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Thursday, April 26, 2012

Bone Up On ARC, It Could Be The Next Farm Program



 

After more than a year of lobbying, the Senate Agriculture Committee approved its version of the 2012 Farm Bill.  While there is a long way to go, including Senate floor amendments and full Senate passage, and then passage of the House version of a Farm Bill, it would be beneficial to see what is pending in the Senate.  After all, an eventual Conference Committee of House and Senate members will settle upon some of the contents in the Senate Committee’s effort.

If you remember last fall when the four leaders of the Senate and House Agriculture Committees tried to write a Farm Bill in record time, so the “Super Committee” would include it in a budget reconciliation plan; the concept passed Thursday by the Senate was modeled after that legislation.  And don’t be surprised if the House legislation is not far apart, since its leaders had also favored the framework within the Senate plan.

The plan is outlined by Ohio State Farm Policy Specialist Carl Zulauf and based around the safety net known as Agriculture Risk Coverage (ARC), which is joined by a wide range of other enhancements and changes.  ARC comes in two choices, one designed for individual farms and one for county coverage.  At the outset of the farm program a producer makes an irrevocable choice.  Payments cover corn, beans, wheat and a variety of other program crops and are made for an entire farming operation, not for individual FSA farm numbers.  Payments, if earned, are made on losses between 11% and 21% of a benchmark value.  Payments are made on planted and prevented planted acres, but cannot exceed the average acres for the farm in the 2008 Farm Bill, and there is a $50,000 limit on payments per entity, as defined in the 2008 Farm Bill. Additionally, the adjusted gross income limitation will become a ceiling on payment eligibility.

But how is a payment calculated for the individual farm coverage? 
1) The benchmark value of yield times price determines the revenue.  Yield is the Olympic average of the five most recent crop years.  Price is the US average price for the first 5 months of the marketing year, or the US loan rate, whichever is highest.
2) The realized value is determined by yield times price, with the yield being the farm operation crop yield, and the price being the Olympic average US price for the most recent 5 crop years.

According to Zulauf, farmers who select the individual farm coverage will receive payments based on the individual crop on farm operation, based on the farm operation yield.  However, the losses covered will be between 11% and 21% of the benchmark revenue.

So how is a payment calculated for the county-based coverage?
1) The benchmark value of yield times price determines the revenue.  Yield is the Olympic average of the five most recent crop years.  Price is the US average price for the first 5 months of the marketing year, or the US loan rate, whichever is highest.
2) The realized value is determined by yield times price, with the yield being the farm operation crop yield, and the price being the Olympic average US price for the most recent 5 crop years.
Zulauf says payments will be based on individual crops by county, and losses between % and 21% of the benchmark revenue will be covered.

One more significant difference is the individual plan will pay on 60% of eligible planted acres, but the county-based plan will pay on 75% of the eligible planted acres.

There is an additional supplemental insurance coverage option, which is based on each crop in a county, and based on the county expected yield and using the current method of determining the harvest price.  This program would cover losses between 10% and the deductible chosen for regular crop insurance for farmers who are not participating in the ARC program.  For farmers participating in the ARC program, losses between 20% and their crop insurance deductible would be covered.

In addition to the rather complex ARC program, the Senate has enhanced the crop insurance program.  The APH yield will be calculated at 70% of the insurance transition yield, up from 60%.  The enterprise unit program will become permanent.

Zulauf says, “Should ARC come into existence, farmers will have to decide if they want to enroll in the individual or county ARC program. In addressing this question, a key question will be whether, over the 2013-2017 crop years, farmers expect the greatest risk to be (1) low yield on their farm or (2) low market price. The individual farm ARC provides protection for yield losses on the individual farm. However, the county ARC has a higher coverage rate (75% vs. 60%). Thus, the county ARC provides more protection for losses that occur due to yield losses over larger areas or because of low prices (i.e., losses not due to individual low yields). 
However, the $50,000 payment limitation will be a non-starter for many producers to enroll in the ARC program, and rely solely on crop insurance, since payments are generally received when they are most needed.  And he adds, “Farmers also will have to decide if they want to use the Supplemental Insurance Option to replace individual insurance with a combination of individual and county coverage through this new program. The only observation I feel comfortable making at the present time is that this option could be an important tool to better allow a farmer to customize risk management to the risks his/her farm confronts.”

Summary:
While it has only been passed by the Senate Ag Committee, agriculture may have gotten a look at the framework for the next Farm Bill, which is the Agriculture Risk Coverage program.  ARC has been discussed for several months, but has been supplemented by an additional insurance program that covers both deep and shallow losses, and gives producers a choice of individual farm coverage or a county-wide coverage.

Posted by Stu Ellis on 04/26 at 11:38 PM | Permalink

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