Growers' first farm bill task is to reallocate base acres
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WASHINGTON, Sept. 3, 2014 - Farm owners and operators are beginning to make decisions presented to them by the 2014 Farm Bill, most of which will largely depend on their expectations for prices and their own finances.
Two new Commodity Title programs, Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC), offer a choice between revenue protection or price protection that will be locked in for the 2014-2018 crop years. But first, producers must decide whether or not to reallocate their base acres. The decision is a one-time option based on planted acreage from 2009 to 2012.
USDA notes that farm owners have an opportunity to either maintain a farm's 2013 base acres of covered commodities through 2018, or reallocate base acres among those covered commodities planted on the farm at any time during the 2009-2012 crop years.
(Covered commodities under PLC and ARC include: barley, canola, chickpeas, crambe, flaxseed, grain sorghum, lentils, mustard seed, oats, peanuts, dry peas, rapeseed, long grain rice, medium grain rice, safflower seed, sesame, soybeans, sunflower seeds and wheat. Upland cotton is no longer a covered commodity, because the new Stacked Income Protection Plan (STAX) program is specialized for cotton.)
Most producers received a letter from USDA's Farm Service Agency (FSA) about a month ago asking them to make a decision regarding their base acres within 60 days. However, FSA has not a set a hard deadline for this decision.
“When we can see that a majority of the producers have made their decisions, we will likely offer a firm deadline to wrap the process up, but for now it is just a general ‘late summer 2014' guideline,” explained FSA's Kent Politsch. FSA offices are also handling disaster payments authorized by the 2014 Farm Bill and the recent rollout of the new dairy program.
FSA sent producers their farms' 2013 base acres and 2009-2012 planting history, data needed to use a tool USDA is making available that can compare a farm's current bases with its reallocated bases. For acres prevented from being planted with one crop, but then planted with a different crop, the owner can pick which commodity to use for that crop year in the four-year average calculation.
During a Farm Bill webinar earlier this year, Jonathan Coppess of the University of Illinois said reallocation decisions depend on the farm owners' commodity program choices and intentions for future crop plantings.
A more recent update from several University of Illinois agricultural economists and Ohio State University's Carl Zulauf notes, “The potential for a notable change in base acres, the use of base acres to calculate ARC and PLC payments, and the continuing decline in prices mean the base acre reallocation decision is important.”
The economists said reallocated base acres can minimize the financial risk associated with production. In this case, the owner would most likely elect the base acre allocation closest to the expected crop mix on the farm during the 2015-2018 crop years, which is likely to reflect the previous 2009-2012 base acres.
However, if farm owners are trying to maximize government payments, the decision will depend on the farm owner's ability to forecast yields and prices over the next few crop years. They noted that ARC and PLC payments are more uncertain than most past government program payments.
“In short, the decision involves uncertainty as opposed to known government payments,” they wrote, referring to direct payments that were eliminated in the 2014 Farm Bill.
Farm owners must also decide whether or not to update their payment yields, which will only apply to the PLC program. Program payment yields are used to determine payment amounts for PLC. They can update yields to 90 percent of their average yields from 2008-2012. Otherwise, they can keep their current payment yields at the same levels used in the 2008 Farm Bill's Counter-Cyclical program.
Once farm owners make these decisions, they will need to decide between ARC and PLC for each covered commodity for the 2014-2018 crop years.
If producers intend to choose PLC for a certain crop, they may also elect to enroll in a new crop insurance program, the Supplement Coverage Option (SCO), which has a premium subsidy of 65 percent. Farm owners must choose SCO by the sale closing date for their underlying crop insurance policy. The closest decision for SCO is winter wheat, USDA's Risk Management Agency noted. If owners want SCO for winter wheat, they must elect the option by Sept. 30.
Producers may not enroll a crop in both SCO and the ARC program, which is offered by FSA. However, producers who applied for SCO for their winter wheat for 2015 may elect to withdraw coverage if they later choose to enroll in ARC for winter wheat.
SCO is available, starting with the 2015 crop year, in select counties for spring barley, corn, soybeans, wheat, sorghum, cotton, and rice, according to RMA.
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