Minding Ag's Business

USDA unveiled farmers' elections for the 2014 Farm Bill safety net June 15. Even veteran farm policy watchers were surprised at some of the outcomes--1.76 million farms enrolled (60,000 more than under the direct payment program that expired last year) and a resounding vote of confidence in revenue-based farm support programs instead of "target price" coverage for the first time in history.

In fact, 96% of the soybean farms, 91% of the corn farms and 66% of the wheat farms elected Agricultural Risk Coverage (ARC). That's a far cry from the day a decade ago when National Corn Growers Association leaders first proposed a county-based revenue-based safety net and Washington insiders declared it dead on arrival.

ARC and Price Loss Coverage (PLC) are complicated, sometimes dueling programs that required growers to make sophisticated choices about the probabilities of crop prices and yields five years into the future. It's like calculating whether you have enough money to last through retirement, without knowing whether you live to 66 or 100.

Reality will and can be quite different than simulations of course. But what was clear was that farmers understood the message to differentiate between their crops and their individual circumstances. Revenue-based crop insurance has also given them more confidence in duplicating the concept for farm income supports. For all that you've got to thank dozens of land grant universities, calculators from Texas A&M and Illinois, many online blogs, webinars and YouTube postings for their education effort--and for USDA for underwriting the effort.

I asked Jonathan Coppess, former Farm Service Agency Administrator who now teaches farm policy at the University of Illinois, for his opinion on farmer choices. He was one of the forces behind a University of Illinois-led team that implemented an online farm bill calculator and education program.

Marcia Taylor: Were you surprised at all about the elections farmers chose for ARC and PLC?

Jonathan Coppess: We were generally not surprised with the percentages for crop-by-crop program decisions. We are a little surprised at the high levels for corn and soybeans given what prices were doing towards the end of the election period. We also found it notable that few corn farmers split their decisions to enroll some base acres in PLC. We had been hearing plenty of arguments that farmers would prefer a fixed reference price over the moving Olympic-average in the revenue program, or at least that lower prices would push a lot of farmers to hedge their bets. Given the levels of the decisions on the major crops in light of the default for PLC, this certainly suggests that many farmers are comfortable with revenue programs. We are looking to do further follow-up analysis on the decision and hope to have something out later in the year.

Marcia Taylor: How did this program signup compare to ACRE, the 2008 Farm Bill revenue-protection option? Seems like farmers were much more interested this time around—any reasons jump to mind?

Jonathan Coppess: There is almost no comparison with ACRE given that sign up in ARC-CO far surpasses ACRE, since only 4.7% of the farms were enrolled in ACRE compared to 91% of the farms in ARC-CO. Our initial thinking on the difference between the two involve the following reasons:

1. To enroll in ACRE, an individual had to give up a 20% of direct payments. Farmers had to give up a known for an unknown but for ARC-CO direct payments were not a factor.

2. ACRE was more complicated than ARC, especially its use of a double trigger in order to receive payments.

3. Farmers had to provide yields to enroll in ACRE. This is not the case for ARC-CO.

4. Given the elimination of direct payments and the significant effort surrounding the decision, farmers were likely paying more attention this time around. From our experience, many farmers did their homework on these programs and evaluated their choices.

Marcia Taylor: At this stage, now that 2014 crop year is winding down, which crops are you expecting will trigger ARC-CO and PLC payments? How much for corn?

Jonathan Coppess: Payment expectations have not changed that much from what was estimated in this publication: http://farmdocdaily.illinois.edu/…. Actually the corn price used in the above publication is the midpoint of the WASDE range.

Marcia Taylor: That analysis basically said much of the US Corn Belt will receive $60 to $200/acre ARC payments for 2014 corn when the checks are delivered in October. Given the farm economy how much help will these payments be?

Jonathan Coppess: Those payments will be a cushion. They will not change the need to cut cash flows and cash rents.

For a breakout of the election by state or crops, go to www.fsa.usda.gov/arc-plc.

Follow me on Twitter@MarciaZTaylor

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