Farm Bill 2014“Agricultural Act of

2014”Commodity Title OptionsCrop Insurance Changes for

2015

DISCLAIMER The following information is provided

utilizing the current understanding of recently passed legislation

As the rulemaking process has not been completed at this time, it needs to be understood that changes can occur once all rules are finalized

Farmers choices will be affected by implementation rules currently being developed

FARM BILL OVERVIEW

Signed into law February 7, 20145 year bill

Covers crop years 2014 – 2018 Enrollment expected to begin fall of 2014

$956 billion total cost over 10 years 79% ($756 b) of expected cost in SNAPCut $8.6 billion from SNAP over 10 years by closing heating aid loophole-will not lead to any cuts in Illinois

Can double SNAP $ value at farmers markets

USDA’S ESTIMATED TIMELINE

April 15: Livestock Indemnity Program signupFall: publicize final program rules/regulations for

PLC & ARC this fallEnd of 2014/early 2015: Enrollment for PLC &

ARCEnd of 2014/early 2015: Farmers allowed to

update yields & bases End of 2014: Implementation of beginning

farmer provisions to make credit more easily available

End of 2014: Propose Actively Engaged definition Early 2015: New crop insurance provisions

implemented by RMA

KEY COMMODITY TITLE PROVISIONS Eliminates Direct Payments

Modifies target price program Replaces CCP with Price Loss

Coverage Modifies revenue safety net

Replaces ACRE with 2 Ag Risk Coverage (ARC) options:

1. County ARC2. Individual Farm ARC

KEY COMMODITY TITLE PROVISIONS Payment limits: $125,000 for all

payments combined (not including crop insurance claims) Can double if married, joint operation

Eligibility: 3 year Adjusted Gross Income of $900,000

USDA has ability to modify Actively Engaged in Farming rules in rule making process-define “significant contribution of active personal management”

2 UPDATE OPTIONS1. Base Acreage: One time choice to

maintain or reallocate base Not mandatory, voluntary option Cannot increase total base If updated, 2009-2012 crop years

average planted acres on each farm for harvest, haying, grazing and silage

Also includes prevent plant acres Failure to make election defaults to

current base allocation Base can be adjusted for acreage coming

out of CRP

2 UPDATE OPTIONS

2. Payment Yields: Used only in PLC

One time choice to:1. Maintain current payment yields

used in 2008 farm bill for Counter-Cyclical Payment program

2. Update payment yields; 90% of 2008-2012 yields

NON-RECOURSE MARKETING LOANS Same loan rates as 2008 farm bill

(except cotton) $1.95 Corn (national average) $5.00 Soybeans $2.94 Wheat

Loan Deficiency Payments (LDPs) Loans available regardless of PLC

or ARC choice

SAFETY NET OPTIONSFor each FSA farm, safety net options include one time irrevocable choice of PLC (price) or ARC (revenue)

On a covered crop by covered crop basis;1. Price Loss Coverage (PLC)

Only choice if you want SCO 2. County level Ag Risk Coverage (ARC-County)

On a whole farm basis;3.Farm level Ag Risk Coverage (ARC-Individual)

SAFETY NET OPTIONS

ARC offers revenue coverage, county or farm ARC choice must be unanimous amongst all

farm partners

Default choice is PLC If no choice is made, 2014 payments are

forfeited and all commodities are in PLC beginning with 2015 crop year

PRICE LOSS COVERAGE (PLC)Target price program in which prices are established for life of bill, do not change

Reference Prices:$3.70 corn$8.40 soybeans$5.50 wheat$2.50 OatsPayment rate = 85% of base acres

PRICE LOSS COVERAGE (PLC)

Payments occur when the higher of: a)crop year’s National Average Market Price, orb)loan rate, is below the reference price

NAMP = average price received by producers during 12 month marketing year for that crop (starting Sept. 1 for corn & beans)

PLC EXAMPLE

NAMP = $3.55/bushel for cornFarm’s payment yield = 150 bushels/acreCorn base = 100 acres

Payment rate: $.15/bu ($3.70-$3.55)Payment = $1,913 ($.15 x 150 x 100 x .85)Payment/acre = $19.13

ARC - COUNTY County level revenue protection Benchmark revenue guarantee = 86%

of: Yield = 5 year Olympic rolling average

(Individual yields cannot be less than 70% of t-yield)

Price = 5 year Olympic rolling average of higher of NAMP or loan rate(Individual prices cannot be less than reference price)

ARC - COUNTY Actual county revenue:

Final county yield, times NAMP for that crop year

Payment rate: Benchmark Revenue – Actual Revenue 85% of farms base acres

Maximum payment = 10% of benchmark revenue

ARC – COUNTY Benchmark Revenue

Calculation2009 2010 2011 2012 2013 O. Avg.

County Yield

186 170 160 110 190 172

Price $3.70* $5.18 $6.22 $6.89 $4.50 $5.30* NAMP was actually $3.55, replaced with minimum of $3.70

Benchmark Revenue = $912/acre (172 x $5.30)

Max payment = $91/acre ($912 x 10%)

Guarantee: $784/acre ($912 x 86%)

ARC – COUNTY Payment Example

NAMP: $3.90 (USDA estimate)Final county yield: 180 (trend)Corn base: 100 acresActual revenue = $702 ($3.90 x 180)

Payment Rate: $82/acre ($784 - $702 = $82)

Payment = $6,970 ($82 x 100 x .85)

Payment/acre = $69.70

ARC – INDIVIDUAL (FARM LEVEL)

Farm level revenue protection Whole farm revenue

Sum of revenue from all covered commodities combined across all FSA farms in the state that you have a share in

Planted acres determine weighting in benchmark revenue

Payment rate: 65% of base acres

ARC – INDIVIDUAL (FARM LEVEL)

ARC-Individual will make payments when a farm’s actual revenue falls below 86% ofbenchmark revenue

Benchmark revenue equals sum of each crops’ benchmark weighted based of planted acres

Actual revenue equals sum of each crops’ revenue (NAMP x farm yield) weighted base of

planted acres

ARC – INDIVIDUAL EXAMPLEIn the following example one FSA farm with 100 total base acres will be used No other farms are enrolled in ARC – Individual in this example

In 2014, the farm plants: 60% of acres in corn 40% of acres in soybeans

ARC – INDIVIDUAL EXAMPLEEACH CROP’S BENCHMARK REVENUE

Corn Soybeans

Year PriceFarm Yield Revenu

e*Price

Farm Yield Revenu

e*

2009 $3.55 186 $688 $9.59 54 $518

2010 $5.18 170 $881 $11.30 59 $667

2011 $6.22 160 $995 $12.50 56 $700

2012 $6.89 110 $758 $14.40 52 $749

2013 $4.50 190 $855 $12.50 54 $675*Revenue equals maximum of NAMP or reference price ($3.70 for corn, $8.40 for soybeans) times farm yield

Each crop’s benchmark revenue equals Olympic average of revenues: Corn: $831 = ($881 + $758 + $855) / 3 Soybeans: $681 = ($667 + $700 + $675) / 3

ARC – INDIVIDUAL EXAMPLEBENCHMARK REVENUE &

GUARANTEEBenchmark Revenue weights each crop’s benchmark revenue by proportion of program crop acres planted on ARC-Individual farms

Corn Soybeans$831 x .60 + $681 x .40 = $771

Guarantee = 86% of benchmark revenue:$771 x .86 = $663 guarantee

ARC – INDIVIDUAL EXAMPLEACTUAL REVENUE

A farm’s revenue equals each crop’s revenue weighted by proportion of acres:

$3.90 NAMP corn price (USDA est.) 180 bushel per acre corn yield

(trend) $9.65 NAMP soybean price (USDA

est.) 56 bushel per acre soybean

yield (trend)

Actual Revenue = $637 .6 x ($3.90 x 180) + .4 x ($9.65 x 56)

ARC – INDIVIDUAL EXAMPLEPAYMENT RATE

Payment rate equals guarantee minus revenue:

$663 Guarantee - $637 Revenue = $26 Rate

Rate cannot be more than 10% of benchmark revenue ($771 x .10 = $77)

Rate cannot be less than one

ARC – INDIVIDUAL EXAMPLEPAYMENT

Payment equals payment rate x 65% of base acres:

$26 payment rate 100 base acres

Payment = $1,690 ($26 x 100 x .65)

Payment/acre = $16.90

SUMMARY OF CHOICESPrice Loss Coverage Fixed reference target price program Max payment rate: Reference price – national loan rate Payments on 85% of a crop’s base acres

ARC – County Revenue program: 5 year Olympic avg. of county yields &NAMP

Separate guarantee for each crop Guarantee = 86% of benchmark revenue Max payment = 10% of benchmark revenue Payments on 85% of crop’s base acres

ARC – Individual Revenue program: 5 year Olympic avg. of farm yields & NAMP Whole farm program for covered crops Max payment: 10% of benchmark revenue Payment on 65% of total base acres

CHANGES TO CROP INSURANCEGoing into effect in 2015:

Enterprise unit subsidies made permanentIn 2015 separate enterprise units for irrigated vs. non-irrigatedCan have separate coverage levels for irrigated vs. non-irrigatedYield plugs increase from 60 - 70%An individual year’s yield can be dropped from APH database if that years yield is at least 50% below 10 year county average

CROP INSURANCE CONT’D:Supplemental Coverage Option (SCO):

Available beginning in 2015 Coverage = between 86% and crop

insurance coverage level selected Triggered only if losses exceed 14% SCO is county based coverage Matches underlying crop insurance

coverage (yield or revenue, HPO) SCO only available with PLC, no SCO

if ARC is chosen

PROS & CONS OF SCOPros Offers 1st time ever ability to insure part of crop insurance

deductible 65% subsidy level Provides protection on planted acres as opposed to base (PLC &

ARC) Not subject to payment limits Not subject to AGI eligibility test

Cons County based coverage, not popular in IL crop insurance usage Eliminates ARC options Will be tough to fully evaluate without knowing true cost

Normally crop insurance rates aren’t established and known until December and premiums until March and farm bill sign up will likely occur and end before that

CROP INSURANCE CONT’D:

Beginning farmers: Yield plug of 80% rather than 70% Extra 10% premium assistance

No AGI test

Conservation Compliance Re-tied to crop insurance for first

time since 1996 Rules still being written

CONSERVATION COMPLIANCE

Most producers already in complianceFirst timers;

Highly erodible lands-5 reinsurance years to develop and comply with an approved conservation plan to remain eligible for insurance subsidies

Those determined to be in violation have two reinsurance years to develop and comply with an approved conservation plan

CONSERVATION COMPLIANCEFirst timers, cont’d;

Wetlands - 1 reinsurance year to begin to remedy a violation before being declared ineligible

However, if you convert a wetland to cropland from now on, you will be ineligible for a premium subsidy in future years unless you mitigate the conversion

New requirements are prospective rather than retrospective What counts is what you do after start of

new farm bill

FARM BILL WEBINARS1. Commodity Title Options:

Wednesday, April 2 at 8:00 a.m., Doug Yoder Marketing Loans PLC ARC County ARC Individual

2. Crop Insurance Changes/Supplemental Coverage Option (SCO) Wednesday, April 9 at 8:00 a.m., Doug Yoder

3. Dairy Provisions/Livestock Disaster ProvisionsLate April, Jim Fraley

Check www.ILFB.org/farmbill, or FarmWeekNow.com for more information and to register