Complex farm bill choices carry big financial impacts
Making the right choice of farm bill safety net programs could mean a difference of thousands of dollars per year for Iowa farmers, Iowa Farm Bureau Research and Commodity Services Director Dave Miller said at the Iowa Farm Bureau annual meeting last week in Des Moines.
Farmers will have to choose from more than 200 different options offered under the 2014 farm bill commodity title, Miller said.
"Part of the challenge is going to be to sort through those options and decide what works for you and what doesn’t," he said. "The difference could be $50,000 or $100,000 or more. It has the potential to be that significant."
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The decisions start with whether or not to update base acres and yields, which are actually choices made by landowners. Most will make those updates to reflect increased yields and current crop plantings, which is a good idea since it’s uncertain when there will be another chance to make updates, Miller said.
The harder decision comes in choosing a price or revenue support program. Farmers are given the choice of electing to participate in either Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC). The ARC decision is further broken down into either individual or county options, although the county option appears to be the most favorable, Miller said.
The PLC or ARC decision is a one-time choice for the life of the five-year program, so it is important to evaluate how your farm would fare under both programs. Also, farmers can choose PLC for one crop, and ARC for another, Miller pointed out, so it’s important to evaluate all options for every crop on the farm.
He encouraged farmers to use online calculators established by the University of Illinois, Texas A&M and Iowa State University to see how their farm would fair under various price scenarios.
"I really encourage you to run your individual data through all three computer models, because you will get three different answers," Miller said.
Since the enrollment deadline isn’t until March 31, the calculators will provide a good idea of potential farm payments for the 2014 and 2015 crop years since average crop prices used in the calculations will be fairly well established.
The risk, Miller said, lies in the remaining three years of the farm bill depending on whether corn and soybean prices go higher or lower. Higher prices would mean most Iowa farmers fare better by choosing ARC. Lower prices make PLC more attractive.
"The choices you make that would be best for 2014-15 could very well be the worst for 2016, ’17 and ’18," he said. "Six months ago, I would have thought this was a no-brainer for Iowa and we’d all take the County ARC. That’s not the case any more."
The PLC program triggers payments if national average marketing year prices fall below base prices established for each program crop in the farm bill ($3.70 per bushel for corn and $8.40 per bushel for soybeans). The PLC program also includes a Supplemental Coverage Option that works in conjunction with crop insurance.
Payments are triggered under the ARC program if the current year’s revenue (based on crop prices and yields) falls below a five-year average. Therefore, farmers in counties with higher average yields will have higher revenue guarantees and a greater likelihood of payments under ARC.
"Across county lines, there could be significant differences that come out," Miller said. "You could have maximum payments in the northern part of the state and zero payments in the southern part of the state under the same program."
To help farmers better understand their choices, Farm Bureau is sponsoring 32 farm bill meetings across Iowa from Dec. 15 to Feb. 3. A list of meeting locations is available here.
The 2014 farm bill also established new regulations tying conservation compliance to eligibility for crop insurance subsidies.
Mary Kay Thatcher, American Farm Bureau farm bill specialist, noted that most farmers already comply with federal standards.
There have been only 2,760 violations of federal conservation standards over the past 10 years that resulted in farmers losing their subsidies, Thatcher said. The provision would only affect one-half of one percent of Iowa farmland, she noted.
"It doesn’t affect that many farmers, but if you are affected, the hit is big," she said.
Farmers found in violation of conservation compliance requirements would lose crop insurance subsidies, which cover about 60 percent of crop insurance costs.
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