What Should Crop Farmers Do? PLC or ARC

Report
FARM BILL CHOICES: WHAT
SHOULD CROP FARMERS DO?
Paul D. Mitchell
Associate Professor, Ag and Applied Economics
Farm Bill Update for Crop Producers
November 11, 2014 Elmwood and Alma, WI
Email [email protected] Office: 608-265-6514
http://www.aae.wisc.edu/pdmitchell/extension.htm
Follow me on Twitter: @mitchelluw
Goal Today
• Overview how PLC (+SCO) and ARC work
• General rules of thumb to guide your decisions
• Decision aids you can use to work through your
specific farms
Crop Insurance
$8.3 Billion
Average Annual
Outlays Under
2008 Farm Bill
Risk Management
Direct Payments
(DP) $4.9 Billion
(field & specialty crops)
Commodity
Programs
$8.4 Billion
(field crops)
$5.9 Billion
Non-insured Disaster
Assistance (NAP)
$0.1 Billion
Supplemental Revenue
Assistance Payments
Program (SURE)
Ad hoc disaster payments
Emergency Assistance for
Livestock, Honey Bees, and
Farm-Raised Fish Program
Farm
Safety
Net
$15 B
Disaster
Assistance
(crops & livestock)
$0.8 Billion
Source: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdf
Counter-Cyclical Payments
(CCP) $0.559 Billion
OR
Average Crop Revenue
Election (ACRE) $0.311 B
Marketing Assistance Loans
$0.225 B
Loan Deficiency Payments
(LDP) $0.225 B
Livestock Indemnity
Program
Livestock Forage Disaster
Program
Tree Assistance Program
Emergency Disaster Loans
Average Annual
Outlays Under
2008 Farm Bill
2014
Crop Insurance
$8.3B
Risk Management
Commodity
Programs
(field & specialty crops)
$8.4
bil
$9.0B
(field crops)
$4.4B
$5.9
bil
(+ 6%)
Non-insured Disaster
Assistance (NAP)
$0.1B
Supplemental Revenue
Assistance Payments
Program (SURE)
Ad hoc disaster payments
No
Change
Emergency Assistance for
Livestock, Honey Bees, and
Farm-Raised Fish Program
Direct Payments
(DP) $4.9B
(-25%)
Farm
Safety
Net
$13.4B
$15
bil
(- 10%)
Disaster
Assistance
(crops & livestock)
Source: http://ncseonline.org/NLE/CRSreports/10Oct/R41317.pdf
$0.75B
Counter-Cyclical Payments
(CCP) $0.559B
OR
Average Crop Revenue
Election (ACRE) $0.311B
Marketing Assistance Loans
$0.225B
No
Change
Loan Deficiency
Payments
(LDP) $0.225B
Livestock Indemnity
Program
Livestock Forage Disaster
Program
No
Change
Tree Assistance Program
Emergency Disaster Loans
New Commodity Support Programs
• Price Loss Coverage (PLC)
• Establishes a price floor based on national marketing
year average price
• Essentially Counter-cyclical payments, but higher prices
• Can buy Supplemental Coverage Option (SCO) crop
insurance as an add-on option [later]
• Agriculture Risk Coverage (ARC)
• Establishes a revenue floor
• Essentially a new and improved ACRE program
• 1) County revenue by Crop (County ARC or ARC-CO)
• 2) Individual revenue for Whole Farm (ARC-IC)
Multi-Step Process with Different Deadlines
• Step 1: Keep or Update Yields
• Step 2: Maintain or Reallocate Base Acres
• Step 3: Elect PLC/ARC-CO/ARC-IC
• Step 4: Consider SCO
By 2/27/15
By 3/31/2015
By 3/15/2015
• Step 5: Enroll in PLC/ARC By Summer 2015
• Farmers and land owners will have to choose PLC,
County ARC by Crop or Individual ARC for Whole Farm
• Irrevocable choice for 2014 – 2018 crop years
• Plenty of time to make decisions
Updating Yields and Base Acres
• Land owners and renters should have received a letter
this summer
• Reported current base acres and yields by crop for each
FSA farm
• Had 60 days to report errors
If correct data, do nothing!
“If you determine that
any of the data is
incorrect, incomplete
or missing, you must
contact the county
office where the farm
is administratively
located to provide
documentation of
your acreage as soon
as possible, but no
later than 60 days
after receipt of this
letter.”
Updating Base Acres
• Base acres haven’t been updated since 2002 Farm Bill,
based on 1998-2001 plantings
• 2 Options
• 1. Keep current base acres
• 2. Keep same total base acres, but update shares to
match 2009-2012 average shares
• Recommendation: Choose option that puts more acres
into Corn: crop with the highest expected payments
• Pierce and Buffalo Corn > Soy > Oats
• Farm cannot increase total base acres, only reallocate
total based on acreage shares planted during 2009-2012
• Existing base acres: 57.0 soybean and 85.8 corn
• 2009-2012 Average Planted Acres: 81.45 corn, 67.15
soybeans, and 4.75 oats
• Farm shift: less corn, more soybeans, added oats
• Farm Payment Yields are quite low for Iowa: 32 bu/ac for
soybeans and 109 bu/ac for corn
• Should this farm update Base Acres? (Yields?)
Base Acre Updating Tool
• http:/www.fsa.usda.gov/Internet/FSA_File/evaluate_arc_plc.pdf
• Scroll down, hit link, zip file to get Excel spreadsheet
• Alternative enter data into an online tool:
http://fsa.usapas.com/
• Alternative enter data into an online tool:
http://fsa.usapas.com/
Updating Payment Yields
• Payment yields haven’t been updated since 2002 Farm
•
•
•
•
•
•
Bill, based on 1997-2001 yields
3 Options
1. Keep current yields
2. Update yields
3. Take FSA option if no yield data or don’t want to report
Recommendation: Choose option that gives you the
highest Program Yields
Need production data to document yields, if insufficient
records, get substitute yield = 75% county average
Yield Updating
• 1. Keep current yields
• 2. Update yields to 90% of your 2008-2012 average, with
75% county average as “substitute yield” if your actual
yield lower
• 3. Take FSA offered option if no yield data = 75% of 90%
of county average
• http://www.fsa.usda.gov/Internet/FSA_File/plc_subyields_web.xls
County
Waupaca
Waushara
Winnebago
Substitute Yields by Crop
Corn
Wheat Soybeans
97.0
103.0
97.0
41.0
39.0
50.0
30.0
28.0
32.0
Oats
38.0
39.0
49.0
• Alternative enter data into an online tool:
http://fsa.usapas.com/
• Alternative enter data into an online tool:
http://fsa.usapas.com/
• Automatically uses substitute yields for your county
Multi-Step Process with Different Deadlines
• Step 1: Keep or Update Yields
• Step 2: Maintain or Reallocate Base Acres
• Step 3: Elect PLC/ARC-CO/ARC-IC
By 3/31/2015
• Step 4: Consider SCO
•
•
•
•
By 2/27/15
By 3/15/2015
Step 5: Enroll in PLC/ARC By Summer 2015
Recommendations
Choose option that puts most Base Acres into Corn
Choose option that gives you the highest Program Yields
Questions?
New Commodity Support Programs
• 3 Options
1) Price Loss Coverage (PLC)
• Agriculture Risk Coverage (ARC)
2) County ARC (ARC-CO) by crop
3) Individual ARC (ARC-IC) for whole farm
• General Rule: Most farmers will find
County ARC the best option
• Are you an exception?
Price Loss Coverage (PLC)
• Same as Counter-Cyclical Payments, but with higher
“Reference Prices”
• Corn $3.70, Soybeans $8.40, Wheat $5.50, and
Oats $2.40
• If National Marketing Year Average Price is less than
the Reference Price, PLC payments made
• PLC PaymentRate = ReferencePrice – MYAPrice
• PLC Payment = 85% x BaseAcres x PaymentYield
x PLC PaymentRate
• Option to buy Supplemental Coverage Option (SCO),
a new type of crop insurance [later]
Simple PLC Example
• Suppose National Marketing Year Average Price of corn is
$3.50
• The corn Reference Price is $3.70, so PLC Payment Rate
= $3.70 – $3.50 = $0.20/bu
• If have 100 corn Base Acres with a Payment Yield of 110
bu/ac, then your PLC payment would be
• 85% x 100 ac x 110 bu/ac x $0.20/bu = $1,870
Supplemental Coverage Option (SCO)
• If you sign up for PLC, you have the option to buy
SCO: allows you to insure part of your RP/YP
deductible with a county policy (ARP/AYP)
• Layer individual & county coverage
• Can’t exceed 86% total coverage
• Add SCO to an RP policy to increase coverage
up to the 86% maximum
• SCO will not pay until county loss exceeds 14%
• 65% SCO premium subsidy (farmer pays 35%)
• SCO available in 2015, only if choose PLC
Possible outcomes with RP plus SCO
1.
2.
3.
4.
SCO pays, but not RP
RP pays, but not SCO
Both SCO and RP pay
Neither SCO nor RP pays
Agriculture Risk Coverage (ARC)
• County ARC payments made if Actual County Revenue is
•
•
•
•
•
less than County Guarantee
County Benchmark = 5-Year Olympic Average County
Yield x 5-Year Olympic Average MYA Price
• Use PLC Reference Price if higher than MYA Price
• Use 70% County T Yield if higher than County Yield
County Guarantee = 86% of County Benchmark
Actual Revenue = County Average Yield x MYA Price
ARC Payment Rate = County Guarantee – Actual County
Revenue, up to 10% of County Benchmark
ARC Payment = 85% x Base Acres x ARC Payment Rate
Unofficial 2014 Corn Example St. Croix County
Year
2013
2012
2011
2010
2009
Yield
85.4
165.6
164.6
172
167
Price
4.46
6.89
6.22
5.18
3.55
• Olympic Average Yield = 165.7
• Olympic Average Price = 5.29
• ARC County Benchmark = 5.29 x 165.7 = $876.55
• ARC Guarantee = 86% x $876.55 = $753.83
• Maximum ARC Payment = 10% x $753.83= $75.38
Unofficial 2014 Corn Example St. Croix County
• Hypothetical Example: Suppose 2014 County ARC
•
•
•
•
•
•
Guarantee is $753.83 for corn in St. Croix County
Suppose 2014 actual USDA yield in St. Croix County is
160 bu/ac and 2014 MYA corn price is $3.50
Actual revenue is 160 x 3.50 = $560/ac, triggers payment
ARC Payment Rate = 753.83 – 560.00 = $193.38/ac, but
exceeds max payment, so ARC Payment Rate = $75.38
ARC Payment = 85% x BaseAcres x ARC Payment Rate
ARC Payment = $75.38 per corn base acre
ARC pays well in times of long-term declining prices due
to 5-year Olympic averages
Main Point
• County ARC is complicated and varies by county
• Main idea: like county-level revenue insurance
with an 86% coverage level
• Difference
• Uses 5-Year Olympic Average prices and yield to
determine guarantee
• Uses national marketing year average price as
the actual price
Decision Aids: U of IL with USDA Funding
http://fsa.usapas.com/
ARC-CO
SCO
PLC
St Croix County
Buffalo County
ARC-CO
PLC + SCO
Pepin County
ARC-CO
PLC + SCO
Dunn County
ARC-CO
PLC + SCO
Eau Claire County
ARC-CO
PLC + SCO
Comparing Average ARC Payments
($/Ac) Across Counties (with CBO prices)
40
35
30
25
20
Corn
Soybean
15
10
5
0
Buffalo
Pepin
Pierce
Dunn
Eau
Claire
St Croix
Main Point
• When choosing Base Acre Reallocation
• Corn > Soybean ≥ Wheat >Oats
• Get as many Corn base acres as you can
• What about County ARC versus PLC?
• Depends on prices use/assume, but generally
ARC does better
• Tool has 3 options for average price
• 1) CBO futures prices: higher
• 2) USDA WASDE prices: lower
• 3) FAPRI price estimates: just below CBO
CORN
SOYBEAN
ARC-CO
PLC + SCO
ARC-CO
PLC + SCO
ARC-CO
PLC + SCO
ARC versus PLC for Corn and Soybean
• If your focus is on total payments, which is better
depends on where you think crop prices are
going over the next 5-6 years
• If you are optimistic on corn prices, ARC does
better than PLC + SCO: (Pierce ~$15)
• If you are pessimistic on corn prices, PLC + SCO
does a better than ARC: (Pierce ~$3)
• ARC on soybean always does better than PLC +
SCO by $5-$10/ac
• Similar trends for corn and soybeans in different
counties, but dollar amounts differ
ARC versus PLC
• Corn & Soybean: ARC much higher than PLC if average to
•
•
•
•
high prices, only a little less than PLC if low prices
• If PLC beats ARC, on average it will not be by a lot
For most farms, ARC will do just fine and not be much less
than PLC payments if PLC turns out to be better
Note: PLC also requires buying SCO too: more money up
front and more paperwork
Wheat/Oats: PLC seems better: about same as ARC if
average to high prices, much better than ARC if low prices
• Reduce crop insurance coverage level and rely more on
SCO to increase payments and reduce insurance costs?
Can mix ARC and PLC across crops if you want
Individual ARC
• Based on revenue from all program crops as a whole for
•
•
•
•
•
an FSA farm, not crop by crop
Create a whole farm revenue guarantee and receive
payment if actual revenue less than guarantee
• 65% of the payment gap, up to 10% of County ARC
guarantee
Like 86% whole-farm revenue coverage
Acreage-weighted average of each crop’s revenue
Use farm historical yields and national prices, but use
Olympic averages
Complicated and detailed program: if interested, use the
tool and try your farm details and see what you get
Multi-Step Process with Different Deadlines
• Step 1: Keep or Update Yields
• Step 2: Maintain or Reallocate Base Acres
• Step 3: Elect PLC/ARC-CO/ARC-IC
• Step 4: Consider SCO
By 2/27/15
By 3/31/2015
By 3/15/2015
• Step 5: Enroll in 2014 PLC/ARC By Summer 2015
Quick Summary
• Relax, plenty of time to make decisions
• 2/27/15 for base acre/yield updates
• 3/31/15 for PLC/ARC election choice
• 3/15/15 if want SCO crop insurance with PLC
• Summer 2015 to signup
• Start playing with the tool: http://fsa.usapas.com/
• For most farms
• 1) Updating yields will be worth it
• 2) Updating base acres if you can get more corn or
soy/wheat base acres will be a good idea
• 3) County ARC a fine selection for corn & soybeans,
but consider PLC + SCO for wheat/oats
Quick Summary
• More presentations will be occurring around the state
• Expect/watch for announcements
• We are doing training sessions with several county agents
so they can do presentations and answer questions
• Focus will be on the decision tool http://fsa.usapas.com/
• Great outreach information
• http://farmbilltoolbox.farmdoc.illinois.edu/
FarmDoc Webinars
• http://farmbilltoolbox.farmdoc.illinois.edu/webinars.html
Thanks for Your Attention!
Questions?
Paul D. Mitchell
Agricultural and Applied Economics
University of Wisconsin, Madison, WI
[email protected] 608-265-6514
http://www.aae.wisc.edu/pdmitchell/extension.htm
Follow me on Twitter: @mitchelluw
SCO sold for winter wheat earlier this fall
• Could sign up for wheat SCO
this fall
• Problem: Can’t sign up for
PLC to be eligible for SCO
• Have until Dec 15th to make
final decision, which is still
before PLC deadline
• Corn and soybeans next
spring: can signup for SCO,
then decide on PLC/ARC
signup by March 31
Counties with SCO available
for winter wheat

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