Monthly Archives: July 2012

The 2012 Farm Bill, Part 2

While the drought of 2012 rages on across the country, a drought of another sort has hit the halls of Congress regarding the proposed 2012 Farm Bill. Soon, Congress will head back to their home districts to avoid D.C.’s sweltering late summer weather. Shown on the Congressional calendar as “Constituent Work Weeks,” in an election year, campaigning is the main activity, and it will not cease until after the elections on November 6.

With the likely Congressional failure to pass a new version, the 2008 bill (scheduled to end on September 30) may be extended for another year. While it awaits legislative-limbo, it does give us some more time to parse through the changes the House of Representatives Agricultural Committee has implemented.

In the area of crop insurance complements, the House’s version scales back the Agriculture Risk Coverage (ARC) formula designed by the Senate (for an analysis of that formula, see our first post on the Farm Bill, from July 16). Although it remains an option for farmers, the House’s main complement for risk management is the Price Loss Coverage (PLC).

In order for the PLC to trigger, a commodity’s effective price has to be less than the Congressional reference price, which are set prices contained in the bill (for example, corn is set at $3.70/bu and soybeans are set at $8.40/bu.). The effective price is the higher of either the midseason price or the national average loan rate for a marketing assistance loan for the covered commodity in effect from 2013-2017. Supposing that the midseason price is the higher number for our example, and supposing that the midseason price is $5.26 for corn and $11.35 for soybeans, then no PLC payment is made to the producer. The PLC risk management is supposed to take into account deep, multiple-year price declines that simple crop insurance does not factor in.

The net savings of repealing the direct payments, countercyclical payments, and ACRE and replacing them with the ARC and PLC payments are projected to be around $23 billion, according to the Congressional Budget Office. Another big area of cuts comes in the Nutrition section of the bill, which is where Supplemental Nutrition Assistance Program (SNAP), mostly known as food stamps, is located. By reforms in eligibility and allowances, the House is projected to cut around $16 billion in the program. The Senate’s proposal, on the other hand, sought to cut only around $4 billion in the program. Interestingly, the vast majority of the spending of each Farm Bill is through the food stamp program. In our rough estimates, the total projected spending for the bill over 10 years is somewhere around the $955 billion range, with about $756 billion of that going to food stamps.

As for conservation, our readers might be interested to know that the House’s proposal regarding the CRP program is to make a small and gradual reduction of enrollment to a maximum of 25 million acres, compared to the 32 million acres set as max now. The Environmental Quality Incentives Program, which helps farmers comply with conservation regulations by doing things like wildlife management, controlling soil erosion, and maintaining or improving water quality, will not see any changes in its funding or practices.

If you have any particular concerns about the Farm Bill you would like us to look into, just leave a message to this blog post or send us an email at lawlerandswanson@iabar.org.

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Two other related farm issues our readers might be interested in are worth noting here. One concerns the unpopular proposed regulation from the Labor Department that would extend federal child labor rules to farm activities. Concerns that farm kids would be prohibited either in law or in practice from helping their relatives and neighbors with farm chores led to strong condemnations of the proposal. This proposal was so unpopular that the Labor Department soon after retracted it. Although it won’t be implemented now, Tom Latham, R-Iowa, has since introduced H.R. 4157, which would prohibit the Labor Department from being able to implement such a regulation if they ever decided to bring it up again. Two days ago, Representatives Leonard Boswell, D-Iowa and Steve King, R-Iowa, urged passage of the bill, over protests from one Democratic congresswoman who felt the bill was beating a dead horse. We will keep you updated on H.R. 4157’s status.

Secondly, the non-profit organization Farm Rescue, based in North Dakota and started in 2005, has extended its organizational reach to Iowa. If you’re a farmer and have had a major illness or injury in your family in the past year, or if you have experienced a severe natural disaster in the past year, you may be assisted by the volunteer farmers with Farm Rescue. For more information or to apply, go to http://www.farmrescue.org or call 701-252-2017.

Thanks for reading, and stay hydrated out there.

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The 2012 Farm Bill, Part 1

Earlier this month, the U.S. Senate passed its version of the 2012 Farm Bill. Every five years, a new farm bill sets federal agricultural policy in theUnited States. The most recent version, S. 3240, the Agriculture Reform, Food and Jobs Act of 2012, features many similarities to previous bills, with its focuses on insurance, conservation, and public benefits. However, there are some important differences that farmers should know.

Importantly, the proposed bill would repeal the current direct payments to farmers in an effort to scale back federal spending. It also repeals the counter-cyclical payments (which were made when the marketing year average price was less than an arbitrary target price set by Congress), and the average crop revenue election program (ACRE), which was a more advanced regime that took into account production risk and the actual number of crops or acres grown by a farmer.

In their place, the bill introduces Agricultural Risk Payments. Payments are made to farmers if the actual crop revenue for a covered commodity (corn and soybeans) for the crop year is less than the agricultural risk coverage guarantee for the crop year.

Actual crop revenue is the product of the actual average individual yield or the actual average county yield, depending on the producer’s election, multiplied by the midseason price.

The agricultural risk coverage guarantee is 89% of the average yield for the most recent five crop years, excluding the highest and lowest yields, multiplied by the average national market year average price for the most recent five crop years, excluding the highest and lowest prices.

To put this into practical terms, suppose a farmer elects to be covered based on the actual average county yield. Next, suppose that the actual average county yield for corn was 180 bu/acre and for soybeans was 52.45 bu/acre. Those were roughly the actual average county yields forButler County,Iowa in 2011 according to the National Agricultural Statistics Services. A rough estimate of the midseason price, using previous years’ midseason prices can be set at $5.26 for a bushel of corn and $11.35 for a bushel of soybeans. This would bring the actual crop revenue for purposes of the 2012 Farm Bill to $946.08 for corn and $595.20 for soybeans.

Now, we have to figure out the agricultural risk coverage guarantee. Once again, we start with the actual average county yield, but now we have to multiply it by .89. This brings a total of 160.20 bu/acre of corn covered and 46.68 bu/acre of soybeans covered, using the Butler County 2011 average yields. Next, multiply that by the national average market price for the past five years, excluding the lowest and highest. For corn, that is roughly $4.26/ bushel and for soybeans, that is roughly $10.29/bushel. The total for the agricultural risk coverage guarantee is thus $682.45 for corn and $480.34 for soybeans.

Now we can bring this all back home under the Agricultural Risk Payments. As stated above, payments in the proposed 2012 Farm Bill crop insurance regime are made to farmers if the actual crop revenue for a covered commodity (corn and soybeans) for the crop year is less than the agricultural risk coverage guarantee for the crop year.

If a producer’s average corn yield is 180 bu/acre, the Midseason price would have to be below $3.79 to collect an Agricultural Risk Payment. For soybeans at 52.45 bu/acre, the Midseason price would be below $9.16. In our example, because the Midseason price was at $5.26 for corn and $11.35 for soybeans, the actual crop revenue ends up greater than the agricultural risk coverage guarantee, so no payments would be made to the Butler County farmer there.

We will be paying close attention to the development of the 2012 Farm Bill and will try to keep the blog updated on significant happenings as it makes its way through the legislature. Stay tuned for further updates.