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| Duane A. Lienemann UNL Extension Educator |
The first thing you notice is that the bill “repeals” or eliminates Direct Payments. It also repeals the target price program and ACRE and replaces them with a few new programs. There are also some changes in payment limits as well as other farm program eligibility requirements. One thing is certain, farmers are going to have to get acquainted quickly with the ins and outs of the Agriculture Risk Coverage (ARC), Price Loss Coverage (PLC) and Supplemental Coverage Option (SCO) and the way SCO will interact with PLC. We might want to look at those three programs as part of the Bill.
Let’s start with ARC or “Agricultural Risk Coverage” which is basically a “shallow loss program” established with payments made on base acres when actual crop revenue falls to a level between 76 and 86 percent of historical revenue. You will also hear the acronym PLC or “Price Loss Coverage”, which is touted as a “price-based assistance program” and is a second major choice – which also happens to be the default option. The third acronym you will be exposed to is SCO or “Supplemental Coverage Option” which is insurance coverage established for all program crops grown in Nebraska. Interestingly, conservation compliance is linked to the crop insurance program. One thing is for sure - it is different!
Base acres on a farm are the same as current base acres. However, a farm can elect to reallocate base acres among the farm's covered crops according to each covered crop's share of the farm's total acres planted. I understand that this “one-time base acres update” is allowed --but not required, based on the four-year average acreage planted for harvest or use (or prevented from planting due to drought, flood, natural disasters, or other condition beyond the control of producers) during the 2009-2012 crop years. However, the reallocated base acres cannot total more than the base acres in effect on the farm as of Sept. 30, 2013. The USDA is still developing procedures for identifying and eliminating base acres on land that has been subdivided and developed for multiple residential units or non-farming uses and is unlikely to return to agricultural uses. The USDA is also charged with writing new regulations defining "active engagement in farming." We will see……..
You may want to note that a crop farm has a one-time, irrevocable opportunity to elect either Price Loss Coverage (PLC) OR county Agricultural Risk Coverage (ARC) on a crop by crop basis. The producer may also elect individual farm ARC, but this election must then be applied to the entire farm. For instance if a farmer chooses ARC for individual coverage, then all commodities are enrolled in that program. All producers on a farm must make the same election or face potential loss of payments for the 2014 crop. Maximum payments under this program will be 10% of the historical revenue. Benchmark county revenue is calculated using the 5-year Olympic rolling average as used in past programs.
There is also a Supplemental Coverage Option (SCO) program which is an added insurance policy that farmers can buy if they sign up for Price Loss Coverage (PLC). It will cover losses exceeding 14%, meaning it will cover losses below 86% of revenue. SCO will cover that gap between 86% of revenue and when individual insurance coverage kicks in. SCO will be available in 2015 for farmers who enroll in Price Loss Coverage. Farmers signing up for the ARC program are not eligible to buy SCO. Farmers who buy SCO would pay 35% of the actual premium cost and USDA would subsidize the other 65%. The big distinction between ARC and SCO is that SCO does not have a payment cap. If a farmer doesn't make a decision, the USDA would consider that farm enrolled in the PLC program and will be labeled accordingly.
Farmers will still need to involve landlords in this decision and everyone involved must agree unanimously. Farmers and landlords must each understand that PLC payments occur only if U.S. average market price for the crop year is less than the crop's reference price, which I guess you could consider similar to “target prices”. I would bet that a common question being asked concerning the bill will be what are those reference prices? So far I have found that they are as follows: wheat, $5.50/bu.; corn, $3.70/bu.; grain sorghum, $3.95/bu.; oats, $2.40/bu.; soybeans, $8.40/bu.; and other oilseeds, $20.15/cwt.
It may interest some participants that the payment limit for all commodity programs (PLC, ARC, MLG, etc.) is $125,000 per person or $250,000 per couple; a 3-year Adjusted Gross Income (AGI) limit on on-farm or off-farm income of $900,000. You should note that if the AGI exceeds that level, program benefits are not allowed.
The 2014 Farm Bill's safety net requires farmers and landowners to elect which program design they prefer based on what they think will be most effective for their operation, particularly in conjunction with crop insurance. It appears to me that the 2014 ARC's' price coverage level may be more favorable for corn and soybeans, while PLC's reference price is more favorable perhaps for the other crops, but you will have to determine if that is the case on your individual farm or crop enterprises. You will need to look at personal preferences, consultant suggestions, soul searching and perhaps a little gut instinct. In my opinion, significant analysis is needed to compare the new programs and provide valuable information to the farm's decision makers, who will be locked into the program choice for the life of this farm bill….. Good Luck!
The preceding information comes from the research and personal observations of the writer which may or may not reflect the views of UNL or UNL Extension. For more further information on these or other topics contact D. A. Lienemann, UNL Extension Educator for Webster County in Red Cloud, (402) 746-3417 or email to: dlienemann2@unl.edu or go to the website at: http://www.webster.unl.edu/home
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