How To Calculate Safety Net Programs In The Farm Bill

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1 Disclaimer The Farm Bill Down in the Weeds Numbers by Dr. G. Art Barnaby, Jr. Professor, Agricultural Economics. Kansas State University KSU Presentation Spring, Phone Check out our WEB page at Copyright 2014, All Rights Reserved 1 3 Many of the results will not be known until USDA publishes the implementation regulations for the new farm programs. Signup is unlikely until this fall. 2 Summary of Safety Net Programs in Farm Bill Commodity, Crop Insurance, and Livestock Programs Component Conference Report Direct Payments, except cotton No CCP Payments No ACRE No SURE No Agriculture Risk Coverage (ARC) Yes Area or Farm level Price Loss Coverage (PLC) Yes STAX Yes SCO combined with PLC Yes Marketing Loans Yes Livestock Disaster Programs Yes Analysis is based on my reading of the Managers Report and the Law. It also includes my crop insurance experience and communications with Washington decision makers. There is not a one size fits all program and farmers will have to make financial decisions that carry risk of a financial loss or gain. This analysis carries no warranty given or implied by Kansas State University or the author. Agriculture Risk Coverage (ARC) Similar to ACRE but county yield rather than state yields, and no caps on coverage, but the crop s reference price serves as a cup on the MYA price used to set ARC coverage. Price Loss Coverage (PLC) Similar to Counter Cyclical program with target prices. Supplemental Coverage Option (SCO) Similar to AI (old GRIP) crop insurance coverage and SCO is under crop insurance rules. Stacked Income Protection Plan (STAX) for upland cotton Similar to AI (old GRIP) crop insurance coverage and STAX is under crop insurance rules. Changes to Crop Insurance Address catastrophic losses and splits enterprise units by irrigated vs. non-irrigated Likely the largest dollar impact on farmers. 4

2 FSA Free Puts, Price loss coverage payments if price is less than reference price Strike Prices Wheat, $50 per bushel Corn, $70 per bushel Grain sorghum, $95 per bushel Soybeans, $8.40 per bushel Other oilseeds, $2 per hundred weight Barley, $95 per bushel 7. Oats, $40 per bushel 8. Long grain rice, $100 per hundred weight 9. Medium grain rice, $100 per hundred weight 10. Peanuts $5300 per ton 1 Dry peas, $100 per hundredweight 1 Lentils, $19.97 per hundredweight 1 Small chickpeas, $19.04 per hundred weight 1 Large chickpeas, $254 per hundred weight Nonrecourse Marketing Loan Rates Strike Prices Wheat, $94 per bushel Corn, $95 per bushel Grain sorghum, $95 per bushel Soybeans, $00 per bushel Other oilseeds, $10.09 per hundredweight Barley, $95 per bushel Oats, $39 per bushel Upland cotton, simple average world price, s.t. Min 47 cent; max 52 cents/lb Extra long staple cotton, $ per pound Long grain rice, $50 per hundred weight Medium grain rice, $50 per hundred weight Dry peas, $40 per hundred weight Lentils, $128 per hundred weight Small chickpeas, $7.43 per hundredweight Large chickpeas, $128 per hundredweight Graded wool, $15 per pound Case of non-graded wool, $0.40 per pound Case of mohair, $20 per pound Honey, $0.69 per pound Peanuts, $355 per ton 6 Price Loss Coverage (PLC) Agriculture Risk Coverage (ARC) Guarantee Guarantee Reference price Benchmark Yield Guarantee Actual Price Payment per Acre Payment Acres Program Selection Payment Limit County Revenue; (Whole Farm Revenue) 5 year Olympic Average Max (MYA, Reference Price Statute Price) Expected County Yield (Farm Yield if Benchmark Yield whole Farm level ARC) Benchmark Revenue Ref Price X Benchmark Yield Benchmark Guarantee 86% X Ref Price X Benchmark Yield Actual Revenue County Yield X MYA Price Guarantee - County Revenue; (Whole Payment per Acre farm level ARC, farm yields) 85% X Base Acres (30% for PP) for Payment Acres County ARC; (Base X 65% for Whole Farm level ARC) Program Selection 1 time Select ARC or PLC + SCO $125K for Title I programs, ARC, PLC, Payment Limit LDP, MLG, No limit for SCO Farm Level (No Yield Effect) Set by Law ("Target Price") Updated Program Yields = 90% of "Average" Yields for Reference Price MYA price (Ref Price - Max (MYA, Loan Rate)) X Updated Program Yield 85% of Base Acres 1 Time Select ARC or PLC + SCO $125K for Title I programs, ARC, PLC, LDP, MLG, No limit for SCO Max Payment 7 10% X Benchmark Revenue 8

3 Supplemental Coverage Option (SCO) SCO Not Defined USDA has an understanding with the Ag Committee that RMA will follow the Area Risk Protection Insurance (AI was GRIP) rating and underwriting methods. SCO is sold via crop insurance agents and AIP insurance companies. A&O capped at 12% and outside the $3 Billion A&O limit. Guarantee County Revenue or County Yield Reference Price Crop Insurance Prices Based on Futures Farmer's SCO Liability covers, -HPE, or YP Deductible up to 86% Farmer's APH X Crop insurance Prices X (86%-% CI Coverage), determined by type of coverage purchased % County Payment Factor Min((0.86- (Final Co. Rev./Exp. Co. Rev.))/(0.86-% Crop Ins.),1) Farmer Payment % County Payment Factor X Farmer's Liability AI has no stop loss and farmers can buy 120% times the expected value of the crop. SCO is limited to 100% of the crop value and liability is tied to the farmer s crop insurance deductible. Payment Acres Covers all Planted Acres YP based SCO Liability 86%-% YP Coverage = % of Farmer's Deductible -HPE based SCO Liability 86%-% -HPE Coverage = % of Farmer's Deductible No SCO for crops in ARC or STAX. based SCO Liability 86%-% Coverage = % of Farmer's Deductible Payment Limit None & No Sequestered Payments SCO starts in the 2015 crop year; PLC & ARC start in Example Farmer Values for Supplemental Coverage Option s (SCO) Farm County APH Base Price $00 $00 Total Revenue $30 Final Revenue $ % Guarantee $ Final Guarantee $ Harvest Yield Revenue to Count Payment Stop % Crop Insurance Coverage Level Program Selection 1 time Select ARC or PLC + SCO $ % % % SCO Coverage 400 SCO Payment 224 Total Payment 474 $45 SCO Deductible SCO Deductible SCO Coverage SCO Coverage Insurance Coverage Protection Factor $ Payment Factor* 10 Supplemental Coverage Option s (SCO) Liability is tied to the Deductible in 80% $ $7200 Harvest Price % Coverage Max Payment per AC $600 PF = Min((0.86- (Final CR/Exp. CR))/(0.86-% CI),1) Coverage 49% $ $ % County Payment Factor 86% CI% X Exp CR Exp CR Final CR *Payment Factor was calculated based on Area Risk Protection Insurance (AI) payment factor. RMA may use some other method

4 Crop Insurance Changes SCO Payments Based on Example Farm Scenarios 80% & SCO, price declines from $00 to $30 and a 140 bu. actual county yield; 49.43% County Payment Factor X $45 SCO Liability = $224 SCO payment 70% & SCO, price declines from $00 to $30 and a 140 bu. actual county yield; 18.53% County Payment Factor X $120 SCO Liability = $224 SCO payment 70% & SCO, price declines from $00 to $30 and a 120 bu. actual county yield; 967% County Payment Factor X $120 SCO Liability = $1118 SCO payment 80% & SCO with 120 bu. county yield; County Payment Factor 100% X $45 SCO Liability = $400 SCO payment 13 Conservation compliance required to receive crop insurance premium subsidy, but farmers are given time to fix compliance problems. Out-of-compliance farmers may buy crop insurance, but without government premium cost share. May out-of-compliance farmers elect CAT that only has an implied premium and pay only a $300 fee? 60% yield plug for replacing low yields in an APH was retained. If a county has a 50% yield loss, then farmers may exclude that year s yield from their APH. The APH will be 9 years of yields divided by 9. If the county yield trigger is met more than once, then more than 1 yield may be excluded. Historical Prices and Volatility Will the 50% County Exclusion Yield Apply to 2015? The issue is will the prior 10 years of county yield history be applied so that the 2015 APHs will be able to exclude a yield in a year with a 50% county yield loss. Mar 15 Corn After an insurance claim caused by a yield loss the APH is reduced, except for prevented planting claims. There is no APH reduction when the cause of loss is price only and the yield is equal to the APH or greater. Illinois corn farmers had large underwriting gains for the 20 years prior to 2012, when the loss ratio was over 600. Why is the risk greater in 2013 than it was in 2011, but the APH was reduced? The rate driver is volatility, but that does not suggest the catastrophic load is sufficient. 15 Mar 15 Soybeans Plant Harv. Vola- % Price If the 50% county yield loss exclusion rule is only applied going forward, then it will not adjust any APHs until 2025, and will have almost no effect on crop insurance or the new SCO coverage. 14 Sep 30 KC Wheat Plant Harv. Vola- % Price Plant Harv. Vola- % Price Price Price tility Change Year Price Price tility Change Price Price tility Change (23%) % (17.8%) % % (27%) % (10.0%) % % (16%) (7.9%) % (27.6%) (25%) (30%) (18%) % % % (0%) % (19%) % (7.9%) (27.6%) (27%) % (6%) % (18%) % % (7.5%) (13%) (4%) (7.3%) (18.7%) (12%) (9.6%) (11%) (1%) (20%) (17.7%) % (1%) (7.9%) (2%) % % (19.5%) (15%) % 7.02 (1%) 16% 30% 9% 16

5 Volatility and Strike Price Impact on National Revenue Protection () Rates for Corn Volatility and Strike Price Impact on National Revenue Protection () Rates for Corn % Rate % CovDiffeerage rence $ CovDiffeAvg from erage rence per Prem 2012 from Loss Acre Rate Rate 2012 Ratio % Rate % CovDiffeerage rence $ CovDiffeAvg from erage rence per Prem 2012 from Loss Acre Rate Rate 2012 Ratio Net Year Acres Millions Total Prem- Liability $Millions 7, , , ,542 9,670 10,795 21,649 27, ,580 25, , ,306 50,444 $Millions % Corn Harv- Price Indem- Plant est Cha- Volanity Price Price nge tility $Millions Millions , , , , ,075 2, , , , , ,214 2, ,940 10, , , (15%) 9% (7%) (28%) (13%) 17% (12%) (24%) (8%) 37% 5% 32% (22%) % 8.83% 9.76% 10.10% 1% 10.45% 10.91% 103% 163% 9.50% 9.62% 8.34% 8.53% 8% 6% 17% 21% 22% 25% 31% 32% 39% 14% 15% zero 2% (67%) (67%) (66%) (60%) (66%) (62%) (39%) (18%) (35%) (35%) (1%) zero (%) State Loss Ratio For Corn All Insurance Plans, Rank by Price Change Change CO IA IL IN KS MI MN MS NE OH OK TX % % (27.6%) % (25%) (20%) (23%) (19.5%) (18.7%) % (11%) (13%) (19%) (18%) % (7.9%) (7.9%) (6%) % % % Correlation Price (0.24) (0.04) (0.12) % Corn Price Year Net Year Acres Liability $Millions 7, , , ,542 9,670 10,795 21,649 27, ,580 25, , ,306 50,444 % Corn Harv- Price Indem- Plant est Cha- Volanity Price Price nge tility Total Prem$Millions $Millions , , , , ,075 2, , , , , ,214 2, ,940 10, , , (15%) 9% (7%) (28%) (13%) 17% (12%) (24%) (8%) 37% 5% 32% (22%) % 8.83% 9.76% 10.10% 1% 10.45% 10.91% 103% 163% 9.50% 9.62% 8.34% 8.53% 8% 6% 17% 21% 22% 25% 31% 32% 39% 14% 15% zero 2% (67%) (67%) (66%) (60%) (66%) (62%) (39%) (18%) (35%) (35%) (1%) zero (%) 18 Wheat Calculations for ARC and PLC Assuming MYA 2014/15 Price of $98 & Average Yields Assume 45 bu. APH X Price $50* 80% Revenue Protection () Coverage $2950 $2300 Wheat Calculations for ARC and PLC ARC 5 Yr. Olympic Avg. County/Prog. yield/aph 5 Yr. Olympic Avg. MYA 40 PLC 50 ins. 45 Reference Revenue/Price/Crop Ins. Price 86%/100% Coverage Revenue/Price Guarantee Current County Yield/Farm Yield Assume MYA 2014/15 Price/Harvest Price** $ to Count/Price Difference Payment Rate/Acre Max Payment Rate*** Payment Acres 85% X Base Ac Total Payment per Base Acre *Percent of Farm Level Expected Revenue Covered by County ARC % **Crop insurance prices are based on Futures; while likely they will move with the MYA price it is unlikely they will be equal. ***A 10% stop loss times the Reference Revenue, PLC stop loss at the Loan Rate and no stop loss for crop insurance

6 Comparing the 2014 MYA Reference Price for 2014 ARC vs. PLC Statute Price for Wheat Comparing the 2014 MYA Reference Price for 2014 ARC vs. PLC Statute Price for Corn 13/14 & 14/15 MYA price MYA Price 12/13 MYA Price 11/12 MYA Price 10/11 Statute, MYA Price 09/10 5 Yr. Olympic Average Reference Price for 2014 ARC ARC 14% Deductible If 14/15 Price is below $70, then % Deductible Price is PLC Reference Price & Difference 13/14 & 14/15 MYA price MYA Price 12/13 MYA Price 11/12 MYA Price 10/11 Statute, MYA Price 09/10 5 Yr. Olympic Average Reference Price for 2014 ARC ARC 14% Deductible If 14/15 Price is below $44, then % Deductible Price is PLC Reference Price & Difference $67 $67 $50 $ Corn Calculations for ARC and PLC Assuming MYA 2014/15 Price of $22 & Harvest Yield is Average Assume 150 bu. APH X Price $62* 85% Revenue Protection () Coverage 5 Yr. Olympic Avg. County/Prog. yield/aph ARC 140 PLC 150 $28 $ $54 N/A Revenue/Price Guarantee Current County Yield/Farm Yield Assume MYA 2014/15 Price/Harvest Price** $ $22 $70 $6967 N/A 145 $22 $32 $ to Count/Price Difference Payment Rate/Acre Max Payment Rate*** Payment Acres 85% X Base Ac Total Payment per Base Acre $45 $1891 $792 85% $683 $0.48 $700 $70 $70 N/A $62 85% $4840 $2127 *Percent of Farm Level Expected Revenue Covered by County ARC % **Crop insurance prices are based on Futures; while likely they will move with the MYA price it is unlikely they will be equal. ***A 10% stop loss times the Reference Revenue, PLC stop loss at the Loan Rate and no stop loss for crop insurance $57 $57 $70 $ MYA Year 13/14 Est Wt. Wt. Price 14/15 MYA September October November December January February March April May June July August /14 & 14/15 MYA price MYA Price 12/13 MYA Price 11/12 MYA Price 10/11 Statute, MYA Price 09/10 5 Yr. Olympic Average Reference Price for 2014 ARC ARC 14% Deductible If 14/15 Price is below $27, then % Deductible Price is likely PLC Reference Price & Difference 85% 100% $620 $ Comparing the 2014 MYA Reference Price for 2014 ARC vs. PLC Statute Price for Sorghum ins Yr. Olympic Avg. MYA Reference Revenue/Price/Crop Ins. Price 86%/100% Coverage $6900 $ Corn Calculations for ARC and PLC MYA Year 13/14 Est Wt. Wt. Price 14/15 MYA September October November December January February March April May June July August MYA Year 13/14 Est Wt. Wt. Price 14/15 MYA June July August September October November December January February March April May $40 $11 $95 $

7 Comparing the 2014 MYA Reference Price for 2014 ARC vs. PLC Statute Price for Soybeans MYA Year 13/14 Est Wt. Wt. Price 14/15 MYA September October November December January February March April May June July August /14 & 14/15 MYA price MYA Price 12/13 MYA Price 11/12 MYA Price 10/11 MYA Price 09/10 5 Yr. Olympic Average Reference Price for 2014 ARC ARC 14% Deductible If 14/15 Price is below $130, then % Deductible Price is likely PLC Reference Price & Difference Crop Wheat Corn 120 ARC Reference Price, Est. with 14% deductible $61 $54 $38 $10.51 Reference (strike) Price Difference between ARC and PLC $0.11 $0.84 $0.43 $11 $85 $01 $87 $ % 9% -2% 6% % above Avg. Yield to Eliminate ARC Statute Price 2% 23% 11% 20% Price for PLC to Exceed ARC payment, with program Yield = County Yield $85 $17 $38 $7.18 Max Price & Minimum Price where County Yield will determine the highest Payment program $50 $70 $38 $85 $17 $38 $8.80 $ Percent Subsidy by Unit Size BasicLevel* Optional Enterprise ARC PLC + SCO Higher Reference price for Corn ($0.84), Soybeans Similar Reference price for Wheat ($0.11) ($11) & Sorghum ($0.43) Moving Olympic Average MYA Price based Revenue Fixed Price Guarantee Guarantee/No HPO Market continues to trade in the current range plus/minus 50 cents ARC on Corn, Soybeans and Sorghum PLC + SCO toss up on wheat Major Market Price Increase combined with Major Crop Failure Likely None SCO has harvest Price on all Planted Acres with Major Market Price Decline ($3 corn) with normal yields ARC has 10% stop loss SCO has no limit, PLC has loan limit Major Market Price Decline ($3 corn) Combined with Record Yields Likely None PLC pays, likely no SCO Farm Program Yield Greater than County Yield No impact Increases any PLC Payment Over Plant Base Acres by a Large Percentage Any Payments Limited to 85% of base acres Only SCO covers All Planted Acres Crop Insurance Coverage at 80% or Greater Higher reference prices and Substitute Private SCO provides little at 86% Coverage for County, so Coverage for SCO in Some States reference price will determine selection Over The $125 K Limit Will hit $125K limit before the 10% ARC Stop Loss Only SCO has no payment limit 46 $8.40 % above Avg. Yield to reduce ARC Statute Price $10 Sbeans $50 $70 $95 Which is Better; ARC or PLC + SCO? Milo PLC Reference Price (Statute Price) With Avg. Yield, Price to Max ARC payment 121 $10.50 $8.40 Break Even Prices To Select PLC over ARC A SCO *Dollar per acre subsidies are the largest at the coverage levels at 80% and higher 47

8 Defining County Yield is Critical Planted acres? Harvested acres? Defining County Yield is Critical Harvested acres plus failed acres? Will failed acres include prevented planted acres? RMA has the T-yield that is a county yield based on planted acres. Trend adjusted expected county yield? Other definitions for county yield 48 NASS has many missing county values, so likely RMA data will need to be used to fill in missing data. The county yield used for the 50% county trigger to allow a yield to be excluded from an APH is a moving 10 year simple average county yield. The ARC county yield is an Olympic average yield. One would assume the same AI county yields would be used for SCO. However, this only sets the payment trigger, the SCO payment is based on the individual farmer s deductible in their crop insurance coverage. SCO Features Farmers have a basis risk in SCO, because farmers can suffer a loss and not have the county meet the payment trigger, so no payment. If the county trigger has been met, then the payment is the county payment factor times the Farm level deductible below 86% and above the crop insurance percent coverage. SCO will pay claims about 6 months before PLC and ARC payments are made because those payments must wait on the national marketing year average price to be finished. SCO payments cannot be sequestered, no payment limits, large farms will have less basis risk, based on crop insurance prices, cover all planted acres, it is an annual decision to buy, the amount and type of coverage is also an annual decision. Farmers must pay 35% of the premium. 49 Where Does SCO Fit? 50 ACR is a free 86% revenue guarantee with a co-pay of 15% for county-arc by crop, or 35% co-pay for whole farm (all crops). Minimum of 15% of the acres are not covered by ARC or more if the farm has crop acres with no base. Farmers with 70% coverage, or less, who are unwilling to change to an enterprise unit and increase coverage, maybe better of in PLC and buying SCO that will provide additional coverage equal to 16% of the deductible. Farmers with an increased APH caused by the new crop insurance rule that allows farmers to exclude a yield from their APH history if the county or contiguous county suffers a 50% yield loss, will benefit under SCO. Will it pay for farmers to reduce their APH based coverage and shift more of the coverage to SCO? That will depend on the SCO premiums vs. premiums. We may not know the answer at FSA signup time because the spring crop premium rates may not be available, and if ARC is selected farmers are not eligible for SCO. 51

9 Will Farmers Elect ARC over PLC? Comparison of Reference (strike) Prices by Program Farmers enrolled in ARC or STAX are not eligible for purchase of SCO. Corn and soybeans crop insurance base price is $0.03 and $0.81 higher than ACR s reference price, but $0.92 and $95 higher than PLC s reference price, respectively. Wheat s crop insurance base price is $33 higher than ACR s reference price and $52 higher than PLC s reference price. Based on current price there is little chance that PLC will pay on wheat in the first year, and that may be a fact by signup in the fall. PLC is unlikely to pay on corn and soybeans, even in the later years. It is possible that ARC will pay on wheat but it will likely require yield loss to trigger payments. Harvest for 2014 will be history by signup. PLC ARC* ARC New Crop Ins. VS. Crop Price vs. PLC Crop Ins. Futures ARC PLC Corn $70 $59 $0.89 $62 $00 $0.03 $0.92 wheat $50 $69 $ $7.02 $7.50 $33 $52 Soybeans $8.40 $10.55 $15 $136 $100 $0.81 $96 Sorghum $95 $43 $0.48 $46 $0.03 $0.51 *ARC prices have been adjusted for the 14% deductible. This is the effective strike price because if the county produces an average yield, then prices will need to fall below the effective strike price to trigger county-arc payments. If large wheat yield losses appear that are likely to cause wheat ARC payments, then will farmers select ARC? While PLC is unlikely to pay on wheat in the first year, ARC enrolled farmers may be giving up significantly higher PLC payments in later years because PLC has no effective stop loss. 52 December 14 Corn 53 November 14 Soybeans 54 55

10 Estimated ARC Reference (Strike) Prices based on KSU Estimates & FAPRI Deferred Prices July 14 KC Wheat Year CORN MILO WHEAT SBEANS 14/15 15/16 16/17 17/18 18/ ARC Prices after 14% Deductible and Payment Trigger when Actual County Yield Equals Expected County Yield Year CORN MILO WHEAT SBEANS 56 FAPRI Estimates of Commodity Program Participation Crop PLC* ARCARCcounty* Farm* SCO** STAX** 50.00% 40.00% 70.00% 80.00% 90.00% 90.00% 90.00% 37.50% 400% 250% 100% 7.50% 7.50% 7.50% 150% 100% 7.50% 00% 50% 50% 50% 200% 20.00% 300% 0.00% 900% 40.00% 400% 400% 400% *PLC and ARC are percent of base acres. SCO and STAX are percent of planted acres. **SCO and STAX are not available until Will Farmers Elect ARC over PLC? Corn Soybeans Wheat Cotton Sorghum Barley Rice Peanuts 14/15 15/16 16/17 17/18 18/ PLC Reference Price Based on current market outlook, there appears little chance that PLC will pay on corn and soybeans. Because of higher ARC reference prices, corn and soybeans have a better chance of paying under ARC than PLC, but no guarantees. Higher yields or higher market prices will reduce or eliminate ARC payments. If market price levels remain high that will increase the crop insurance coverage including SCO. The reference price in ARC is lagged so it will require time to move to a higher price. However, if market price levels decline ARC s annual 5-year moving Olympic average reference price has a greater chance of being in the money and increase the odds of an ARC payment. 59

11 Will Farmers Elect ARC over PLC? Where Does SCO Fit? County-ARC allows for farmers to individually select crops, therefore wheat could be in PLC and corn in county-arc. However, farm-arc requires all crop on the farm to be in ARC and payment rate is dropped to 65% of the base acres. FSA enrollment is by Farm Serial number. Therefore, farmers may have one farm enrolled in ARC but another farm enrolled in PLC all in the same county. Crop insurance requires all acres of a crop in the county to be insured. The FSA and RMA rules are in conflict on this point and the Secretary will need to make a decision. Selection of ARC vs. PLC is a 5 year irrevocable decision. Therefore, selecting PLC will allow greater flexibility because & SCO are annual decisions. Some counties don t have coverage offers greater than 75%. Farmers with significantly more crop acres than base acres. Larger farms above the payment limit may be better off with PLC and SCO, because the SCO does not have a payment limit. 60 Counties with very high crop insurance premium rates for 80% and 85% coverage. An 80% Enterprise unit has a greater subsidy than SCO and is an alternative to the purchase of SCO. Risk averse corn-soybean farmers who are willing to forego a likely small ARC payment because they want to avoid a catastrophic price collapse by selecting PLC & SCO over ARC. Higher crop insurance base prices favor crop insurance over ARC, and ARC coverage does not increase when harvest prices are higher. Minimum of 15% of the acres not covered by ARC or more if the farm has crop acres with no base. Farmers who drop their crop insurance coverage and assume free ARC revenue coverage will cover their risk will have a minimum of 95% of their expected revenue uninsured, or more! Caused by a stop loss equal to 10% of the expected revenue and then adjusted for the 15% of the base that receives no coverage. Farmers have 3 FSA program alternatives; PLC, county-arc, farm-acr, and those not enrolled in ARC can add SCO coverage. When given multiple choices, people will often select the simple choice, which is PLC. PLC is effectively Counter Cyclical Payments with updated target prices, and farmers have a long history with the deficiency payment type of programs. 61 Other Items Bottom Line 62 10% increase in crop insurance premium subsidy for beginning farmers. Crop agents are allowed to correct errors. ARC is expected to provide an irrigated and dryland contract in counties with significant amounts of both practices. Enterprise units for irrigated and non-irrigated crops in the same county. May select different coverage levels too. Updated program yields = 90% of yields for May ARC enrolled farmers update program yields? (Yes?) Re-allocate base acres. Program Yield and re-allocate base are expected to be independent decisions. 63

12 Take Home Points Can t Build Base Reallocate base acres based on plantings in Update Program yield this summer, one time option. 7. Non-insured Crop Assistance Program (NAP) Only farms not enrolled in ARC, may buy SCO that covers all planted acres, including crop acres with no base and is annual decision. FSA enrollment is by Farm Serial Number, allowing for different program selection. Landlord and tenant must agree on commodity program and it is a irrevocable decision for the life of the Farm Bill. Means Testing; a. It will pay very large farms to select CAT b. Actuarial impact from loss of large farms from insurance pool. c. Impact on delivery from fewer A&O dollars d. $250K/$750K AGI limit Conservation compliance issues Privacy of crop insurance records Elimination of harvest price Impact on coverage from declining prices and APH NAP buy-up excludes crops and grasses for grazing. NAP payments are reduced if harvest expenses are reduced. Service fee + 25% times the liability (maximum payment). Provided by FSA and has a $125,000 farm payment limit. 7. Conference report calls for NAP to move to crop insurance. 64 Continued Crop Insurance Issues NAP will have buy-up from 50 to 65% in 5% 100% of the price. FSA payments are paid on crop base acres, not the crop planted, and a minimum of 15% of the acres are not covered. Non-insured Crop Assistance Program (NAP) will provide coverage that is similar to CAT coverage under crop insurance. 65 When will Farmers Need to Make a Final Decision on Farm Program Participation Secretary Vilsack s addresses to Commodity Classic on Farm Bill implementation February 28, San Antonio, Texas We will allow you during the course of that summer and fall to update production history. We want to make sure we are communicating with you about base and yields in your production history. We are going to hope to publicize and focus on publicizing the final program and the regulations for both ARC and PLC in the Fall of There will be no payments until Fall of 2015 on the 2014 crop because of the wait for the completion of the MYA price. Therefore, the longer it takes for signup, the better for Farmers, because the current price and yield forecasts will change from forecast to history and allow for a more informed decision. 67

13 Future webinars on Crop Insurance changes, Rule updates, etc. are subject to demand? Analysis of SCO and Farm level ARC are possible webinar topics. MAST More Analysis and Education Free signup for AgManager.info that covers crop and livestock marketing, government programs, crop insurance, leasing, farm management and public policy issues. Thank You DR. G. A. ART BARNABY, JR. KANSAS STATE UNIVERSITY PHONE: Check out our WEB page at Copyright 2014, All Rights Reserved Please feel free to send comments or questions on this webinar recording to AgManager.info 68 69

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