2014 Farm bill COMMODITY program UPDATE

1. 2014 Farm bill COMMODITY program UPDATE Jody Campiche Eric DeVuyst Department of Agricultural Economics Oklahoma State University

2. Disclaimer • This information is based on my reading of the 2014 farm bill and discussions with Congressional Agriculture Committee staff • I know there will likely be differences in my interpretation and the final rules and regulations • This information is intended to be for educational purposes only • Additional information will be available before most decisions need to be made

3. Covered Commodity Programs

4. Covered Commodities • Covered commodities include wheat, oats, barley, corn, grain sorghum, long grain rice, medium grain rice, pulse crops, soybeans, other oilseeds and peanuts • Upland cotton is no longer a covered commodity

5. Eliminated Programs DP CCP ACRE SURE

6. New Programs COMMODITY PROGRAMS PLC ARC CROP INSURANCE SCO STAX

7. Important Points • Distinction between programs tied to base acres and programs tied to planted acres • This part gets a bit confusing • Payment limits exist for commodity programs but not for crop insurance programs • As the program is currently specified, cotton producers would no longer be subject to payment limits since both STAX and SCO would have no payment limits • Combined payment limit for ARC/PLC/MLG/LDP – could have different implications for different regions • SCO and STAX cost money!

8. Important Points • The decision to enroll in ARC/PLC varies by crop, region, farm size, etc… • SCO may not be an attractive option for some crops/regions/farms

9. Farm Program Choices

10. Plant a different crop than base crop

11. Farm Program Choices • Interaction between programs • Choices will all take place at different times • This may be particularly confusing for ARC/PLC and SCO • No SCO for 2014 crop year • SCO sign-up for the 2015 crop year will occur before ARC/PLC sign-up for the 2014 crop year (for fall planted wheat) • For other crops, producers may enroll in 2014 ARC/PLC prior to 2015 SCO enrollment

12. Farm Program Choices 2014 crop year: 1. Retain or update base acres – fall 2014 2. Retain or update payment yields – fall 2014 3. Enroll in PLC, ARC county, or ARC individual – late 2014/early 2015 2015 crop year: 1. Option to enroll in SCO (producer) – fall 2014 for winter wheat or spring 2015 • Not an option for crops/farms enrolled in ARC 2. Choose individual insurance policy (RP, YP, other) coverage – fall 2014 or spring 2015 Important note: SCO enrollment for 2015 fall planted wheat will occur in Sept. 2014

13. Important Program Details

14. Payment Acres • ARC/PLC paid on base acres • Do NOT have to plant to receive ARC/PLC on base acres (not including cotton base acres) • ARC/PLC payments are not automatic like direct payments • Two types of base acres: • Total base acres (non-cotton acres) • Generic base acres (old cotton acres)

15. Reallocation of Base Acres • Option to retain or reallocate total base acres to crops planted in 2009-2012 – cannot update cotton base acres • Generic cotton acres cannot be reallocated • Can receive ARC/PLC on generic cotton acres if another crop is planted on those acres

16. Reallocation of Base Acres • Reallocation is in proportion to the ratio of the 4-year avg of planted acres for each covered commodity • Ex: Producer has 80 acres of wheat base • In the past 4 years, planted 160 acres - 40 acres of wheat (25%) and 120 acres of corn (75%) • Can retain 80 wheat base acres or reallocate 25% to wheat and 75% to corn (so 20 wheat base acres and 60 corn base acres)

17. Yield Update • Option to update payment yields • Only applies to PLC in the 2014 farm bill but the update is separate from the ARC/PLC decision • ARC not tied to payment yields • Updated payment yield will be 90% of the average of the yield per planted acre for the 2008-2012 crop years • If the yield for any of the 2008-2012 crop years is < 75% of the average of the 2008-2012 county yields, a yield plug of 75% of the avg 2008-2012 county yield will be used

18. PLC vs. ARC • Commodity-by-commodity and farm-by-farm decision • (except farm-level ARC – must select farm-level ARC for all commodities on a farm #) • One time decision in late 2014 or early 2015 (for remainder of 2014 farm bill)

19. PLC • PLC – price protection • Payment if actual price < reference price • Similar to CCP in 2008 farm bill • Key difference: • Higher reference prices

20. PLC

21. ARC • ARC – revenue protection • Option to choose farm or county level coverage • Farm paid on 65% of base (includes whole farm revenue) • County paid on 85% of base • Similar to ACRE in 2008 farm bill • Key differences: • County level trigger (ACRE had a STATE/farm trigger) • Payment limited to 10% of the benchmark revenue (ACRE payment limited to 25% of benchmark) • Huge difference for OK wheat ($45-$60 ACRE payment compared to $16-$20 ARC payment)

22. ARC • Farm-level ARC is a whole-farm revenue program • Farm-level ARC might trigger payments more frequently than county-level ARC but producers would receive a payment on 20% less base acreage • With county-level coverage, a producer could have a loss on his own farm, but would not receive a payment if the county does not suffer a loss as well • Producers with yields that do not follow closely with the county average may want to consider farm-level ARC

23. PLC vs. County ARC

24. SCO • Shallow loss insurance program that covers county-wide losses and complements a producer’s individual insurance policy • Requires that producers purchase an underlying insurance policy • Covers the difference between 86% and the level of coverage of the producer’s individual insurance policy • 65% subsidy

25. SCO • County-level policy endorsement that is in addition to an underlying crop insurance policy • Covers a portion of losses not covered by the same crop’s underlying policy • Producers who elect to participate in ARC are not eligible for SCO for the crop and farm participating in ARC

26. SCO – Winter Wheat • Producers applying for SCO for the 2015 winter wheat crop may withdraw coverage on any farm where intend to elect ARC for winter wheat by the earlier of their acreage reporting date or Dec. 15, without penalty (and will not be charged a crop insurance premium) • Allows producers additional time to make an informed decision about ARC or PLC for winter wheat

27. SCO Covered Commodities:2015 crop year • Corn • Cotton • Grain sorghum • Rice • Soybeans • Spring barley • Spring wheat • Winter wheat

28. SCO – OK Counties (Winter Wheat)

29. SCO Expected Area Yields

30. SCO: Slightly Confusing PLC/ARC Details • Example 1 • Producer has 100 acres wheat base and enrolls the wheat in ARC – plants 100 acres of wheat – CANNOT enroll wheat in SCO • Example 2 • Producer has 100 acres of wheat base, enrolls the wheat in ARC - plants 100 acres of corn – CAN enroll the corn in SCO

31. SCO/RP/YP/ARC/PLC Decisions • Is SCO offered for your crop/county for 2015? • Is ARC a better option for your crop/farm? • Is your base acreage different than your current planted acreage? • Will you reallocate base acreage? • What is your current RP/YP coverage level? • What is the cost of higher RP/YP coverage? • Do you have enterprise units?

32. Upland Cotton

33. Cotton Safety Net • Reduced direct payment, called a transition payment, in 2014 (and possibly 2015) • Since cotton is not eligible for ARC/PLC and STAX isn’t available until 2015 • Payment on 60% of base acres in 2014 • Payment on 36.5% of base acres in 2015 (if STAX isn’t available in the county) • Marketing loan support • STAX - area-wide revenue insurance program • SCO

34. STAX • STAX coverage can range from 90% of the county revenue guarantee to 70% or the coverage level of the underlying policy (if there is one) whichever is higher • An individual policy is not required with STAX • 80% subsidy

35. SCO vs. STAX • Upland cotton producers have the option to elect SCO instead of STAX for planted cotton acreage • Key differences • With SCO, the producer’s APH yield is used to calculate the liability • Higher subsidy with STAX • Different yields used in calculation?

36. OSU/KSU Decision Tool

39. Results

40. Questions? Jody Campiche jody.campiche@okstate.edu 405-744-9811