Category: Agricultural Policy

The recent passage of the 2014 Farm Bill (formally known as the Agricultural Act of 2014) brings about some significant changes in agricultural policies, specifically within Titles One and Eleven in the legislation. The following summarizes the key changes that were made, the new programs that are being made available to landowners and producers, and the decisions that these individuals or firms will need to make.

First, from Title One, the new bill eliminates Direct Payments, the Counter-Cyclical program (CCP), the Average Crop Revenue Election program (ACRE), and the supplemental revenue assistance program. Marketing loans are retained and unchanged.

New offerings for 2014 through 2018 are Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). PLC and ARC cannot be chosen for the same base acres and committing to either PLC or ARC is locked for the duration of the current Farm Bill (5 years). Also, for 2014 only, transition payments for current cotton base acres and yield will be available.

Two new Title Eleven products are Stacked Income Protection Plan (STAX) for planted cotton acres and Supplemental Coverage Option (SCO) for other covered program crops. Both STAX and SCO are an “insurance styled” revenue protection coverage.

For more detail on these new offerings click HERE and for a breakdown on each individual program click the acronym: ARC, PLC, STAX (including information on 2014 transition payments), and SCO.

With respect to base acres, landowners are provided the opportunity to reallocate the current base acre allotment. This attempts to bring current base allotment more in-line with recent plantings. The reallocation of covered commodities will be in proportion to the 4-year average of the planted acres (actual planted and prevented plantings) from 2009 to 2012 crop years. Also, yields can be updated to reflect 90% of the 5-year average from 2008 to 2012.

Given that cotton is no longer a covered (Title One) commodity, current cotton base can be converted to “generic” base. In any year that generic base is planted to a covered commodity, that base will fall in-line with the program choice for that commodity. For example, if soybeans are allocated to generic base in 2015 then the generic base will be follow the soybean program chosen (ARC or PLC). Then if corn were planted to the generic base in 2016, the generic base would follow the corn program chosen (ARC or PLC).

Late Monday evening (Jan 27) the conference committee of the U.S. House of Representative and the Senate finalized the Agricultural Act of 2014 putting the new farm bill on its path to approval. The House passed the bill today (Jan 29) by a vote of 251-166.  The Senate may vote tomorrow.  Much of the bill will go into effect in the near future.

As has been expected, the new legislation will abandon the long-standing direct payments. Also, the Average Crop Revenue Election and Counter-Cyclical programs that were introduced, respectively, in the 2008 and 2002 bills will transition to Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). The marketing loan program will likely remain unchanged. Cotton will utilize its own program, Stacked Income Protection Plan (STAX).

Producers and/or landowners will face many decisions with the new legislation. First, base acres could have the option to be reallocated and yields can be updated. Second, producers must choose either ARC or PLC for all non-cotton base. With the ARC program, producers will then have the option to choose coverage at their individual farm level or at the county level. The PLC option can be combined with a supplemental layer of coverage, called Supplemental Coverage Option (SCO). However, SCO can be added without opting into PLC, but SCO cannot be combined with ARC.

ARC will be delivered by the Farm Service Agency (FSA) and, again, will trigger at either the farm or county level, depending on the producer’s decision. The county and farm level ARC will both kick in when the farm’s revenue declines 14% from a pre-calculated benchmark revenue. The benchmark revenue, for both options, is the five-year Olympic average[1] yield times the five-year average marketing year price. The county-triggered program will be commodity specific, use county yields and will be paid on 85% of base acres. The farm-level program will aggregate across all program crops, use farm yields, and will be paid on 65% of a producer’s base acres.

The PLC program will also be delivered by FSA and looks very similar to the previous Counter-Cyclical program. Each commodity (corn, peanuts, long and medium grain rice, grain sorghum, soybeans, and wheat — not cotton) has a set reference price and when the market year average price for each individual commodity falls below the reference price, the program will trigger. The program covers 85% of a producer’s base acres.

The STAX plan for cotton will provide an area based level of protection (i.e., county level) and will be delivered by the Risk Management Agency (RMA). Cotton producers electing STAX must pay a premium (similar to crop insurance). Like ARC, the STAX program is revenue based and will kick in when county level cotton revenues decline 10% below a county level benchmark (which is the five-year Olympic average[1] yield times the crop insurance spring time price). The program will continue to cover revenue losses from 10% to 30% below the benchmark and, even though yield and price are county level, the acres stem from the producer’s individual election.

SCO is available as a stand-alone program or can be coupled with PLC. It requires a premium, much like insurance, and provides coverage when revenue losses are 14% below the county level benchmark and will continue to cover losses until crop insurance kicks in.

So, none of these are easily digestible and, once elected, must be maintained for the life of the bill (currently slated to be in place for five years). As a result, a number of important decisions will need to be made. We are currently building an in-depth program that will cover these and other issues that are in the bill. As noted, the Senate will follow shortly thereafter. Once a final piece of legislation is known, look for this educational program to begin.

[1] An olympic average drops the highest and lowest values over the given time period. So, a five-year olympic average will discard the highest and lowest values over the five-year period thus giving an average over the three middle years.

Post written by John Michael Riley and Keith Coble