Farm Bill 2012 Update

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Senate Agriculture Committee Passes Farm Bill
By Stephen Frerichs

By a vote of 16 to 5 (counting proxies), the Senate Agriculture committee passed a farm bill out of Committee that reduces spending by at least $23 billion over 10 years.  The bill contains significant changes to the commodity, conservation and crop insurance programs.  Senators Cochran (R-MS), Chambliss (R-GA), McConnell (R-KY), Boozman (R-AR) and Gillibrand (D-NY) voted against the bill.  The four Southern State Republicans oppose the changes to the commodity title, while Senator Gillibrand does not support the cuts to the nutrition programs or the new dairy program.

In a press conference after the vote, Chairwoman Stabenow (D-MI) indicated she believes Senate Majority Leader Reid (D-NV) will bring the bill to the Senate floor for full Senate consideration “in a few weeks”.  House Chairman Lucas in a press statement following Senate completion commended Chairwoman Stabenow and Ranking member Roberts (R-KS) for advancing the farm bill in the Senate.  He also indicated he is disappointed by the Senate’s commodity title because “it does not work for all of agriculture. It fails to provide producer a viable safety net and instead locks in a profit for a couple of commodities.”
 
Senate Committee adoption is a vital first step in the process of completing a farm bill this year. The bill, however, has a long way to go before it becomes law. Clearly, the commodity title remains contentious and it is reasonable to expect changes to what the Senate Agriculture Committee passed. During the mark-up Chairwoman Stabenow recognized dissatisfaction by rice, peanut and cotton growers with the commodity title and said the bill was only “step one” in the process.

If you want to watch a replay of the mark-up go here: http://www.ag.senate.gov/hearings/business-meeting-farm-bill-markup

Commodity Title

Beginning with the 2013 crop, the Commodity title repeals the direct and countercyclical programs, as well as the ACRE program. It replaces those with a new Agricultural Risk Coverage (ARC) program. It continues the loan rate and sugar programs and creates a new dairy program.  Payment limits and the adjusted gross income (AGI) eligibility test are adjusted for the new programs and conservation compliance requirements continue to apply to the commodity title.

The new ARC program is a revenue program. Eligible acres are the simple average of planted and prevented planted acres for covered commodities during 2009 – 2012 on a farm, where farm will be based on the FSA farm number. Base acres are no longer relevant. Covered commodities are: wheat, corn, grain sorghum, barley, oats, long grain rice, medium grain rice, pulse crops, soybeans, other oilseeds, and peanuts. Note cotton is not a covered commodity (see crop insurance summary). The Secretary is directed to differentiate sunflowers, barley, wheat by type or class and where practicable irrigated and non-irrigated practice.

Producers, which means an owner, operator, landlord, tenant, or sharecropper that shares in the risk of producing a crop and is entitled to share in the crop available for marketing from the farm, make a one-time election to participate in ARC.  A producer can elect to receive ARC payments either based on “individual farm” or “area” coverage. Area is defined as county. Producers can choose not to participate in ARC. Changes to the definition of “actively engaged” are made in the bill as well. Persons or legal entities with an AGI over $750,000 are not eligible.

Individual farm yields are defined as the Olympic 5 year average yield for all of the acreage in a county planted or prevented from planting for the covered commodity. This is basically the crop insurance enterprise unit definition and for insured crops, the intent is to use crop insurance yields.  County yields are established by the Secretary.  Again, these will likely follow group risk county yields used by crop insurance.  Note, the acreage definition is by farm, while the yield definition covers all farms in a county.

The ARC payment is the difference between the ARC guarantee and the actual revenue times 65% for the individual coverage or 80% for the county coverage.  Prevented planted acres are factored by 45%. The payment cannot exceed 10% of the benchmark revenue or $50,000 per person or legal entity. There is an additional $50,000 payment limit for peanuts.

The ARC guarantee is 89% of the benchmark revenue where benchmark revenue is the Olympic average 5 year marketing year average price for the 5 most recent years for the covered commodity times yield, (defined above). In the case of rice, the price used in the guarantee cannot be less than $13 per hundredweight; for peanuts not less than $530 per ton.

Actual revenue is the product of actual yield times the midseason average price for the commodity.  If the producer’s yield is less than 70% of the crop insurance T-yield, they can plug the yield with 70% of the T-yield in 2013 and beyond.  Producers are required to report all crop acreage to FSA along with production in order to participate in ARC however, to the maximum extent practicable, reporting acres and yield for crop insurance purposes should meet this reporting requirement.

In its simplest form the ARC payment is:

65% (individual) or 80% (area) * (89% of benchmark revenue minus actual revenue) not to exceed 10% of benchmark revenue or $50,000 per person or legal entity.

Crop Insurance

The crop insurance title creates three new major insurance plans: Supplemental Coverage (SCO), Stacked Income Protection Coverage (STAX) and a peanut revenue plan of insurance.

Beginning with the 2013 crop year, SCO allows producers the option of purchasing additional coverage based on an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy. Coverage is triggered only if losses in the area exceed 10% of normal levels. In the case of a producer who participates in the ARC program, the deductible is 21% of the expected value of the crop of the producer covered by the underlying policy. Subject to the trigger and the deductible, SCO covers the first loss incurred by the producer, not to exceed the difference between 100% and the coverage level selected by the producer for the underlying policy. The A&O reimbursement rate for SCO is 12%, same as existing area coverage. The subsidy is equal to at least 70% of the additional premium associated with the coverage plus delivery expenses.

If practicable, beginning no later than the 2013 crop of upland cotton, STAX requires that the Risk Management Agency (RMA) make available an additional policy to upland cotton producers, which shall provide coverage consistent with GRIP and the associated Harvest Revenue Option Endorsement offered for the 2011 crop year. STAX is provided in addition to all other coverages available to producers of upland cotton, except that a producer who participates in SCO cannot participate in STAX. The premium subsidy is equal to 80% of the additional premium associated with the coverage plus delivery expenses. The A&O reimbursement rate is 12% for STAX, same as existing area coverage.

STAX provides for revenue loss of 30% of expected county revenue, in 5% increments.  The deductible is the minimum percent of revenue loss at which indemnities are triggered under the plan, not to be less than 10% of the expected county revenue.  STAX may be purchased in addition to an individual or area policy or as a stand-alone policy, except that if a producer has an individual or area plan for the same acreage, the maximum coverage available under STAX shall not exceed the deductible for the individual or area policy. Coverage is based on an expected price established under existing GRIP or area-wide policy offered for the applicable county/area and crop year. The yield is an expected county yield that is the higher of the expected county yield established for existing area-wide plans offered for the county/area and crop year, or the 5-year Olympic average yield data for the county/area from the RMA, NASS, or both, or if insufficient county data exists, other data considered appropriate by USDA.

STAX uses a multiplier factor to establish maximum protection per acre of not less than the higher of the level established on a program wide basis or 120%.
Indemnities are the amount that the expected county revenue exceeds the actual county revenue, as applied to the producer’s individual coverage.  In counties for which appropriate data exists, irrigated and non-irrigated practices can be established.

Beginning with the 2013 crop year, the bill requires that RMA make available a revenue crop insurance program for peanut producers.  This program and the MPCI program are required to use the Rotterdam price index for peanuts, as adjusted to reflect the farmer stock price of peanuts in the United States or the loan rate, whichever is higher. 

Other crop insurance changes include a mandatory re-rating of CAT coverage, the ability to use 70% of T-yields as a plug yield (instead of the current 60%), separate coverage for irrigated and non-irrigated practices at the enterprise unit level, and additional subsidies for beginning farmers.

Conservation

The conservation title consolidates numerous conservation programs and creates 4 major conservation program “legs:” Cost Share, Easements, Partnerships and the Conservation Reserve Program.

The CRP will become smaller under the Senate bill, dwindling to 25 million acres by 2017 from the current authorized level of 32 million acres.  Changes are made to allow for more frequent haying and grazing with reduced rental rates. In addition, a landowner can take a reduced rental rate in the final year of the contract in order to begin land preparations to place the land back into production.

The Wildlife Habitat Incentive Program (WHIP) will be merged with the Environmental Quality Incentive Program (EQIP).  The Conservation Stewardship Program remains as a stand-alone program.

Grassland, farmland and wetland easements (GRP, FRP and WRP) are consolidated into one easement program with two legs: Agricultural Land Easements (ALE) and Wetland Reserve Easements (WRP).  WRP is virtually identical to the existing program. ALE is the combination of GRP and FRP but will look very similar to the existing FRP where all easements are permanent and run through an approved 3rd party entity.

The Regional Partnership Program combines existing Agricultural Water Enhancement and the Cooperative Conservation Programs with the Chesapeake and Great Lakes programs.  The Secretary will have the ability to target areas of conservation priority through partners under this program.

ASFMRA Webinar on the Farm Bill – May 8

ASFMRA is offering a Webinar on the Farm Bill on May 8th entitled: The Farm Bill – Looking into your Future Webinar.   The webinar will cover the most recent developments on the Farm Bill Reauthorization.  You will also have an opportunity to ask questions of our presenter and the author of this article Stephen Frerichs, ASFMRA Government Affairs Consultant.
Get complete info: http://portal.asfmra.org/Scripts/4Disapi.dll/4DCGI/events/7926.html?Action=Conference_Detail&ConfID_W=7926&Time=-11876672&MenuKey=123

ASFMRA Member Matt Foos Attends Field Hearing Last Week

On April 20, 2012 the House Ag Committee conducted a field hearing on the 2012 Farm Bill in Dodge City, KS.  House Ag Committee Chairman Frank Lucas (OK) and committee members Tim Huelskamp (KS) and Mike Conaway (TX) heard testimony from 2 panels of 5 producers each from Kansas, Oklahoma, Texas, Colorado and Nebraska. 

Key points from the testimony included strengthening the crop insurance program, simplifying the commodity title under the new farm bill, decreasing and limiting burdensome regulations, and maintaining conservations programs

The producers were concerned about limitations on crop insurance premium subsidies.  They were also concerned with the ability of the current revenue insurance options to provide protection against multi-year crop losses or low prices over several years.  The opinion was that current revenue option works well in times of high prices, but doesn’t cover against these long periods of low prices.

The witnesses added that current commodities titles ACRE and SURE are too complicated and too slow in providing assistance to producers.

Examples of overregulation provided by the witnesses that are burdening producers are the proposed child labor laws, diesel engine regulations, the GIPSA rule and banking regulations that tie up ag credit.

The panels felt conservation programs such as CRP, EQIP, AWEP and CSP do a good job of promoting conservation measures and should be maintained. 

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