Farm bill requires producers to pick from among crop safety net options
While the 2014 farm bill is multi-dimensional and complex, one of the main issues important to local farmers is how the financial crop safety net is going to work, and how it has changed from the 2008 farm bill.
The current farm bill was enacted Feb. 7.
“The 2014 farm bill encourages farmers to think strategically about their farms through at least 2018,” stated Carl Zulauf, agriculture economist at Ohio State University’s Department of Agricultural, Environmental and Development Economics, in an article, “2014 Farm Bill Crop Safety Net Decision: Key Considerations” on OSU Extensions’s February Ohio Ag Manager update.
“An important strategic risk management question is the ability of a farm to withstand multiple years of low farm prices and revenue,” he said.
Managing that risk means taking into consideration variables such as expected prices and revenues until 2018. He suggested using available calculators to assist with the decisions.
Producers must choose from among three government program options: first is Price Loss Coverage – or PLC – which is a target price program; second is county Agricultural Risk Coverage – or ARC – which is a county revenue program; and third is individual ARC, an individual farm revenue program.
In making a decision, Zulauf said producers must take into consideration five crop years, 2014-18.
“It is not a one-year decision,” he said.
Also, he said farmers should be aware payments are to be made on historical base acres, not current planted acres. There are choices to be made here, too. Operators can keep their current distribution of base acres or update the distribution to acres planted to program crops from 2008-12.
By doing some research, producers can find information to help with decision-making.
One of the key decision factors, according to Zulauf, may be the prices of 2014 crops during the last week of program signup.
Also, a second factor could be a comparison between the the known yield of a 2014 crop harvested before the sign-up deadline and expected yields of 2014 crops yet to be harvested.
“Payment limits could be a bigger issue than in the past because risk management programs can make large payments when a risk occurs,” he said.
Except for peanuts, the combined single limit is $125,000 per payment entity.
Producers should be aware the Supplemental Insurance Coverage Option is available only to crops in PLC.
“The county-based SCO could be an important consideration is this decision, but individual farm insurance is more specific to an individual farm’s risk than is county insurance,” Zulauf said. “Moreover, SCO’s subsidy rate of 65 percent exceeds the subsidy rate for the commonly-chosen enterprise insurance only at the 85-percent coverage level (a 53-percent subsidy). “When combined, these considerations suggest the use of SCO could be limited to the 80-percent to 85-percent range of insurance coverage.”
Zulauf said individual ARC is, in essence, a whole program crop farm safety net for all FSA farms that an individual payment entity elects into individual ARC.
“Because of this feature and because payment will be made on only 65 percent of base acres, it seems reasonable to speculate that individual ARC may be most attractive for relatively small farms with contiguous acres in a microclimate and soil profile not representative of the county and in areas with variable yields.”
For more details on the options or other information on Zulauf’s considerations, read the entire article at ohioagmanager.osu.edu/farm-policy/2014-farm-bill-crop-safety-net-decision-key-considerations. More information also may be found at aede.osu.edu/publications.