Ag Policy Blog

Base Acre Decisions Are Key to New Farm Bill

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A farm bill conference last week in Kansas City, Mo., finally came up with a more appropriate name for the Agricultural Act of 2014.

Keith Coble of Mississippi State University, who served as an economist on Sen. Thad Cochran's ag committee staff, dubbed the farm bill as the "Full Employment for Ag Economists Act."

The meeting was good, but some of the discussions from economists also generated more questions than answers about ARC and PLC that we hope the Farm Service Agency will begin to clear up in the coming weeks.

For now, farmers and landlords likely are still going through decisions on base acres. One word of advice from an economist to farmers: Base-acre reallocation and yield update decisions reside with the landowner. If you haven't heard from your landlords on base-acre decisions, you should give them a call. Your landlords might not have any idea what exactly those letters from the Farmer Service Agency were about. You may need to walk them through some of those decisions if you haven't already.

In a lot of circumstances, reallocation of base acres and yield update could have the biggest impact on a producer's potential commodity payments over the next five years.

Keep in mind: In one of those defining elements of logic that only comes from a farm bill, yield and acreage allocations involve different years.

A farmer can update yields from planting history from 2008 to 2012.

A farmer can reallocate base acres to another commodity based on planting history from 2009-2012.

A simple rule of thumb on yield: go with the highest average, whether that is the old base yield or a new one after calculating the planting history.

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An on-line decision tool created by Texas A&M and the University of Missouri is up and running, though some elements of it are not finalized. A similar decision tool by the University of Illinois and Ohio State University should be coming on-line in a few weeks. The Farm Service Agency will likely tout these decision tools once actual sign up for ARC and PLC begins.

The decision tools also are designed to help with decisions on base acres. If you are interested in testing out some scenarios, the Texas A&M-Missouri tool can be found at https://www.afpc.tamu.edu/…

Some Regional Scenarios

The northern Plains and southern cotton country will see significant changes in yield and base reallocation.

Crop production in the northern Plains has diversified over the past decade and yields have gone up significantly. That new-found ability to grow more crops in North Dakota adds some wrinkles to the potential to update yields or reallocate base acres.

Dwight Aakre, a farm management specialist at North Dakota State University, noted wheat was the dominate crop in the state historically, thus wheat has a high base in N.D.

Yields have increased for most crops statewide in North Dakota. Taking the new base potential of 90% of the average yield from 2008-2012, wheat yields are 21% higher than the current counter-cyclical yield throughout North Dakota. Corn yields are 33% higher and canola is 30% higher.

That higher production potential in the northern Plains translates into more diverse rotations. Guys who relied almost exclusively on wheat, canola or barley in the past now have the potential for switch to other crops on their base acres because they have the production history.

Updating base can also have an advantage if you happened to catch that year when production boomed for a particular crop. Aakre noted a farmer in the Red River Valley with 32 bushels of wheat base who planted wheat just one year in that 2008-2012 stretch. But 2010 was a good year for wheat in North Dakota and the producer yielded 90 bushels an acre. Thus, the farmer would be eligible for 81 bushels an acre on wheat base (90% of the average yield).

In the South, the new phenomenon of "generic" base acres offers some advantages for cotton growers. While farmers may be planting 10 million to 11 million acres of cotton, there are about 18 million acres of cotton base acres. Because cotton is no longer in the commodity program, those cotton base acres become "generic" base. Those generic base acres will be reallocated every year based on other covered commodities planted on the farm. The generic base gets to reset every year based on planting decisions on other base acres.

An example from the University of Georgia showed a farm a 200 acre farm that would have 100 acres of cotton (now generic) base, along with 40 acres of peanut base, 40 acres of corn base and 20 acres with no base. Under this scenario, the farm could have half the generic base go to peanut base and half to corn base in 2015 if the farm were to plant 65 acres of corn and 65 acres of peanuts, then the 100 acres of generic base would be divided equally among corn and peanuts.

Such farms can actually have more total base acres than planted in a year because the actual base going to peanuts and corn do not have to be planted.

Farms in states such as Georgia and Alabama that have both cotton base and a planting history with peanuts could create some potential planting distortions because of the high potential for peanut payments in the Price Loss Coverage program. Peanuts have a reference price of $535 per ton that applies to 85% of base acres. Farmers in Georgia are average yield.

Even though there are only about 1.5 million acres of peanut base nationally, the combination with generic base and overplanting could lead to a tipping of the scale on peanut prices and production that. The more acres of peanuts planted, the lower the average price per ton will be and the higher likelihood of generating PLC payments.

Peanuts also have a special provision that would allow those producers to cap out commodity payments exclusively for peanuts then have a separate payment limit for other commodities on the farm.

Given the high level of per-ton payments generated for peanut producers, it's likely at least some southern farmers with generic base and peanut production history will grow peanuts on some of that land.

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