Some of the terms and acronyms are new, but the bottom line is that not much has changed on farm commodity programs as a result of the 2014 Farm Bill, said University of Wisconsin agricultural economist Paul Mitchell in a recent webinar.
What has changed for 2014 is that growers of such commodity crops as corn and soybeans are very likely to face much tighter operating margins than they did in the past two years, Mitchell indicated. That makes it important for them to be aware of how the federal programs could come into play, he said.
Before there's any effect from the federal crop programs, Mitchell urged farmers to be aware of their input costs. Without including land costs, he cited recent estimated average input costs in Wisconsin for 2013 of $563 per acre for corn and $393 for soybeans — numbers that left little room for profit margins in some cases already in 2013 when the state's average yields and prices for those crops were tabulated.
An early indication of tightening margins for 2014 are the Chicago Board of Trade futures prices, which will be used as one barometer for crop insurance coverage, Mitchell said. The February price averages, which will be compared with harvest month prices to determine which will be used as the basis for any payments, were $4.62 per bushel for corn and $11.36 for soybeans compared to $5.65 and $12.87 respectively in 2013.
Although the 2014 enrollment period on crop insurance for annual crops has already passed, he identified several trends that farmers can track and use to their benefit. Mitchell also emphasized that the crop insurance provisions in effect for 2014 are those in the 2008 Farm Bill, not those in the 2014 Farm Bill.
The reduction in the February futures prices for later this year (December for corn and November for soybeans) will result in lower premiums for crop insurance this year, Mitchell said. Farmers who chose the enterprise unit vehicle for their crop insurance are also enjoying significantly lower premiums than those in the basic or optional unit category.
For example, a Dane County farmer with at least 450 acres of corn insured at 75 percent in an enterprise unit would be paying only $7.79 per acre ($8.52 with at least 250 acres) because the federal subsidy would cover 80 percent of the premium, Mitchell explained. For the basic and optional units, the farmer's share of the premium would be $20.48 and $22.86 in that scenario, which is based on a yield of 182 bushels per acre.
With the likelihood of tighter operating margins, he suggested 80 to 85 percent coverage would probably have been good choices this year. Mitchell noted that in Wisconsin during 2013, farmers obtained crop insurance on 78 percent of the corn acres and 82 percent of the soybean acres.
Revenue protection policies were by far the most popular, accounting for 84 percent of the insured corn acres and 91 percent of the insured soybean acres. A great majority of the coverage chosen was for between 70 and 80 percent.
What's new in the 2014 Farm Bill regarding crop insurance is a requirement for compliance with soil conservation practices, Mitchell said. He also noted that there will be a supplemental coverage option that can be purchased from crop insurance companies, for which the federal subsidy will be 65 percent.
Those provisions will take effect in 2015, but farmers need to be aware of one deadline that will arrive later this year. This pertains to a choice that must be made yet this year and about which farmers will receive a notice from their county Farm Service Agency office, he said.
Regarding crop insurance, that choice will affect only the farmers who purchase the supplemental coverage option, Mitchell said. To preserve that eligibility, they would need to choose the Price Loss Coverage, which is one of the items in the new legislation.
The partner to PLC is Agricultural Risk Coverage. Farmers will be asked later this year to choice between those two — a choice that will then be in effect for five years, he said.
PLC is comparable to the previous countercyclical payment programs while ARC is a revenue-based program that offers a choice of its own, Mitchell explained. Within ARC, farmers can choose between crop-by-crop or whole-farm revenue compared to countywide data. PLC is in place as a default position for those who do not make a choice on ARC, he noted.
In reviewing how those two approaches were combined in the Farm Bill, Mitchell commented that growers of cotton and rice in the South like PLC while growers of commodity crops in the Midwest prefer ARC. At the moment, he is not sure the whole farm revenue or county comparison by individual crop is a better choice with ARC.
Full crop marketing year reference per bushel prices of $3.70 for corn, $8.40 for soybeans, $5.50 for wheat, $4.95 for barley and $2.40 for oats have been set for PLC, he said. Payments would be made if the full year's marketing price average would be lower.
The new legislation allows farmers to reallocate their base acres for those crops but not to add to their total base acres, Mitchell explained. Yield updates will be allowed for up to 90 percent of the 2008-2012 averages and payments would be made for 85 percent of the base acres for the crop in both the PLC and county ARC formula.
For the revenue-based ARC, the price and yield formula will be the Olympic model (the middle three from the past five years), Mitchell said. For the individual ARC, payments would be made at 65 percent of the guarantee.
With ARC and PLC, both renters and landlords must make the same choice among the three options. It is possible that renters of parcels from several landlords could be involved in all three of the options at the same time, he said.
In Mitchell's view, the federal commodity crop programs are "a strange mix" of layers, indemnities and combinations. They add up to a complicated farm safety net, he said.
Reliance on income from federal programs reached a low point of between 1 and 5 percent for farmers in Wisconsin during the past few years, Mitchell said. He noted the percentage was near 40 in 1999-2000 and rose again during 2009 when very low milk prices led to Milk Income Loss Contract payments topping $2 million in many of the state's counties.
Of a total of $100 billion in annual spending stipulated in the 2014 Farm Bill, only $13.4 billion is designated for farm programs while $80 billion or 80 percent goes to various nutrition support programs, he reported. Crop insurance subsidies are set to account for $9 billion of the $13.4 billion, which is a reduction from the previously allocated $15 billion.
In a wider view, Mitchell pointed out the $100 billion for the annual U.S. Department of Agriculture's annual budget is a very small slice of the overall federal spending of $3.6 trillion per year.