WACO – It’s decision time for farmers under the new 2014 farm bill, according to a Texas A&M AgriLife Extension Service economist who discussed details at the recent Blackland Income Growth Conference in Waco.
Dr. Jason Johnson, AgriLife Extension economist in Stephenville, said farmers have a one-time irrevocable decision to choose either price loss coverage (also known as PLC) or agricultural risk coverage (also known as ARC) as a revenue protection plan.
The ARC program offers either a county level or an individual loss benchmark. “It’s very possible to have different crops or commodities enrolled in different programs. If you decide you want to go with agricultural risk coverage, you could go county level or individual level. If you go individual level you are making that election for your entire farm. If you don’t make that choice, the price loss coverage option is the default.
Using the county level benchmark, different crops may be enrolled in different programs, Johnson said.
“One crop could be enrolled in PLC and others could be enrolled in ARC.”
Johnson advised all producers to give each option thorough analysis and determine how they apply to their particular option, risk level and management plans.
Overall, he said, the new farm bill should not be relied upon as the producer’s only source of a safety net – individual crop insurance selection and marketing plans will be counted on heavily to fend off potential losses.
Price loss coverage payments occur if the U.S. average market price for the crop year is less than the crop’s reference price, he said.
Farmers who choose ARC and select the individual coverage rather than the county average will be covered at 65 percent of base rather than 85 percent with the county average benchmark. The benchmark is developed through a county Olympic average for yield and price. Numbers for the last five years, minus the high and low, and averaging the remaining three provide the basis.
“Multiply the average yield times the average price for the benchmark,” Johnson said.
Also available through the Title 11 crop insurance offering is a “shallow loss,” supplemental coverage option (SCO) to cover gaps in crop insurance protection.
Meanwhile, there’s also permanent funding for the livestock indemnity program and livestock forage program.
Johnson said elimination of the direct payment could have a significant effect on land lease arrangements.
“Over the past few months, we have received a lot of calls for sample forms for flexible cash lease options that could be adjusted based on prices. The new farm bill may change the structure of land rent decisions.”
Right now, Johnson said ARC looks more favorable than PLC, but things can change when comparing moving averages against a fixed benchmark.
“Decisions will also be guided by lenders,” Johnson said. “Traditionally, lenders hate group rate policies. Producers must cover their risk through individual crop insurance offerings and look to the Farm Bill as a consolation prize if prices and/or yields plummet.”
Farmers can visit AgriLife Extension’s website at http://agecoext.tamu.edu for decision aids and other helpful information, Johnson said.