2014 FARM BILL COMMODITY PROGRAM UPDATE

Jody Campiche

Eric DeVuyst

Department of Agricultural Economics

Oklahoma State University

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

Covered Commodity Programs

Covered Commodities

Covered commodities include wheat, oats, barley, corn, grain sorghum, long grain rice, medium grain rice, pulse crops, soybeans, other oilseeds and peanuts

Upland cotton is no longer a covered commodity

Eliminated Programs

CCP

SURE

ACRE

DP

New Programs

ARC

STAXSCO

PLCCROP INSURANCE

COMMODITY PROGRAMS

Distinction between programs tied to base acres and programs tied to planted acres This part gets a bit confusing

Payment limits exist for commodity programs but not for crop insurance programs As the program is currently specified, cotton

producers would no longer be subject to payment limits since both STAX and SCO would have no payment limits

Combined payment limit for ARC/PLC/MLG/LDP – could have different implications for different regions

SCO and STAX cost money!

Important Points

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

Farm Program Choices

Plant a different crop than base crop

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)

For other crops, producers may enroll in 2014 ARC/PLC prior to 2015 SCO enrollment

Farm Program Choices

Farm Program Choices

2014 crop year:1. Retain or update base acres – fall 20142. Retain or update payment yields – fall 20143. Enroll in PLC, ARC county, or ARC individual – late 2014/early

2015

2015 crop year:1. Option to enroll in SCO (producer) – fall 2014 for winter wheat or

spring 2015 Not an option for crops/farms enrolled in ARC

2. Choose individual insurance policy (RP, YP, other) coverage – fall 2014 or spring 2015

Important note: SCO enrollment for 2015 fall planted wheat will occur in Sept. 2014

Important Program Details

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) ARC/PLC payments are not automatic like direct

payments

Two types of base acres:Total base acres (non-cotton acres)Generic base acres (old cotton

acres)

Reallocation of Base Acres

Option to retain or reallocate total base acres to crops planted in 2009-2012 – cannot update cotton base acres

Generic cotton acres cannot be reallocatedCan receive ARC/PLC on generic

cotton acres if another crop is planted on those acres

Reallocation of Base Acres

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 baseIn 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)

Yield Update

Option to update payment yields

Only applies to PLC in the 2014 farm bill but the update is separate from the ARC/PLC decisionARC not tied to payment yields

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

PLC vs. ARC

Commodity-by-commodity and farm-by-farm decision(except farm-level ARC – must select

farm-level ARC for all commodities on a farm #)

One time decision in late 2014 or early 2015 (for remainder of 2014 farm bill)

PLC

PLC – price protection

Payment if actual price < reference price

Similar to CCP in 2008 farm bill

Key difference: Higher reference prices

PLC

Crop 2008 FB CCP Target Price

PLC Reference

Price

Barley 2.24 4.95

Corn 2.63 3.70

Cotton 0.7125 NA

Grain Sorghum 2.57 3.95

Peanuts 495 535

Oats 1.44 2.40

Rice 10.50 14.00

Soybeans 5.80 8.40

Wheat 3.92 5.50

ARC

ARC – revenue protectionOption to choose farm or county level coverage

Farm paid on 65% of base (includes whole farm revenue)

County paid on 85% of base

Similar to ACRE in 2008 farm billKey differences:

County level trigger (ACRE had a STATE/farm trigger) Payment limited to 10% of the benchmark revenue

(ACRE payment limited to 25% of benchmark) Huge difference for OK wheat ($45-$60 ACRE

payment compared to $16-$20 ARC payment)

ARC

Farm-level ARC is a whole-farm revenue program

Farm-level ARC might trigger payments more frequently than county-level ARC but producers would receive a payment on 20% less base acreage

With county-level coverage, a producer could have a loss on his own farm, but would not receive a payment if the county does not suffer a loss as well

Producers with yields that do not follow closely with the county average may want to consider farm-level ARC

PLC vs. County ARC

PLC ARC County

Guarantee Reference Price County Revenue

Benchmark Yield

FSA program yields

5 yr Olympic Average county yield

Benchmark Price

Reference Price 5 yr Oly Avg max (MYA Price, Reference Price)

Benchmark Guarantee

Reference Price 86% * Benchmark Price * Benchmark Yield

Actual Yield NA County yield

Actual Revenue

NA County yield * MYA Price

Payment Acres

85% * base acres

85% * base acres (30% of PP)

Maximum Payment

None (except for $125K combined payment limit)

10% * Benchmark Revenue (and $125K combined

payment limit)

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

SCO

County-level policy endorsement that is in addition to an underlying crop insurance policy

Covers a portion of losses not covered by the same crop’s underlying policy

Producers who elect to participate in ARC are not eligible for SCO for the crop and farm participating in ARC

SCO – Winter Wheat

Producers applying for SCO for the 2015 winter wheat crop may withdraw coverage on any farm where intend to elect ARC for winter wheat by the earlier of their acreage reporting date or Dec. 15, without penalty (and will not be charged a crop insurance premium)

Allows producers additional time to make an informed decision about ARC or PLC for winter wheat

SCO Covered Commodities:2015 crop year

Corn Cotton Grain sorghum Rice Soybeans Spring barley Spring wheat Winter wheat

SCO – OK Counties (Winter Wheat)

Alfalfa Garvin NobleBeaver Grady OklahomaBeckham Grant OttawaBlaine Greer PayneCaddo Harmon Roger MillsCanadian Harper TexasCimarron Jackson TillmanComanche Kay WagonerCotton Kingfisher WashitaCuster Kiowa WoodsDewey Logan WoodwardEllis Major  Garfield McClain  

SCO Expected Area YieldsAlfalfa 35.3 Jackson 27.2Beaver 27.3 Kay 30.6Beckham 21.7 Kingfisher 30.2Blaine 27.5 Kiowa 26.7Caddo 30.5 Logan 31.3Canadian 30.9 Major 30.3Cimarron 20.7 McClain 31.7Comanche 23.7 Noble 25.4Cotton 24.0 Oklahoma 33.2Custer 28.5 Ottawa 33.1Dewey 26.5 Payne 26.5Ellis 21.5 Roger Mills 24.5Garfield 33.2 Texas 33.5Garvin 31.9 Tillman 26.2Grady 28.1 Wagoner 31.7Grant 32.5 Washita 27.6Greer 24.2 Woods 31.8Harmon 26.6 Woodward 26.5Harper 25.4

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

SCO/RP/YP/ARC/PLC Decisions

Is SCO offered for your crop/county for 2015?

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?

Upland Cotton

Cotton Safety Net

Reduced direct payment, called a transition payment, in 2014 (and possibly 2015) Since cotton is not eligible for ARC/PLC and STAX isn’t

available until 2015 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)

Marketing loan support

STAX - area-wide revenue insurance program

SCO

STAX

STAX coverage can range from 90% of the county revenue guarantee to 70% or the coverage level of the underlying policy (if there is one) whichever is higher

An individual policy is not required with STAX

80% subsidy

SCO vs. STAX

Upland cotton producers have the option to elect SCO instead of STAX for planted cotton acreage

Key differences

With SCO, the producer’s APH yield is used to calculate the liability

Higher subsidy with STAX

Different yields used in calculation?

OSU/KSU Decision Tool

Results

Questions?

Jody Campichejody.campiche@okstate.edu

405-744-9811