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Farm Bill offerings eyed

Ray Grabanski 01/28/2014 @ 10:18am President, Progressive Ag www.progressiveag.com

In news this week, there is a Farm Bill now unveiled that is likely to get passed by both the House and Senate in the next few weeks, and signed by Pres. Obama.  

So, it's likely to become law. We will get additional details of how the thing works (or doesn't work) for our producers.  The biggest news is that producers will have the choice of traditional price supports, OR insurance-like protection against a drop in crop revenue.  

Of course, the choice will be made by producers. So, in the next few months, there will be all kinds of comparisons between these two choices, with administrative decisions about how to implement these programs that are likely to have a great deal of influence over which option to choose.

And, as always this time of year, South American weather is also important. We fill out corn and soybeans in South America, in January and February, with late crops still affected by weather in early March.  

South American weather has taken a turn for the better in Argentina, which has had wetter weather and cooler weather the last few weeks, which is alleviating crop stress there.  However, Southern Brazil is seeing the emergence of dry weather there this week, which if the pattern develops that continues this process over the next few weeks will become concerning to the crop.  

Overall, the Farm Bill is reported to cut federal spending $23 billion over 10 years, compared to current law (with estimates varying around these numbers), with crop subsidies cut $8 billion, conservation by $7 billion, and food stamps by $8 billion.  The replacement of direct-payment subsidies by the shallow-loss revenue program or the $1 billion-a-year expansion of federally subsidized crop insurance is the biggest reform for producers.  

They choose in a one time choice either the revenue protection program (based on yields and season average prices) or a program similar to target prices that sets a minimum price.  Reference prices are up sharply from current law at $5.50/bushel for wheat (up from $4.17), $3.70 for corn (up from $2.63), and $8.40 soybeans (up from $6).  

Farmers in the revenue protection program (or shallow loss coverage) will get payments when crop revenue is less than 86% of the rolling 5 year average, and would end when revenue falls below 76% of the average (which is when crop insurance is supposed to kick in to cover deeper losses).  

Besides the shallow loss program, this farm bill creates an insurance program called Supplemental Coverage Option (SCO) that would operate in a similar way but with fewer limits on payments, available to growers who opt for Price Loss Coverage explained below.  

Price Loss Coverage would be similar to the target price program, with payments triggered when season average prices are below the guaranteed price.  

Many more details are likely to be released about the Farm Bill in the coming weeks, with implementation an important part of the equation as sometimes how USDA implements the Farm Bill is more important than how Congress writes it.  

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Farm Bill 2014 Timeline