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A quick look at new commodity programs
Like the leaders of most other farm groups -- including American Farm Bureau Federation and the National Corn Growers Association -- Ray Gaesser, an Iowa farmer who is president of the American Soybean Association (ASA), likes the new farm bill, and its updated commodity programs.
"We're going to work really hard to get this bill passed. We think it's the right thing to do for agriculture and our country," Gaesser said.
In an interview with Agriculture.com late Monday, Gaesser listed some of the changes the bill offers: a one-time chance to update your base acres, a one-time chance to update your yields (at 90% of a five-year average) and a one-time choice between using a new target price program, called "price loss coverage" (PLC) or a revenue-protection program, called "agriculture risk coverage" (ARC).
The PLC program replaces counter-cyclical payments and ARC replaces ACRE, the little-used Average Crop Revenue Election. Counter-cyclical payments and ACRE were repealed, along with direct payments, in the final farm bill that could become law early next month.
All of these changes, and the decisions you'll have to make about them, will apply to 2014-planted commodity program crops.
Gaesser points out that "there's going to be funding to Extension and to universities to develop decision-making tools."
That's a good thing. A quick read of the farm bill's commodity section (Title I) suggests that deciding whether the PLC or ARC program is best for you may not be easy.
For many, the chance to update base acres and yields will be appealing. Both will be used to calculate whether you get a PLC payment, if you choose that program. The updated base acres will be determined by the four-year average of acres planted to program crops from 2009 through 2012. You'll also get to count acres that were prevented from planting and that were harvested for silage, for example. To update yields, you'll use the actual yields, averaged over the five years from 2008 through 2012 (and multiply that by 90%).
The House farm bill's version of this target price program would have been tied to what you actually plant, something that was strongly opposed by some influential members of the Senate Ag Committee, including Pat Roberts (R-KS). He and commodity groups like the ASA, argued that farmers could wind up making planting decisions based on the new target prices, which are now called the "reference price." In essence, agriculture could move back to "planting for the government."
For corn, the new reference price in this program is $3.70 a bushel. For soybeans, it's $8.40 a bushel.
These days, it's not too hard to imagine corn hitting or slipping below that $3.70 reference point at harvest next fall, if the northern hemisphere has the right weather (and Ukraine, maybe the right political stability) to harvest a record crop. But corn farmers would not get a payment unless the national average market price for the entire 2014-15 marketing year is below $3.70 a bushel. You would be paid the difference between the reference price of $3.70 a bushel and the lower average price, multiplied by your average yield and 85% of your base acres.
If you're not pessimistic enough to think that scenario will be repeated a lot over the life of the five-year bill (through 2018) then you may want to consider ARC, a revenue program which has two more choices -- whether to base payments on county-level revenue or your farm's revenue.
ARC will make payments if revenue falls below a benchmark based on an olympic average of yields and prices (tossing out the high and low years) over the past five years. It pays more if you sign up for a program based on county revenue--paying on 85% of your base acres. If you sign up for individual (farm) level, it pays on 65% of your base acres. For both types of ARC coverage, the risk guarantee is shaved again, by using 86% of benchmark revenue.
This is just a brief description of the new safety net. It still includes the old marketing loan program, as well, with potential loan deficiency payments if prices fall below loan rates. For corn, the national loan rate is $1.95 a bushel, a level that would be considered a disaster with current production costs.