2014 Farm bill COMMODITY programs

1. 2014 Farm bill COMMODITY programs Dr. Jody Campiche Dr. Eric DeVuyst Department of Agricultural Economics Oklahoma State University

2. Disclaimer • This information is based on my reading of the 2014 farm bill and discussions with Congressional Agriculture Committee staff • I know there will likely be differences in my interpretation and the final rules and regulations • This information is intended to be for educational purposes only • Additional information will be available before most decisions need to be made

3. 2014 Farm Bill • One-time decision to reallocate base acres • **total base acres cannot increase (will be the same as on Sept. 30, 2013) • One-time decision to update CC yields on a farm • One-time (5 year) election of: • Price Loss Coverage (PLC) • Ag Risk Coverage – County (ARC-CO) • Ag Risk Coverage – Individual (ARC-IC)

4. Owner/Operator Acreage History Letters • Should have received a letter with basic background of base acreage • Should receive a Summary Acreage History Report • Acreage of covered commodities reported to FSA from 2008-2012 • Includes your base acreage and CC yield as of 9/30/13 • Contact your local FSA office if your acreage history is incorrect • Collect your 2008-12 yield data

5. Decisions at the FSA office • Do you want to update your base acreage? • Do you want to update your FSA payment yields? • Do you want to enroll each crop/farm in ARC or PLC?

6. Payment Acres • ARC/PLC paid on base acres • Do NOT have to plant to receive ARC/PLC on base acres (not including cotton base acres) • PLC calculation uses the FSA payment yield

7. Decisions at the crop insurance office • If you chose not to enroll a crop/farm in ARC, do you want to purchase SCO? • Are you comfortable with a county-level product • SCO only pays if the county has a loss but the premium is much cheaper than an RP policy

8. Reallocation of Base Acres • Option to retain or reallocate total base acres to crops planted in 2009-2012 • Reallocation is in proportion to the ratio of the 4-year average of planted acres for each covered commodity

9. Reallocation of Base Acres • Example: • Producer has 80 acres of wheat base • In the past 4 years, 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)

11. Base Reallocation Example

13. Yield Update • Updated payment yield = 90% of the average of the yield per planted acre for the 2008-2012 crop years • Exclude any year when no acreage was planted to the covered commodity • Will likely use crop insurance APH yield data for 2008-2012 • Producers with yields in any of the 2008-2012 years that are < 75% of the county average yield can use 75% of the 2008-2012 county average yield as a substitute • The substitute yield for Garfield County Wheat = 24

14. Yield Update Example • Wheat CC yield = 35 bu • Garfield County 75% of 2008-12 yield = 24 (75% of 24 = 18)

15. New Programs COMMODITY PROGRAMS PLC ARC CROP INSURANCE SCO

16. 4 Commodity Program/Crop Insurance Choices • PLC • PLC + SCO • ARC-County • ARC-Individual

17. Plant a different crop than base crop

18. Important Points • Distinction between programs tied to base acres and programs tied to planted acres • ARC/PLC paid on base acres • SCO paid on planted acres • Payment limits exist for commodity programs but not for crop insurance programs

19. Important Points • The decision to enroll in ARC/PLC varies by crop, region, farm size, etc… • SCO may not be an attractive option for some crops/regions/farms • ARC/PLC paid on 85% of base acres, SCO paid on 100% of planted acres

20. Farm Program Choices

21. Farm Program Choices • Interaction between programs • Choices will all take place at different times • This may be particularly confusing for ARC/PLC and SCO • No SCO for 2014 crop year • SCO sign-up for the 2015 crop year will occur before ARC/PLC sign-up for the 2014 crop year (for fall planted wheat)

22. PLC • PLC – price protection • Payment if actual national average marketing year price < reference price • Paid on 85% of base acres • Do not have to plant to receive payment if payment is triggered

23. PLC

24. ARC • ARC – revenue protection • Option to choose farm or county level coverage • Farm paid on 65% of base (includes whole farm revenue) • County paid on 85% of base • Do not have to plant to receive payment if payment is triggered

25. ARC • Similar to ACRE in 2008 farm bill • Key differences: • County level trigger (ACRE had a STATE/farm trigger) • Payment limited to 10% of the benchmark revenue • Huge difference for OK wheat ($45-$60 ACRE payment compared to $16-$20 ARC payment)

26. PLC vs. ARC County • Both are limited by $125K payment limit per entity • Both paid on 85% of base acreage • ARC – limited to 10% of benchmark revenue ($160-$210 for wheat)

27. PLC vs. ARC County • PLC – limited to: • $5.50 – actual price * FSA payment yield • Ex. $5.00 price and 35 bu FSA payment yield = $17 PLC • Ex. $4.75 price and 35 bu FSA payment yield = $26 PLC • Ex. $4.50 price and 35 bu FSA payment yield = $35 PLC • Then if you add SCO and the county has a revenue loss, you could get an SCO payment • The maximum SCO payment is higher than the maximum ARC payment but you do pay a premium for SCO

28. SCO • Shallow loss insurance program that covers county-wide losses and complements a producer’s individual insurance policy • Requires that producers purchase an underlying insurance policy • Covers the difference between 86% and the level of coverage of the producer’s individual insurance policy • 65% subsidy

29. SCO • County-level policy endorsement that is in addition to an underlying crop insurance policy • Starts in 2015 – can enroll each year as long as ARC is not selected for the crop/farm • Producers who elect to participate in ARC are not eligible for SCO for the crop and farm participating in ARC

30. SCO Decision Tool

31. SCO Expected Area Yields

32. SCO: Slightly Confusing PLC/ARC Details • Example 1 • Producer has 100 acres wheat base and enrolls the wheat in ARC – plants 100 acres of wheat – CANNOT enroll wheat in SCO • Example 2 • Producer has 100 acres of wheat base, enrolls the wheat in ARC - plants 100 acres of corn – CAN enroll the corn in SCO

33. SCO/RP/YP/ARC/PLC Decisions • Is ARC a better option for your crop/farm? • Is your base acreage different than your current planted acreage? • Will you reallocate base acreage? • What is your current RP/YP coverage level? • What is the cost of higher RP/YP coverage? • Do you have enterprise units? • Are you planting a large amount of acreage over your base?

34. Timeline • Sept 30, 2015 – elect SCO for 2015 wheat • Late Summer/Early Fall 2015 – update yields and reallocate bases • Winter 2014 – final base and yield notices issued, elect ARC/PLC • Winter 2014 – withdraw from SCO if you elect ARC • Early 2015 – Enroll in ARC/PLC for 2014 and 2015

35. OSU/KSU Decision Tool

38. Results

40. Questions? Jody Campiche jody.campiche@okstate.edu http://agecon.okstate.edu/agpolicy/ 405-744-9811