arc – individual example

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Farm Bill 2014
“Agricultural Act of 2014”
Commodity Title Options
Crop Insurance Changes for 2015
DISCLAIMER
 The following information is provided utilizing
the current understanding of recently passed
legislation
 As the rulemaking process has not been
completed at this time, it needs to be
understood that changes can occur once all rules
are finalized
 Farmers choices will be affected by
implementation rules currently being developed
FARM BILL OVERVIEW
Signed into law February 7, 2014
5 year bill
 Covers crop years 2014 – 2018
 Enrollment expected to begin fall of 2014
$956 billion total cost over 10 years
 79% ($756 b) of expected cost in SNAP
 Cut $8.6 billion from SNAP over 10 years by
closing heating aid loophole-will not lead to any
cuts in Illinois
 Can double SNAP $ value at farmers markets
USDA’S ESTIMATED TIMELINE
 April 15: Livestock Indemnity Program signup
 Fall: publicize final program rules/regulations for PLC
& ARC this fall
 End of 2014/early 2015: Enrollment for PLC & ARC
 End of 2014/early 2015: Farmers allowed to update
yields & bases
 End of 2014: Implementation of beginning farmer
provisions to make credit more easily available
 End of 2014: Propose Actively Engaged definition
 Early 2015: New crop insurance provisions
implemented by RMA
KEY COMMODITY TITLE PROVISIONS
 Eliminates Direct Payments
 Modifies target price program
 Replaces CCP with Price Loss Coverage
 Modifies revenue safety net
 Replaces ACRE with 2 Ag Risk Coverage
(ARC) options:
1. County ARC
2. Individual Farm ARC
KEY COMMODITY TITLE PROVISIONS
 Payment limits: $125,000 for all
payments combined (not including crop
insurance claims)
 Can double if married, joint operation
 Eligibility: 3 year Adjusted Gross Income
of $900,000
 USDA has ability to modify Actively
Engaged in Farming rules in rule making
process-define “significant contribution
of active personal management”
2 UPDATE OPTIONS
1. Base Acreage: One time choice to maintain or
reallocate base
 Not mandatory, voluntary option
 Cannot increase total base
 If updated, 2009-2012 crop years average
planted acres on each farm for harvest,
haying, grazing and silage
 Also includes prevent plant acres
 Failure to make election defaults to current
base allocation
 Base can be adjusted for acreage coming out
of CRP
2 UPDATE OPTIONS
2. Payment Yields: Used only in PLC
 One time choice to:
1. Maintain current payment yields used
in 2008 farm bill for Counter-Cyclical
Payment program
2. Update payment yields;
 90% of 2008-2012 yields
NON-RECOURSE MARKETING LOANS
 Same loan rates as 2008 farm bill
(except cotton)
 $1.95 Corn (national average)
 $5.00 Soybeans
 $2.94 Wheat
 Loan Deficiency Payments (LDPs)
 Loans available regardless of PLC
or ARC choice
SAFETY NET OPTIONS
For each FSA farm, safety net options include one
time irrevocable choice of PLC (price) or ARC
(revenue)
 On a covered crop by covered crop basis;
1. Price Loss Coverage (PLC)
 Only choice if you want SCO
2. County level Ag Risk Coverage (ARC-County)
 On a whole farm basis;
3. Farm level Ag Risk Coverage (ARC-Individual)
SAFETY NET OPTIONS
 ARC offers revenue coverage, county or farm
 ARC choice must be unanimous amongst all
farm partners
 Default choice is PLC
 If no choice is made, 2014 payments are
forfeited and all commodities are in PLC
beginning with 2015 crop year
PRICE LOSS COVERAGE (PLC)
Target price program in which prices are
established for life of bill, do not change
 Reference Prices:
 $3.70 corn
 $8.40 soybeans
 $5.50 wheat
 $2.50 Oats
Payment rate = 85% of base acres
PRICE LOSS COVERAGE (PLC)
Payments occur when the higher of:
a) crop year’s National Average Market
Price, or
b) loan rate,
is below the reference price
NAMP = average price received by producers
during 12 month marketing year for that
crop (starting Sept. 1 for corn & beans)
PLC EXAMPLE
NAMP = $3.55/bushel for corn
Farm’s payment yield = 150 bushels/acre
Corn base = 100 acres
Payment rate: $.15/bu ($3.70-$3.55)
Payment = $1,913 ($.15 x 150 x 100 x .85)
Payment/acre = $19.13
ARC - COUNTY
 County level revenue protection
 Benchmark revenue guarantee = 86% of:
 Yield = 5 year Olympic rolling average
(Individual yields cannot be less than 70% of t-yield)
 Price = 5 year Olympic rolling average
of higher of NAMP or loan rate
(Individual prices cannot be less than reference price)
ARC - COUNTY
 Actual county revenue:
 Final county yield, times
 NAMP for that crop year
 Payment rate:
 Benchmark Revenue – Actual Revenue
 85% of farms base acres
 Maximum payment = 10% of
benchmark revenue
ARC – COUNTY
Benchmark Revenue Calculation
County Yield
Price
2009
2010
2011
2012
2013
O. Avg.
186
170
160
110
190
172
$3.70*
$5.18
$6.22
$6.89
$4.50
$5.30
* NAMP was actually $3.55, replaced with minimum of $3.70
Benchmark Revenue = $912/acre (172 x $5.30)
 Max payment = $91/acre ($912 x 10%)
Guarantee: $784/acre ($912 x 86%)
ARC – COUNTY
Payment Example
NAMP: $3.90 (USDA estimate)
Final county yield: 180 (trend)
Corn base: 100 acres
 Actual revenue = $702 ($3.90 x 180)
 Payment Rate: $82/acre ($784 - $702 = $82)
 Payment = $6,970 ($82 x 100 x .85)
 Payment/acre = $69.70
ARC – INDIVIDUAL (FARM LEVEL)
 Farm level revenue protection
 Whole farm revenue
 Sum of revenue from all covered
commodities combined across all FSA
farms in the state that you have a
share in
 Planted acres determine weighting in
benchmark revenue
 Payment rate: 65% of base acres
ARC – INDIVIDUAL (FARM LEVEL)
 ARC-Individual will make payments when a
farm’s actual revenue falls below 86% of
benchmark revenue
 Benchmark revenue equals sum of each
crops’ benchmark weighted based of planted
acres
 Actual revenue equals sum of each crops’
revenue (NAMP x farm yield) weighted base of
planted acres
ARC – INDIVIDUAL EXAMPLE
In the following example one FSA farm with
100 total base acres will be used
No other farms are enrolled in ARC – Individual
in this example
In 2014, the farm plants:
 60% of acres in corn
 40% of acres in soybeans
ARC – INDIVIDUAL EXAMPLE
EACH CROP’S BENCHMARK REVENUE
Corn
Soybeans
Revenue*
Price
Farm
Yield
Revenue*
Year
Price
Farm
Yield
2009
$3.55
186
$688
$9.59
54
$518
2010
$5.18
170
$881
$11.30
59
$667
2011
$6.22
160
$995
$12.50
56
$700
2012
$6.89
110
$758
$14.40
52
$749
2013
$4.50
190
$855
$12.50
54
$675
*Revenue equals maximum of NAMP or reference price ($3.70 for corn, $8.40
for soybeans) times farm yield
Each crop’s benchmark revenue equals Olympic average of
revenues:
 Corn: $831 = ($881 + $758 + $855) / 3
 Soybeans: $681 = ($667 + $700 + $675) / 3
ARC – INDIVIDUAL EXAMPLE
BENCHMARK REVENUE & GUARANTEE
Benchmark Revenue weights each crop’s benchmark
revenue by proportion of program crop acres planted
on ARC-Individual farms
Corn
Soybeans
$831 x .60 + $681 x .40 = $771
Guarantee = 86% of benchmark revenue:
$771 x .86 = $663 guarantee
ARC – INDIVIDUAL EXAMPLE
ACTUAL REVENUE
A farm’s revenue equals each crop’s revenue
weighted by proportion of acres:
 $3.90 NAMP corn price (USDA est.)
 180 bushel per acre corn yield (trend)
 $9.65 NAMP soybean price (USDA est.)
 56 bushel per acre soybean yield (trend)
Actual Revenue = $637
.6 x ($3.90 x 180) + .4 x ($9.65 x 56)
ARC – INDIVIDUAL EXAMPLE
PAYMENT RATE
Payment rate equals guarantee minus
revenue:
$663 Guarantee - $637 Revenue = $26 Rate
Rate cannot be more than 10% of benchmark
revenue ($771 x .10 = $77)
Rate cannot be less than one
ARC – INDIVIDUAL EXAMPLE
PAYMENT
Payment equals payment rate x 65% of base
acres:
 $26 payment rate
 100 base acres
Payment = $1,690 ($26 x 100 x .65)
Payment/acre = $16.90
SUMMARY OF CHOICES
Price Loss Coverage
 Fixed reference target price program
 Max payment rate: Reference price – national loan rate
 Payments on 85% of a crop’s base acres
ARC – County
 Revenue program: 5 year Olympic avg. of county yields &NAMP




Separate guarantee for each crop
Guarantee = 86% of benchmark revenue
Max payment = 10% of benchmark revenue
Payments on 85% of crop’s base acres
ARC – Individual




Revenue program: 5 year Olympic avg. of farm yields & NAMP
Whole farm program for covered crops
Max payment: 10% of benchmark revenue
Payment on 65% of total base acres
CHANGES TO CROP INSURANCE
Going into effect in 2015:
 Enterprise unit subsidies made permanent
 In 2015 separate enterprise units for irrigated vs. nonirrigated
 Can have separate coverage levels for irrigated vs. nonirrigated
 Yield plugs increase from 60 - 70%
 An individual year’s yield can be dropped from APH
database if that years yield is at least 50% below 10
year county average
CROP INSURANCE CONT’D:
Supplemental Coverage Option (SCO):
 Available beginning in 2015
 Coverage = between 86% and crop
insurance coverage level selected
 Triggered only if losses exceed 14%
 SCO is county based coverage
 Matches underlying crop insurance
coverage (yield or revenue, HPO)
 SCO only available with PLC, no SCO if
ARC is chosen
PROS & CONS OF SCO
Pros
 Offers 1st time ever ability to insure part of crop insurance deductible
 65% subsidy level
 Provides protection on planted acres as opposed to base (PLC & ARC)
 Not subject to payment limits
 Not subject to AGI eligibility test
Cons
 County based coverage, not popular in IL crop insurance usage
 Eliminates ARC options
 Will be tough to fully evaluate without knowing true cost
Normally crop insurance rates aren’t established and known until
December and premiums until March and farm bill sign up will
likely occur and end before that
CROP INSURANCE CONT’D:
 Beginning farmers:
 Yield plug of 80% rather than 70%
 Extra 10% premium assistance
 No AGI test
 Conservation Compliance
 Re-tied to crop insurance for first time
since 1996
 Rules still being written
CONSERVATION COMPLIANCE
 Most producers already in compliance
 First timers;
 Highly erodible lands-5 reinsurance years to
develop and comply with an approved
conservation plan to remain eligible for
insurance subsidies
Those determined to be in violation have
two reinsurance years to develop and
comply with an approved conservation plan
CONSERVATION COMPLIANCE
 First timers, cont’d;
 Wetlands - 1 reinsurance year to begin to
remedy a violation before being declared
ineligible
However, if you convert a wetland to cropland
from now on, you will be ineligible for a
premium subsidy in future years unless you
mitigate the conversion
 New requirements are prospective rather than
retrospective
 What counts is what you do after start of new
farm bill
FARM BILL WEBINARS
1. Commodity Title Options:
Wednesday, April 2 at 8:00 a.m., Doug Yoder
 Marketing Loans
 PLC
 ARC County
 ARC Individual
2. Crop Insurance Changes/Supplemental Coverage Option (SCO)
Wednesday, April 9 at 8:00 a.m., Doug Yoder
3. Dairy Provisions/Livestock Disaster Provisions
Late April, Jim Fraley
Check www.ILFB.org/farmbill, or FarmWeekNow.com for more
information and to register
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