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Farm Bill Requires Choices

For crop producers, the primary decision will be to choose the Agricultural Risk Coverage option or the Price Loss Coverage option.

The 2014 Agricultural Act (farm bill) will require farmers and landowners to make a number of choices regarding program options.

“For crop producers, the primary decision will be to choose the Agricultural Risk Coverage (ARC) option or the Price Loss Coverage (PLC) option,” says Dwight Aakre, North Dakota State University Extension Service farm management specialist. “Within these primary choices are additional secondary decisions that must be made.”

The decision to choose between ARC or PLC must be made for the 2014 crop year. Failure to make this decision will result in no farm program payments for 2014 because there is no default option for 2014.

For 2015 through 2018, PLC will be the default option, which will give producers and landowners the opportunity to participate in the farm program during those years. However, producers no longer will have the option to enroll in the ARC. Annual enrollment in the farm program will be required every year, but the choice between ARC and PLC is a onetime-only option for this year.

Choosing ARC or PLC is a choice between revenue protection and price-only protection. With ARC, producers also will choose between county or farm coverage. If county coverage is chosen, producers have the option to make the decision on ARC versus PLC by individual crops.

If the farm option is chosen, there is no option to enroll individual crops in PLC. If a producer elects PLC for one or more crops, he or she may utilize another new program for those crops called the Supplemental Coverage Option (SCO). This is a shallow-loss insurance policy that will be delivered by the insurance industry rather than the Farm Service Agency (FSA). These policies will be countywide coverage, not individual farm coverage. SCO will not be available for crops enrolled in ARC, and these policies will not be available until 2015.

The ARC option is a revenue guarantee program that makes a payment to producers by crop if the producer choses the county option. Payments are made when the actual per-acre revenue for the county falls below the revenue guarantee. This option is like a group insurance plan in which coverage is based on the average yield for the county times the national marketing year price.

ARC covers losses between 76 and 86 percent of the county benchmark revenue. Losses outside of this 10 percent band are not covered. Lost revenue below 76 percent of the benchmark revenue is not covered because multiperil crop insurance is available to cover those losses.

“The benchmark revenue for the county is the average revenue determined by multiplying the most recent five-year Olympic average county yield by the five-year Olympic average national marketing year price,” Aakre says. “Olympic average refers to dropping the highest and lowest prices and yields and averaging the remaining values. The revenue guarantee is 86 percent of this calculation.”

A payment is made if the current year’s yield multiplied by the current year’s national average market price falls below the revenue guarantee to a maximum of 10 percent of the benchmark revenue. The payment is multiplied by the farm’s base acres for that crop times 85 percent to calculate the total payment.

If the ARC-farm option is elected, producers may not utilize PLC for any crops on that farm. All covered commodities produced on that farm unit are pooled to calculate any potential payment. The current year’s average revenue for all crops combined is compared with the revenue guarantee for all crops combined. The payment is made on 65 percent of the base acres and can’t exceed 10 percent of the benchmark revenue for that farm.

Price Loss Coverage is the other primary option. With PLC, yields and historical prices don’t factor into the calculation of payments. A payment is made for crops enrolled in PLC when the national average marketing year price is below the reference price for that crop.

Reference prices are $5.50 per bushel for all wheat, $4.95 for all barley, $3.70 for corn, $8.40 for soybeans and $3.95 for grain sorghum.

For crops measured in hundredweight, the reference prices are $20.15 for minor oilseeds, $11 for dry peas, $19.97 for lentils, $19.04 for small chickpeas and $21.54 for large chickpeas. Payments are based on 85 percent of the base acres for that crop.

“Program payments for PLC, ARC-county and ARC-farm are all limited by the number of base acres on the FSA farm unit,” Aakre says. “Making payments on base acres rather than planted acres lessens the chance of running afoul of the World Trade Organization trade agreement.”

NDSU Agriculture Communication – Feb. 13, 2014

Source:Dwight Aakre, (701) 231-7378, dwight.aakre@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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