Men Pointing at Field

Farmers must decide whether to make payments based purely on price or price plus yield under the farm bill signed into law on February 7, 2014.

Impacts of financial decisions

New Farm Bill Offers Choices

  • 2/11/2014

Update 11/25/14: Farmers Must Understand the Differences Between Farm Bill Programs

Many farmers are still struggling to answer the common questions surrounding the new farm bill.

Because some analysis is required to determine which of the programs are best for their operations, farmers have been seeking out information before making a final decision. In response, CLA is offering a farm bill analysis service to help farmers answer the following questions:

  • Should I update my payment yields?
  • Should I reallocate my base acres?
  • Which program should I select between and why?
  • What are the differences between Price Loss Coverage (PLC) and revenue-based assistance Agricultural Risk Coverage (ARC)?

Once the best program is determined, the farmers must make the proper election this year. If they do not, they lose a possible payment for this year and will be locked into the PLC program.

For more information on how we can help, contact Paul Neiffer.

After almost four years of wrangling among senators, representatives, and every agribusiness special interest group, President Obama finally signed the new Agriculture Act of 2014 (farm bill) on February 7, 2014.

“The key conclusion from the new farm bill is that farmers no longer will receive direct payments for simply being a farmer,” says Paul Neiffer, an agribusiness principal at CliftonLarsonAllen.

Because of the significant updates to many of the programs, if farmers do not take action over the next few months, they may be locked into programs that do not meet their needs.

Title 1 — Commodity Programs

The commodity programs in Title 1 of the bill and the choices required for the program will begin with the 2014 crop year and will be in place through the 2018 crop year (unless extended by Congress).

Title 1 provides for either a price-based assistance program called Price Loss Coverage (PLC) or revenue-based assistance called Agricultural Risk Coverage (ARC). To prevent planting and market distortions, payments will now be made based on base acres and not actual planted acres, and the percentage of base acres can vary based upon the program elected by the farmer. Many facets of the commodity programs have changed in the 2014 farm bill.

Changing base acres

Owners of a farm will be given a one-time opportunity to either retain their current base acres or reallocate their base acres among those covered commodities planted during the 2009-2012 crop years.

If the owners choose reallocation, the farm's base acres going forward will be in proportion to the four-year average of acres planted to each covered commodity in those crop years, including any acreage that was prevented from being planted to a covered commodity in a crop year.

Update payment yields

The owners of a farm also have a single opportunity to update payment yields for covered commodities.

Payment yields are currently a part of the farm records at USDA (along with base acres) and payment yields will be used to calculate the PLC payments for any covered commodities on which PLC has been elected. If a yield update is elected, the new payment yields will be equal to 90 percent of the average yield per planted acre of the covered commodity in the 2008 through 2012 crop years.

One-time program election

Beginning with the 2014 crop year, all of the producers on a farm must make a one-time, irrevocable election among the price (PLC), county level revenue (County ARC), and individual farm level revenue (Individual ARC) programs.

The PLC election can be made on an individual covered-commodity basis, however, Individual ARC applies to all covered commodities on the farm, and a farm cannot elect PLC for some commodities and Individual ARC for others.

This feature adds complexity since the farmer will need to decide between PLC and County ARC programs for all covered commodities. If County ARC is elected for a covered commodity it is ineligible for the Supplement Coverage Option (SCO) created in the crop insurance title of the bill. All of the producers on a farm must make this program decision for the 2014 crop year, and it must be unanimous. If they fail to make a unanimous election for the 2014 crop year, no one will receive any payments for the 2014 crop year from the programs. Additionally, the farm will automatically be deemed to have elected PLC for all covered commodities beginning with the 2015 crop year.

The term producer includes everyone sharing in the risk of producing a crop and entitled to share in the crop available for marketing from the farm. It includes owners, operators, landlords, tenants, and sharecroppers. Farmers will need to involve landlords in this decision, and everyone involved must agree.

Selecting coverage level

As noted above, revenue-based assistance through ARC requires that all producers select the same coverage level: county or individual farm. The calculations and payments for County ARC and Individual ARC are similar, but have important differences.

County ARC makes revenue-based payments on 85 percent of the covered commodity’s base acres when actual county revenue is between 86 percent and 76 percent of the benchmark county revenue. The benchmark county revenue is calculated using the 5-year Olympic rolling average (drop the highest and lowest crop years) of county yields for the commodity and the 5-year Olympic rolling average of its national prices (based on the marketing year).

Individual ARC calculations include all covered commodities planted on the farm with revenue-based payments made on 65 percent of the farm's total base acres. The calculations for Individual ARC must also take into consideration the individual producer's share of all farms in the same state in which the producer has an interest and for which Individual ARC has been selected.

Individual ARC makes payments whenever the actual revenue for all covered commodities on the farm is between 86 percent and 76 percent of the benchmark revenue, which is calculated using a 5-year Olympic average of the sum of the revenues (prices multiplied by yields for each commodity) for all covered commodities. More specifically, each covered commodity's price and yields are multiplied for each crop year, then the 5-year Olympic average of each commodity's revenue are added together for the benchmark. Although, this program might be appropriate for some, the potentially lower payments due to less payment acres will make this program less attractive than the County ARC.

Dairy and livestock programs

The Dairy Product Support and Milk Income Loss Contract (MILC) programs are now replaced with a Dairy Production Margin Protection Program based on the difference between the price of milk and feed cost of producing milk.

A producer elects a coverage level between $4 and $8 per cwt (centum weight, a unit of a hundred pounds). No premium is owed for the $4 level and premiums are paid for higher levels. Premium schedules are higher for production levels greater than 4 million pounds (about 200 cows). For example, if a producer exceeds 4 million pounds, their annual premium per cwt of production will be $1.36 per cwt for an $8 margin election versus $.475 for production under 4 million pounds.

The bill permanently funds a Supplemental Agriculture Disaster Assistance program. It includes a Livestock Indemnity Program for livestock losses from adverse weather or attacks by federally reintroduced animals; a Livestock Forage Program for losses resulting from drought or fire; a program of emergency relief to producers of livestock, honey bees, and farm-raised fish not covered by the two previous programs; and a Tree Assistance Program for natural disasters.

Payment levels

Payments directly or indirectly received by a person or legal entity under Title 1 are limited to $125,000. Limit for a person and spouse is $250,000. There are no payment limitations on dairy margin payments. A separate payment level for peanuts remains. The USDA will also write new regulations defining “active management in farming.” Strengthening this definition will eliminate gray areas and make eligibility clearer.

The old two (farm and non-farm income) adjusted gross income (AGI) limitation tests are replaced with a single $900,000 AGI limitation for certain commodity and conservation programs.

The maximum acres available for the Conservation Reserve Program (CRP) for 2014 is 27.5 million acres, and that limit is reduced to 24 million acres by 2018.

Title 11 — Crop Insurance

Supplemental Coverage Option (SCO) provides farmers the option to purchase county level insurance that covers part of the deductible under their individual yield and revenue loss policy. The coverage level cannot exceed the difference between 86 percent and the coverage level in the individual policy.

The subsidy rate is 65 percent, however, SCO is not available if the farmer is enrolled in ARC (ARC is similar to SCO). Since this is crop insurance, there is no limitation on payment; however, you will be required to pay a premium for the elected coverage.

Higher subsidy levels for enterprise insurance are now permanent. A new revenue-minus-cost margin crop insurance has been authorized, with rice being the initial target market in 2015.

Insurance plug yields (used to benchmark crop yields) are increased from 60 percent to 70 percent. A producer may exclude a yield for a crop year in which the county-planted acre yield was at least 50 percent below the average county yield over the previous 10 consecutive crop years.

Farmers can elect different coverage levels for irrigated and non-irrigated crops. Also, insurance benefits are reduced if a farmer tills native sod for production of an annual crop. Beginning farmer and ranchers are eligible for a higher subsidy rate on insurance.

Make the proper election this year

Under the new bill, payments based purely on price (PLC) or price plus yield (ARC) will be available to farmers. This means farmers need to do some analysis to determine which program is best for their operation.

Once the best program is determined, the farmers must make sure to make a proper election this year. If not, they lose a possible payment for this year and will be locked into the PLC program.

While many of the provisions are still awaiting interpretation by the Department of Agriculture, now is the time to explore your choices for 2014.