Farm Science Review opens with farm bill commodity discussion

FSR 2014 ag econ
Matt Roberts (left), Carl Zulauf and Barry Ward.

LONDON, Ohio — Early visitors to the 2014 Farm Science Review got a heavy dose of new acronyms and policy terms, during a farm bill crop update moderated by OSU ag economists and farm policy experts.

There are at least four main programs crop farmers can choose from — and they’re all complex and multifaceted.

“These have multiple moving features going on,” said Carl Zulauf, OSU farm policy expert. “I’m sorry they’re complex. But you’ve got to understand, that complexity means difficult answers.”

Program choices

They include the Agriculture Risk Coverage (ARC) county level program, the ARC individual farm program, and the Price Loss Coverage (PLC) program. And, farmers can participate in a new insurance program, called the Supplemental Coverage Option (SCO).

The ARC generates payments to farmers when pre-acre actual market revenue falls below the ARC per-acre revenue guarantee. Growers have a choice of whether to calculate actual revenue and revenue guarantee on county yields or on farm yields. Payments are calculated using base acres.

The PLC is basically the previous countercyclical payment program with a new name and higher trigger prices. Payments are triggered when the season-average market price is less than a crop’s reference price.

The SCO is a new crop insurance program that makes payments if county revenue or yield falls below 86 percent of the SCO guarantee. Unlike PLC and ARC, SCO payments will be based on planted acres.

What’s the difference?

In general, the ARC option will likely fit farmers who want to take a little more risk, while the PLC helps protect against drastic losses. But there still is no “default decision on program choice,” Zulauf said.

This is because of the complexities with each choice, and the ever-changing commodities market. On the one hand, it might make sense to protect oneself the most against major losses, but Zulauf said the smaller, “shallow” losses can be “just as dangerous, just as difficult,” especially over a period of several years.

The farm bill is in effect for five years, which means farmers need to give a lot of forethought and calculation to which program best fits their operation.

The ARC-Individual option allows farmers to protect their farm on an individual, per-farm basis.

The ARC-County is a county crop loss program with a coverage range limited to 76-86 percent. If the ARC benchmark revenue is reasonably close to the insurance guarantee, a farm — especially if cash-flow is restrained — may choose to buy individual insurance at 75 percent coverage and use ARC-CO to provide partial coverage, at the 76-86 percent level.

Both ARC-CO and PLC have a minimum price, and the PLC has a reference price. However, if market price is below the reference price for multiple years, PLC will likely pay more because ARC’s revenue benchmark changes with market conditions, and therefore declines if the low prices persist.

Calculate what’s best

Indeed, the options are complex, and Zulauf and the other panelists urged careful forethought and calculation. Calculators are being developed that will allow farmers to enter their data and determine their best option, but Zulauf warned that calculators are “only as good as the information you enter.”

He’s heard word that calculators could be available online by the end of September, but another issue is, the U.S. Department of Agriculture is still developing some of the rules for how to implement the commodity programs. These final rules could impact the calculation, and the farmer’s decision process.

Zulauf said there is speculation the rules will be finalized by late fall to early winter, at which point farmers will have a better understanding of which option works best.

He expects about $5 billion already could be paid to farmers this year, based on provisions within the new farm bill.

“Farmers have had choices before,” Zulauf said. “They’ve just never had these kinds of choices.”

Helpful resources

The panel was moderated by OSU Ag Economist Matt Roberts. OSU is involved in a statewide effort to help farmers understand their options, and Zulauf has published numerous articles about the issue. For more information, visit his article Program Choice — A Big Picture Perspective.

The one acronym most people already know is FSR — Farm Science Review — which continues Sept. 16-18 at the Molly Caren Agricultural Center in London, Ohio.

(Some information from Choices and the Agricultural & Applied Economics Association.)

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