acres, DP and CCP were paid on base acres • Do NOThave to plant to receive ARC/PLC on base acres (not including cotton base acres) • ARC/PLC payments are not automatic like direct payments • Can receive ARC/PLC on cotton base acres if another crop is planted each year on those acres – year by year decision • Option to retain or reallocate base acres (not including cotton base acres) to crops planted in 2009-2012

9. Base Update • Reallocation is in proportion to the ratio of the 4-year avg of planted acres for each covered commodity • Ex: Producer has 80 acres of wheat base • In the past 4 years, has planted 160 acres - 40 acres of wheat (25%) and 120 acres of corn (75%) • Can retain 80 wheat base acres or reallocate 25% to wheat and 75% to corn (so 20 wheat base acres and 60 corn base acres) • Reallocation cannot increase base acres (still have the same amount in effect on Sept 30, 2013)

10. Cotton (or Generic) Base • All existing cotton base acres on a farm are automatically converted to generic base • Generic base is irrelevant unless a covered commodity is planted on the farm • Cotton is no longer a covered commodity • Generic base is assigned to that covered commodity for that crop year

11. Cotton (or Generic) Base Assume the farmer has 100 acres of generic base Example 1: Farmer plants 75 acres of peanuts. All 75 acres of generic base are assigned to peanuts. Example 2: Farmer plants 150 acres of peanuts. All 100 acres of generic assigned to peanuts. NOTE: The farmer cannot receive more than 100 acres of payments on generic base because he/she only has 100 acres of generic base. Example 3: Farmer plants 35 acres of peanuts and 35 acres of soybeans, for a total of 70 acres of covered commodities. Since that is less than the 100 acres of generic base, the farmer is paid on 35 acres of peanuts and 35 acres of soybeans. Example 4: Farmer plants 80 acres of peanuts (50%) and 80 acres of soybeans (50%), for a total of 160 acres of covered commodities. Since 160 acres is in excess of the 100 acres of generic base, the farmer is paid on a pro-rata share. Since 50% of the covered commodity acres are in peanuts, 50% of the generic base (or 50 acres) goes to peanuts. Since the other 50% of the covered commodity acres are in soybeans, the other 50% of the generic base (or 50 acres) goes to soybeans.

12. Yield Update • Option to update payment yields • Only applies to PLC in the 2014 farm bill • ARC not tied to payment yields • May still want to update yields even if enrolled in ARC • Recent yields may be higher than historic yields • Payment yields could be used in future farm bill programs

13. Yield Update • Updated payment yield will be 90% of the average of the yield per planted acre for the 2008-2012 crop years • If the yield for any of the 2008-2012 crop years is < 75% of the average of the 2008-2012 county yields, a yield plug of 75% of the avg 2008-2012 county yield will be used

14. PLC vs. ARC • Commodity-by-commodity and farm-by-farm decision • One time irrevocable decision in 2014 (for remainder of 2014 farm bill) • All owners and tenants must make same choice (or default to PLC with no payments until the 2015 crop year – need to agree and make the decision in 2014!) • Program choice follows land (in case the land is farmed by a different operator in a later year)

15. PLC vs. ARC • Producers with cotton base will also choose ARC or PLC in 2014 in case they plant a crop other than cotton in a future year (even if they are planting cotton in 2014)

16. PLC: How does it work? • Payment if actual price* < reference price • Payment rate = (reference price – actual price1) * payment yield * 85% * base acres 1use the higher of national marketing year price or loan rate – unlikely for price < loan rate

17. PLC: How does it work? • PLC Reference Prices • PLC Payment on 85% of Base Acres

18. PLC vs. County ARC

19. ARC Individual • If ARC Individual is selected, election applies to all covered commodities on the farm • Calculations include the producer's planted acreage share in all farms for which Individual ARC has been selected • Payments triggered when actual revenue is less than the revenue guarantee  • Payments on 65% of base acres

20. ARC Individual • Actual revenue is the weighted average of the actual revenues for each covered commodity • Weights assigned by the amount of acreage planted to each crop in each crop year • Actual revenue for each commodity = yield * MYA price • Benchmark revenue • Annual benchmark revenue for each commodity = yield * MYA price for each commodity for each year • Calculate the 5-year Olympic average benchmark revenue for each commodity (computed in #1) • Use Olympic average benchmark revenue for each commodity (computed in # 2) to compute a weighted average whole-farm revenue with weights based on planted acres of each commodity

21. Price Forecasts *New FAPRI forecast available in March 2014

22. Wheat

23. PLC vs. County ARC

24. PLC vs. County ARC

25. PLC vs. County ARC - Wheat

26. PLC vs. County ARC - Wheat

27. Corn

28. PLC vs. County ARC - Corn

29. Soybeans

30. PLC vs. County ARC – Soybeans

31. 1higher of expected county trend yield or 5 year moving avg county yield for STAX

32. Payment Limits/AGI • $125,000 combined limit on ARC, PLC, MLG, LDP • New regulations to define “actively engaged” • One AGI Limitation of $900,000 for commodity and conservation programs (instead of separate farm/non-farm income limits)

33. Crop Insurance

34. Supplemental Coverage • Supplemental Coverage Option (SCO) • Available for commodities enrolled in PLC and cotton • 65% subsidy • Available in 2015 • Stacked Income Protection Plan (STAX) • Only available for cotton producers • 80% subsidy • Available in 2015

35. Other • Permanent higher subsidy for enterprise units • Separate enterprise units for irrigated/non-irrigated crops • Different coverage levels for irrigated/non-irrigated crops • Option to exclude certain yield history from APH database • If county suffers a 50% yield loss, farmers in the county can exclude that year’s low yield out of their APH • Revenue insurance for peanuts

36. Beginning Farmer/Rancher • Premium assistance that is 10 percentage points higher • Beginning farmer/rancher previously involved in farming operation assigned a yield that is the higher of APH of previous producer on the acreage • Higher plug yield of 80% of applicable T-yield

37. NAP • Producers may purchase NAP for crops/grasses used for grazing (at the CAT coverage level) • Could also choose to enroll in the new Annual Forage (AF) insurance instead

38. Jody Campiche 528 Ag Hall 405-744-9811 jody.campiche@okstate.edu http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters