Frequently Asked Questions About the New Farm Bill
Congress finally passed the new Agriculture Act of 2014 (also known as the Farm Bill) earlier this year. Under the new bill, producers no longer automatically receive direct payments from the government, and must take action soon to choose a payment program that fits their needs.
Since the bill has significant changes for farmers, we have received many questions about it. Here are answers to some of the most frequently asked queries.
Q. I hear that as a producer, we now have two programs to choose from. Is this correct?
A. Yes and no. Beginning with the 2014 crop year — which starts September 1 for corn and soybean growers — a farmer will need to elect between Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC).
ARC is a revenue-based loss coverage that will kick in once the actual revenue for the crop year is less than 86 percent of the targeted revenue. Targeted revenue is based on a five-year Olympic average (i.e., the average not including the highest and lowest values) times the Olympic average yield. Payment is limited to 10 percent of targeted revenue.
PLC is based strictly on price. Once the average commodity marketing year price falls below a “reference” price, then a payment will be made based on the difference times the “payment yield” for that crop. Farmers can elect to update their yields to the average of the 2008 – 2012 crop years.
Reference prices for major crops are:
- Corn — $3.70 per bushel
- Wheat — $5.50 per bushel
- Soybeans — $8.40 per bushel
Payments will be made after October 1 of the following year. For example, any payments for the 2014 crop year will not occur until after October 1, 2015. Therefore, most farmers will not receive any governmental payments during calendar year 2014.
Q. What happens if we do not choose either PLC or ARC?
A. Farmers are required to make a one-time election: either ARC or PLC. Those who do not make an election will receive no payment for the 2014 crop and will be locked into PLC through the 2018 crop year. Enrollment in this program will most likely occur sometime after the 2014 crop year actually begins — there is no definitive date yet.
Q. Will I get more payments if I plant all of my acres to corn or beans?
A. There was some discussion on making payments based on actual acres; but the final farm bill will simply make payments based on the producer’s base acres. However, farmers can elect to update their base acres to reflect the actual average planted acres during 2009 – 2013.
Producers may want to make this election if they believe that it will increase their payments. Payments will be based upon 85 percent of base acres for both ARC and PLC county coverage and 65 percent for individual farm acres. Farmers may choose between ARC and PLC for each crop, unless they pick individual farm ARC, which requires all crops to be enrolled in ARC.
Q. The old farm bill had a payment limitation. Does this bill have the same provisions?
A. The old farm bill had a $40,000 limitation on most direct payments. Under the new farm bill, this limitation has been increased to $125,000 for each producer. If the producer is married, the limit is increased to $250,000 (assuming the spouse is enrolled in the program).
Q. My adjusted gross income (AGI) was over the old limit, and I had to pay back some direct payments. Are AGI levels the same with the new bill?
A. The old farm bill contained both a farm AGI limitation ($750,000) and a non-farm AGI limitation ($500,000 or $1 million). The new bill eliminates the distinction between farm and non-farm and has one overall limitation of $900,000.
Q. I am a dairy farmer and have heard there is a new margin protection program for us. Is this correct?
A. Yes, there is a new dairy margin protection program for dairy farmers. This margin protection program is similar to crop insurance. Those who elect to participate will receive a payment if the average margin (average all-milk price less average feed cost) drops below certain levels during a two month period. The margin levels available range from $4 to $8 in 50 cent increments. There is no charge for the $4 level and smaller producers will have lower premiums.
Payments will be based on elected coverage levels (ranging from 25 percent to 90 percent of production history) times the difference between the actual and elected dairy margin (assuming actual is less than elected).
The production history is considered the highest amount of production during 2011 – 2013. This history will be updated for changes in average U.S. milk production. There is no limit on the payments that a dairy farmer will receive.
While many of the provisions are still awaiting interpretation by the U.S. Department of Agriculture, now is the time to explore your choices for 2014.