Farm Bill Decisions Coming Soon

There’s no rule of thumb in farm bill commodity program decisions so it’s time to evaluate your risk.

For a farmer looking for an easy answer to what program to sign up for this farm bill, you may not find it!

There’s no rule of thumb to easily decide which farm commodity program will work best, Carl Zulauf, Ohio State University agricultural economist told farmers at the Farm Science Review show this week.

“There is no unifying principle in agricultural policy anymore except for the management of risk. The problem with that is that risk varies around the country,” said Zulauf. He noted the only way a farm bill gets passed into law is to have the three farm bill options - the Price Loss Coverage (PLC) program, Agriculture Risk Coverage – individual (ARC-IC) and Agriculture Risk Coverage – county (ARC-CO).

The first date to watch will likely start later this fall, and will be for the purpose of reallocating crop base acres, and potentially updating farm program payment yields. (Read more on what needs to be considered going into that decision.)
The second sign-up period at local FSA offices will be to make the actual farm program choice on each FSA farm unit, for each eligible commodity. This sign-up period will likely start yet this fall, and continue into early 2015.

Here are some interesting points to think about moving forward in decision making.

Know your risk

The decision is a five-year decision, but for the 2014 crop year will be able to be made with 80% of the crop year complete. Barry Ward, assistant extension professor at Ohio State and farm business specialist, explained if a producer is more risk adverse, PLC likely would be the right option. If more of a risk taker, it appears the ARC-CO will pay out for the 2014 and farmers could take a chance on whether it would pay out in future years, Ward says.

The PLC program is a revised target price program on a 12-month marketing year price average. The reference price for corn is $3.70 per bushel and for soybean's $8.40 per bushel. Zulauf suggests if you think there will be a disaster price scenario over the life of the farm bill say resulting in $2 corn, “PLC clearly dominates.”

Zulauf added that if corn prices for instance amble along at $3.50 to $4.50, ARC-CO could make fairly substantial payments as it’s designed to better account for the accumulation of shallow risk.  

Big picture

Big picture questions that need to be assessed in making the ARC-CO vs. PLC decision include,

(1) Is SCO cost competitive with higher individual farm coverage, especially enterprise insurance?

(2) Will program choice influence my insurance decisions?

(3) How should reasonably well known 2014 payments be weighed against more uncertain payments for later years?

(4) Should program choice be diversified?

Zualuf writes in a recent article at farmdoc, that once these big picture questions are assessed, the question of what prices are expected for 2015 through 2018 can be considered, setting the stage for the farm program calculators to help aid the decision.

Calculator help

Calculators are no substitute for thoughtful consideration of big picture questions. But will offer some aid for producers in the weeks ahead.

This week the Farm Service Agency held a meeting with its state directors to help train them on the new commodity title programs. It is expected that the regulations could be out within the next couple of weeks as FSA heads come back and train their local staff.

Zulauf expects calculator aids to be available possibly as soon as September 25 as programmers put the finishing touches of the regs into the decision aid.

Zulauf warned though that a calculator is only as good as the info input put into it. “If you don’t have good quality info to put in, you won’t have good output. It’s a decision aid, not a decision maker,” he added.

Land owner choices

This farm bill takes an increased focus on the land owner, rather than operator of the farm. This could be challenging for farmers who work with several different land owners and especially those who are elderly. Instead of just going and getting a signature for FSA farm decisions as done in the past, the actual land owner will be responsible for going into FSA offices and make base and yield reallocation decisions as well as what program each farm will participate in.

This process may also require producers to share more information with land owners, such as yield and price projections. This could create interesting concerns when it comes to rent negotiations, Ward explained.

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