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Common Ground
Farm Credit Services of America Blog

What the Farm Bill of 2014 Means to Producers

by Mark Jensen, Senior Vice President - Chief Risk Officer | Feb 13, 2014

Much will be written in coming weeks about the Farm Bill of 2014 and its impact on farmers and ranchers. But the livestock producers in our four-state area already know the importance of lawmakers finally reaching agreement on the nearly $1 trillion spending package.

Grain ProducerAmong the Farm Bill’s myriad provisions is a permanent livestock assistance program to help producers through natural disasters. Lawmakers made it retroactive to provide critical help to ranchers hit by the 2012 drought and 2013 snowstorm. The program covers up to 75 percent of a producer’s loss, based on the fair market value. Assistance is capped at $125,000 – enough to put 50 to 60 cows back into an operation. Married operators can qualify for up to $250,000.

As a whole, the Farm Bill is notable for continuing core programs that farmers and ranchers need to manage the risks inherent to commodity prices and weather. Crop insurance is largely unchanged. The counter-cyclical program has been modified, but two new commodity support options accomplish much the same thing.

Here are some highlights:

Commodity support

Producers have a one-time choice between protection against revenue loss (ARC for Agriculture Risk Coverage) or price loss (PLC for Price Loss Coverage). Both options provide support only when producers suffer actual price or yield losses.

Producers will be able to sign up – at no cost – through the Farm Service Agency. If they select ARC, they must enroll in countywide coverage on a commodity-by-commodity basis or individual coverage applies to all the commodities on their farm.

The PLC is much like the traditional counter-cyclical programs. Producers receive payments if crop prices fall below set reference points. For wheat, that new reference point is $5.50 a bushel; corn, $3.70; and soybeans, $8.40.

It will be critical for producers to understand the difference between these programs and how they will interact with crop insurance.

Crop insurance

With the repeal of direct payments and the elimination of other programs, such as Average Crop Revenue Election, crop insurance became the foundation of the Farm Bill and the primary safety net for producers.

For 2014, producers will be impacted less by the Farm Bill’s changes to crop insurance and more by lower guarantees resulting from dramatically lower projected commodity prices.

Crop insurance for specialty crops and horticulture was expanded, and cotton growers now have their own coverage program (Stacked Income Protection, or STAX). Lawmakers also linked conservation and crop insurance, requiring producers growing on highly erodible land or in wetlands to comply with conservation plans if they want assistance on their premiums. Young and beginning farmers and ranchers were granted a 10 percent discount on premiums.

Another change: Producers can buy supplemental coverage at the county level to cover part of their deductible on Multiple Peril Crop Insurance (MPCI). These supplemental policies will be provided by insurance companies and sold by agents.

The process of working with an agent to buy coverage doesn’t change, but producers will see more options. Premiums for specific policies are based on commodity prices and volatility factors, and work independently of the Farm Bill changes.

Dairy

While lawmakers didn’t include programs to address over-supply issues, they did provide feed-to-milk price margin insurance to help manage profit-margin risk. Coverage will be available only for producers’ historical production, although an exception allows for new producers to enter the program. Dairy operators will be able to participate in either the margin insurance program or the dairy livestock gross margin program, but not both.

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