Minding Ag's Business

Q+A on Farm Bill Choices

We've been busy answering questions from the more than 1,000 people registered for our August webinar on "ARC or PLC: What's the Right Farm Bill Option for You?" You can still listen and download power points from a free one-hour rebroadcast with economists Gary Schnitkey of the University of Illinois and Carl Zulauf of Ohio State University at http://tinyurl.com/…. But here are some of the most common questions attendees posed to us:

Question: I am confused by the terminology “owner,” “renter,” “producer.” We have cash rented acres; does the owner have to agree with our decision and then submit separate paperwork etc?

Gary Schnitkey, Univ. of Ill.: Each Farm Service Agency (FSA) farm will have the same set of decisions. If it is rented, the farmer and land owner will have to agree on the decisions.

Marcia Taylor, DTN: If there's no agreement, Production Loss Coverage (PLC) becomes the default option, but the farm potentially will be ineligible for payments in 2014. Based on recent price projections, that could be a big penalty for typical Midwest corn producers who (at this stage in seasonal price projections) could collect up to $79/base acre in 2014-crop Agriculture Risk Coverage-County (ARC-CO) payments.

Question: If an FSA farm changes operators during the life of the Farm Bill, is the new operator locked in to choice of the previous operator—or does the new operator bring his current choices to the new farm?

Gary Schnitkey, Univ. of Ill: Yes, decisions will follow the farm and will last the life of the farm bill.

Carl Zulauf, Ohio State: The decision is tied to the land, not the owner nor to the operator. A new owner or a new operator will have to accept the program choices made for the FSA farm.

CROP INSURANCE

Question: I don’t see the need to purchase Supplemental Coverage Option (SCO) at all. To me it seems that using the $ to buy an extra 5% or 10% crop insurance coverage would be better. Sound okay?

Gary Schnitkey, Univ. of Ill.: SCO has very little risk management benefits when the COMBO product (RP, RP with Exclusion, YP) has an 85% coverage level. Essentially the same benefits can be obtained with the COMBO product at an 85% coverage level. When the COMBO product does not have an 80% and 85% coverage level, there may be risk management benefits from SCO.

Carl Zulauf, Ohio State: COMBO products are for an individual insurance farm while SCO is a county product. It is not unusual for the change in a farm's yield or revenue between the pre-plant price period and the harvest price period NOT to be the same as the change in a county's yield or revenue over the same period. This difference in change is a type of basis risk. Thus, it is possible for a farm's revenue to decline but for the county revenue to increase, and vice versa. Hence, for the same coverage level, in almost all instances, individual farm insurance offers better risk protection than a county product. On the other hand, county insurance is often cheaper than individual farm insurance because yield variability is usually less for the county. That's due to the county being the average experience of all land planted to the crop in the county.

Marcia Taylor, DTN: Gary, that jibes with what I'm hearing. Some of the most enthusiastic SCO supporters are from the Delta or Texas where federal crop insurance is not offered above 75% levels for some crops, or their APHs have been so eroded by repeated drought, they say the ARC payment formula doesn't work as well for them. Cost is also an issue: I'm told that in Tennessee and Kentucky, 85% coverage costs twice as much or more than identical coverage in Indiana and Ohio. So growers in those states might look more closely at SCO coverage when its rates are made available for spring coverage.

REFERENCE PRICES

Question: What price is used to set the ARC reference price for wheat? Chicago futures? Is there a range of time used to determine the year’s results?

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Gary Schnitkey, Univ. of Ill.: ARC has benchmark prices, which equal the Olympic average of the five previous market year average (MYA) prices. Market Year Average prices are calculated by National Agricultural Statistical Service, an agency of USDA.

Carl Zulauf, Ohio State: Market year average prices are also called crop-year average prices. These prices are averages of the average U.S. cash price for the calendar month during the crop year, weighted by the share of all U.S. production sold during that calendar month. The wheat crop year is from June 1 through May 31.

Marcia Taylor, DTN: You can find those NAAS estimates with updates in USDA's monthly World Agricultural Supply and Demand estimates at http://www.usda.gov/…

BASE AND YIELDS

Question: How are base yields updated, from insurance records or does farmer have to prove bushels for each year/farm?

Gary Schnitkey, Univ. of Ill.: Updates yields will be based on farm yields from 2008 through 2012. FSA has not released the types of documentation that will be required for yield updating. Farmers and land owners likely will self certify yields. Documentation will be required if the self-certified yields are audited.

Question: What will I have to prove my yields for 08-12? Will my crop insurance APH be good or will I have to bring in all of my elevator delivery slips? What if I don’t buy crop insurance?

Gary Schnitkey, Univ. of Ill.: Required documentation has not been released by FSA.

Marcia Taylor, DTN: According to Todd Jennison, a farm program consultant with Kennedy and Coe, you can start your documentation by asking for your actual yields and planted acres from your crop insurance company. "Your current base and yield can be obtained from your local FSA office via the 156 EZ form," he says. "If you had yields that fell below 75% of the average of the 2008-2012 county yield, you can substitute a plug yield obtained from the FSA national webpage or from USDA's National Agricultural Statistics Service. They are based on the county yield averages estimated each year by USDA." For more background, see Minding Ag's business from 7/31/14 http://www.dtnprogressivefarmer.com/…

Question: Does the counter-cyclical yield update only affect the PLC program?

Gary Schnitkey, Univ. of Ill.: ARC does not use program yields to calculate payments. PLC will use program yields. Even if ARC is selected, consider updating yields if updated yields are higher. Program yields may impact payments in future farm bills.

Carl Zulauf, Ohio State: History clearly tells us that program yields are infrequently updated and thus may hang around for several farm bills.

Question: Do you need to plant a crop to be paid on base acres?

Carl Zulauf, Ohio State: No. For ARC-CO and PLC, payments will be made on program (also called base) acres. Planted acres do not impact payments for ARC-CO and PLC.

Question: Our farm has been in alfalfa from 08-12. What then?

Gary Schnitkey, Univ. of Ill. Rules have not been released.

Carl Zulauf, Ohio State: It is expected that you will at least be able to keep your current program yields and acres.

Question: If you have new acres brought into production from CRP or pasture, can you update total base acres?

Carl Zulauf, Ohio State: Again the rules have not yet been released. While there are always specific exceptions--and I encourage you to talk to FSA about your specific situation--in general total base acres cannot be increased or decreased. This decision is best described as a base-acre allocation decision, not a base acre update decision. But there are provisions in the farm bill that speak to acres coming out of CRP. How the provisions will be applied has yet to be announced.

CALCULATORS

Question: Where and when are calculators available?

Gary Schnitkey, Univ. of Ill.: A University of Illinois calculator will be available September 25.

Marcia Taylor, DTN: So we should watch http://www.farmdoc.illinois.edu/… for links to the Illinois calculator. Texas A&M's tentative farm bill calculator is available, with the caveat that since many rules have not yet been announced, results could change. It is not the official calculator that will be released in conjunction with FSA. In the meantime, go to https://afpc.tamu.edu/…

Follow me on Twitter@MarciaZTaylor

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Comments

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Jarrod Bennett
9/17/2014 | 7:11 AM CDT
Aaron, its my understanding as well that we are not going to be able to increase the total base acres a farm has, only reallocate the mix of crops contained in that total base.
Marcia Taylor
9/16/2014 | 11:11 AM CDT
I have customers that have recently purchased ground that has been in CRP the last 30-50 years. It is good farm ground and should never have been put in the program. The problem is it doesn't carry very many base acres. Is there a way to add base acres? I have spoken with several FSA offices, and they are not aware of any way, but it seems that there should be some way for these producers to update their base acres on those farms. Just something we have run into here in Kansas. --Aaron Cross