As we have all heard the 2014 Farm Bill has some significant changes. It will require input from landowners and their tenants. In an attempt to eliminate direct payments to farmers and landowners through the traditional farm program, the FSA has come up with two new options that will be applicable for the 2014-2018 years.
The 2 new programs are:
- PLC- Price Loss Coverage
- ARC- Agricultural Risk Coverage
A. County price and yield averaging
B. Individual yield averaging
Price Loss Coverage (PLC) is going to be the easier of the two. If the price of a commodity, MYA (Marketing Year Average) price goes below the reference price you will get paid on 85% of the base acres of the covered commodity times the difference between the reference price and the effective price times the program payment yield for the covered commodity.
Agricultural Risk Coverage (ARC) involve more. Payments are made when the actual county crop revenue of a crop is less than the ARC county guarantee for the covered commodity and are based on county data. They will use what is called an, Olympic Average, for yield and price they will take the previous 5 years, throw out the highest and lowest and average remaining to come up with the Olympic average. This price will be used to set the revenue per acre. If that number is higher than what the county average for the current year is, you would get paid. If it is lower, there would not be a payment.
The payment is equal to 86% of your base acres. There are two limits, the first is a payment cap. The second is a per acre payment cap of 10% of the benchmark acre revenue. For example if your loss is $125 per acre and the bench mark revenue is $915.00, you would only get $91.50 per acre because of the 10% cap rate.
ARC can be derived two ways, you can elect to use the county prices or you can elect to use your own individual yields. Individual yields will have to be proven every year and the results sent to the FSA office. (APH from crop insurance will suffice). This only pays on 65% of base acres instead of the 85% of base acres.
This would be only useful if you lived in a county where you are in the vast minority of a certain crop and there the county average was poor. For example if produced irrigated corn in a county full of dry land wheat or alfalfa producers.
A quick way to think about the difference between the two is this:
1. PLC is protection against deep losses below $3.70 per bushel. Anytime the price is above $3.70 there would not be a payment.
2. ARC is protection against shallow losses. This can pay more often because it is based on overall revenue per acre. In the next three years the benchmark rate will increase because the highest commodity prices were produced between 2011 through 2013. 2010 was the lowest in the last 5 years and that will not be figured towards the 2016 benchmark average.
This is a complicated issue with a lot of “what-if” scenarios. It involves a lot of variables which can be difficult to understand. In a nut shell if you think commodities are going to be below the market rate for the next 5 years, PLC may be the way to go. If you think that the price is going to continue to fluctuate and you want to be able to get paid for losses as they come along, then ARC may be the one for you.
Base crop changes.
The FSA is allowing for a short time to add bushels to your base yield on your farm and also to adjust base acres from one commodity to the other. For example, if your farm has say a corn base of 20 acres, soybeans of 30 acres, wheat of 15 acres and sorghum of 40 acres, you will be able to move those acres into another crop that already has some acres and eliminate some. In the above example if you are in an area where corn and soybeans are the major crop and it is your best yielding crop, then you could take the wheat and sorghum acres and transfer those to the corn and soybean. This opportunity will only be available for a short time frame and will probably not be available again for a long time. Owners will also have the opportunity to increase the guaranteed yield on those acres by proving production history.
They are already starting with the process, first they are establishing the base acres for all the farms, next will be the bushels and then they will proceed with the PLC and ARC. No time frame has been set, although they are saying this will all be done by January/February 2015.
If you know of anyone who could use assistance with this, don’t hesitate to get a hold of us. If there is enough we may be able to hold an informal, informational meeting on this subject and help everyone understand the basics. We can walk through the different scenarios and explain how they come up with the different numbers they will use to arrive at the different payment levels. As always consult with your local FSA office, insurance agent, and or trusted legal counsel.