“Farmers waited, and waited and waited, and waited longer.”
Dalton Henry, governmental affairs specialist for the Kansas Wheat Commission, opened his comments exactly that way.
“And, finally the 2014 U.S. Farm Bill was approved, and became effective on February 7, when President Barack Obama signed it into law,” Henry continued.
“But, we still don’t know enough for farmers to make decisions. Farmers have waited more than two years for Congress to pass a new Farm Bill, but they’ll have to wait a while longer for the USDA to write the rules, to learn what it will mean for their businesses,” admitted Henry.
His discussion, “The 2014 Farm Bill – Debates and Decisions,” opened the program for a packed-auditorium of 200 farm people at the 580 WIBW Farm Profit Conference in Marysville.
Officially the Agricultural Act of 2014, and formerly the “Federal Agriculture Reform and Risk Management Act of 2013,” the Farm Bill authorizes $956 billion in government spending for nutrition and agriculture programs in the United States for the next 10 years.
“The Farm Bill is considered two years late, since Farm Bills are traditionally passed every five years,” Henry said. The previous Farm Bill, “Food, Conservation, and Energy Act of 2008,” expired in 2012.
“Kansas was a leader in getting Farm Bill action started when U.S. Senator Pat Roberts from Kansas announced a field hearing in Wichita on August 25, 2011, to discuss reauthorization of the existing Farm Bill. Still, it’s taken two-and-a-half years for us to get a Farm Bill.” Henry said.
“Passage of the 949-page bill was just the beginning. I haven’t read it all, and I really don’t know anybody who has. So, it’s up to administrators throughout various USDA agencies to write rules, and how it’ll really work,” Henry insisted.
The bill passed the U.S. House of Representatives on January 29, and the U.S. Senate on February 4.
“From day one, the focus has been on the budget. It’s called a Farm Bill, but it’s really a food bill, because 80 percent of the budget goes toward nutrition programs,” Henry indicated.
Eight percent of the Farm Bill budget does go to crop insurance programs; 6 percent toward conservation; 5 percent, commodities; and 1 percent, energy, research, horticulture and miscellaneous.
Dollar amounts include: Food stamps and nutrition, $756 billion; Crop insurance, $89.8 billion; Conservation, $56 billion; Commodity program, $44.4 billion; and Everything else, $8.2 billion.
“Commodity programs did have the largest spending reduction in the 2014 bill, down $14.3 billion, with some of those savings reinvested in the crop insurance program,” Henry noted. “But, the conservation program was also reduced, down $3.9 billion, and energy, research and horticulture spending was reduced $1.8 billion.” Before proceeding, Henry emphasized: “Here’s my disclaimer. The remainder of the information that I present will be based on my understanding of Congressional intent, and it does make some assumptions of eventual USDA decisions and rules.”
He added emphatically: “My crystal ball is always a little hazy, and sometimes the USDA doesn’t watch my PowerPoint, so final programs may be slightly different.”
There is a new “Alphabet Soup” to learn, according to Henry. Directs payments, SURE (Supplemental Revenues Assistance Payments) and ACRE (Average Crop Revenue Election) “are being replaced with a new set of Title One Programs called Agriculture Risk Coverage, referred to as ARC, and Price Loss Coverage, called PLC,” he said.
PLC is a target price program with substantial updates to target prices, but it will be limited to base acres with updates allowed, Henry showed. New prices: wheat, $5.50; corn, $3.70; grain sorghum, $3.95; oats, $2.40; and soybeans, $8.40.
In the PLC formula, payment rate (the difference between reference price and current price) will be multiplied by payment acres (which is 85 percent of base acres allotted to the commodity) multiplied by the payment yield.
“There will be the option to update the payment yield to 90 percent of the 2008 to 2012 individual yield average, or 75 percent of the 2008 to 2012 county average,” explained Henry, as he presented an example of what one producer’s government payment would be.
“The ARC is a shallow-loss program designed to cover revenue loses that aren’t ‘deep enough’ to trigger crop insurance policies. ARC does not replace crop insurance coverage,” Henry contended. “A ‘shallow loss’ program will always struggle to generate payments during a time of rising prices, which is roughly where we’ve been for much of the last decade.”
This program operates on a five-year olympic average, covering revenue in a range from 76 to 86 percent, with a farm or county-level option. “The farm option pays on 65 percent of base, and the county option pays on 85 percent of base,” Henry noted.
A dollar bill, representing 100 percent of expected revenue, was shown on the program screen, indicating 70 percent was covered by Federal Crop Insurance, and 76 to 86 percent of the dollar covered by the ARC program.
“These programs have a very different approach than we saw with direct payments, and that is going to be reflected in the less payment frequency, and a more complicated formula, especially the ARC,” Henry recognized.
“A producer will really need to wait until rules are finalized, and calculators are built to evaluate program options for their own situation,” Henry exclaimed.
Examples were shown of how ARC programs would affect income for corn and soybean production in Marshall County.
Pointing out again the variation in farm-level (85 percent of base) and county level (65 percent of base) ARC payments, Henry said, “There are two reasons a producer may consider a farm-level ARC. A county is so large and diverse that yields are substantially different from farm to farm. Individual farm yields are much higher than the county average.”
However, a farmer needs to “evaluate one other new program, supplemental coverage (SC0), before making a commodity program decision,” Henry added.
First decision for the landowner will be whether to update base acre crops. “Base acres cannot be added, so an update would be in proportion to 2009 to 2012 average acres planted,” Henry said. “The second decision would be whether to update associated yields.”
Producers will make decisions on whether to select PLC or ARC “by crop, by farm.” Henry said, “If no ARC selection is made, a farmer has the option to also purchase shallow loss coverage through SCO within crop insurance.”
Then, he added: “One exception to program selection ‘by crop, by farm’ is that if a producer chooses the farm-level option, ARC applies to all crops on that farm.”
At the Kansas Commodity Classic during February, Agriculture Secretary Vilsack said: “We will allow you during the courses of the summer and fall to update production history. We want to make sure we are communicating with you about base and yields in your production history.
“We are going to hope to publicize and focus on publicizing the final program, and the regulations for both ARC and PLC in the fall of 2014. We will allow, after that occurs, farmers to update information concerning yields, and relocate your business if you need to do that, with hope that by the end of 2014, or early 2015, you will be in position to be able to make your election and your decisions.
“So, we hope that reassures you that we understand the importance of getting these programs up and going as quickly as we possibly can,” seemingly-repetitiously-confusing Vilsack concluded.
Henry evaluated: “Sometimes you have to think like a USDA official or a member of Congress to interpret what they’re thinking. Our best guess is that the USDA will finalize commodity program rules this fall, and we should see actual program enrollment in late 2014 or early 2015.”
It is important to note that the underlying crop insurance program is set in separate, ‘permanent’ 1980’s law.
“Enterprise Unit Subsidies (US0) are now permanent in crop insurance, and producers can enterprise units between irrigated and non-irrigated production,” Henry said.
This allows for purchase of new SCO (Supplemental Coverage Option). “SCO is a county-level shallow loss program delivered through crop insurance, that essentially ‘stacks’ on top of existing coverage, allowing producers to drop a catastrophic loss-yield from their actual production history (APH).
“It should be a major benefit to Kansas producers,” Henry evaluated.
In conclusion, Henry reminded the farmers: “The 2010 census reported that of the 435 congressional districts, only 34 percent were greater than 50 percent rural. Conversely, 101 districts were more than 99 percent urban. When we look toward future farm bills, agriculture needs to stick together and build coalitions.”
Henry can be contacted at dhenry@kswheat.com.