Food, Conservation, and Energy Act of 2008: Programs for Commodities

1. Food, Conservation, and Energy Act of 2008:Programs for Commodities Jody Campiche Mike Dicks Larry Sanders

2. Continues many of the commodity programs introduced in recent farm legislation • Adjustments to payment limits and eligibility • New average crop revenue election program • Permanent disaster assistance program • Adjustments to long-standing crop insurance program Commodity Programs

3. Direct Payments DP • 2008 and 2012 - 85% * Base * Yield * Rate • 2009 – 2011 - 83.3% * Base * Yield * Rate Commodity Programs

4. Counter Cyclical Payments CCP Target prices for selected commodities Commodity Programs -DCP

5. Average Crop Revenue Election (ACRE) • Manage short term shortfalls in revenue • Part of suite of risk protection programs • Similar to a “put option” on expected state revenue • Odds for a payment increase if ACRE is in the money Direct – Countercyclical Payment • Manage chronic low prices Commodity Programs

6. 20% reduction in DP • 30% reduction in MLA • One time election in any year 2009-2012 • Must enroll all base acres for farm • If you have multiple farms, do not have to enroll all farms • Once enrolled, must remain in ACRE for remainder of 2008 farm bill Average Crop Revenue Election (ACRE)

7. ACRE Payment - General • Two triggers – state and farm • State – revenue guarantee > actual state revenue • Farm – revenue guarantee > actual farm revenue • Based on planted acreage yields • ACRE payments not tied to base Commodity Programs

8. TWO TRIGGERS MUST BE MET BEFORE PAYMENTS CAN BE ISSUED 1. STATE TRIGGER Actual State Revenue State ACRE Guarantee 90% times Benchmark State Yield (5-year Olympic average planted yield) times ACRE Program Guarantee Price (2-year national average price) 100% times Actual State Planted Yield times higher of: National Average Market Price or 70% of National Loan Rate MUST EXCEED AND 2. FARM TRIGGER Actual Farm Revenue State ACRE Guarantee 100% times Farm Average Yield (5-year Olympic average planted yield) times ACRE Program Guarantee Price (2-year national average price) plus Producer-paid Crop Insurance Premium 100% times Actual Farm Yield times higher of: National Average Market Price or 70% of National Loan Rate Average Crop Revenue Election (ACRE) MUST EXCEED Source: http://agriculture.senate.gov/

9. Calculation of a Farm’s Payment FARM PAYMENT = 83.3% of farm's planted acresa times (farm's average yield divided by State benchmark yield) times State ACRE guarantee Actual State Revenue minus Lesser of: State ACRE guarantee times 25% a The total number of planted acres for which a producer may receive ACRE payments may not exceed the total base acres for the farm. If the total number of planted acres exceeds the total base on the farm the producers may elect which planted acres to enroll in ACRE. Average Crop Revenue Election (ACRE)

10. Supplemental agricultural disaster assistance program • Supplemental Revenue Assistance Payments (SURE) Program •Livestock Forage Disaster Program (LFP) • Livestock Indemnity Program (LIP) • Tree Assistance Program (TAP) • Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish (EALHF) Program Disaster Relief

11. Payment = 60% * (SURE guarantee - Total Farm Revenue) • to be eligible, must have purchased or be enrolled in crop insurance for any and all mechanically harvested crops • For insurable crops on the farm, a policy or plan of insurance under the Federal Crop Insurance Act • For noninsurable commodity on the farm, filed the required paperwork and paid the assistance fee by the applicable State deadline, for NAP SURE

12. What farms are eligible for SURE payments? • Farm located in county covered by qualifying national disaster Or • Expected revenue on farm < 50% of its normal expected revenue And • Farm must suffer at least a 10% eligible production loss on at least 1 crop of economic significance And • Must have NAP or federal crop insurance And • Must meet AGI limits SURE

13. Total Farm Revenue: • estimated actual value based on • actual crop acreage harvested • estimated actual yield • national average market price • 15 percent of any direct payments issued • total counter-cyclical or average crop revenue payments • total marketing loan proceeds (including certificate gains) • total crop insurance or NAP indemnities • value of any other natural disaster assistance payments SURE

14. As price falls, the 2 year average price in the revenue benchmark declines • As yield falls, the Olympic average yield in the revenue benchmark declines • As the revenue benchmark declines, ACRE payment declines Get in Now!

15. Historically, ACRE would only have paid in 1 year out of several years • History does not show multiple consecutive years of “large” payments from ACRE • Cost is higher to enroll in 1st year • Lose 20% of DP for next 4 years • In 2010, cost drops to a 20% loss in DP for 3 years for a chance of one “large” payment • Probably don’t want to enroll in ACRE in 2009 if it is out of the money • Still pay same “premium” cost for ACRE even if it is out of the money ACRE

16. How do I make the Decision? • Planted acre yield history (10 years) • Price expectation (5 year average) • Yield expectation (5 year average) • Desired Risk Protection - Objective of ACRE or DCP for Operation • SURE and Crop Insurance coverage (premium) • What crops will I grow? • Risk and some things to think about

17. Sign up for DCP as soon as possible • Select crop insurance options • Gather data for ACRE and SURE calculation • Check with your County Educator to see if they will be offering assistance with the decision tool What do I do Now?