Economist explains farm bill programs

Kansas State University Extension Ag Economist Monte Vandeveer said professionals and farmers alike have been talking about the 2018 farm bill even before 2018 ticked over on the calendar. Vandeveer is based at the Southwest Research and Extension Center in Garden City, Kansas.

The farm bill has been a long time coming with initial delays because of a government shut down and Farm Service Agency delays pushed it out even further. The commodity program covered quite a bit of ground, Vandeveer said.

“If you look at the three major slices that represent the farm part of the program,” he said. “Fairly evenly divided between crop insurance, the commodity programs and conservation.”

The little sliver of the pie was Extension, and he called its portion “sort of the rounding error.”

“But notice that now crop insurance is actually the biggest part, biggest slice on the farm part of that pie,” he said. “That makes crop insurance another target for budget cutters and people who want to make some big reforms.”

Taking a step back and taking in the big picture of this farm bill, it can probably be called according to Vandeveer, “a status quo farm bill,” but it may not necessarily be that way.

“That’s mainly referring to this first point here, the commodity programs we had last time around (Agricultural Risk Coverage), (Price Loss Coverage), right?” he said. “Those were kept in virtually the same form as we had last time. So ARC and PLC, and thank goodness we understand them a little bit better than last time around.”

Crop insurance came through protected, and even though it was targeted for several reasons including income testing.

“They were talking about the limits on the premium subsidies remember,” he said. “They were talking about getting rid of the harvest price option on revenue insurance. All of those things were voted down. But since crop insurance is such a big part of the farm bill pie now it’s probably going to have to fight those battles again in the future.”

Also in the last farm bill the dairy segment had to tweak its program and same for cotton. Last time cotton stacks were the only part of the cotton program affected.

“It’s kind of an area insurance type product,” he said. “But now, it was actually in the 2018 budget bill that the cotton guys got a new commodity created called seed cotton. So now seed cotton has ARC and PLC coverage for it, too.”

There’s not much of a “time base” Vandeveer said, as there’s not much cotton based in Kansas. “So not such a big deal for us. But cotton had some changes.”

On the conservation side, Conservation Reserve Program acres were trending down.

“Well, with the low crop prices, they decided to put more acres back in CRP,” he said. “So that’s kind of reversal on that policy.”

As well, when it comes to payment limits, Vandeveer said the old payment limitation remained at $125,000.

“Actually what they did was they extended the definition of family. Who are all eligible for that $125,000 and got extended further out through the family, nieces, nephews, first cousins,” Vandeveer said. “There’s still an adjusted gross income cap of $900,000.”

He also said the marketing loan deficiency payment type of programs are no longer counted toward that $125,000 limit.

“That was a big deal,” he said. “Remember in 2016—when we were getting the marketing loan, the deficiency payments and that counted against our other payments we could receive? Well, that restriction is gone now.”

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The one thing a producer needs to know about the farm bill is that it’s not exactly status quo, even though Vandeveer called it that.

“Remember the 2014 farm bill. Those were some of our best income years, maybe ever,” he said. “But then look what happened to farm income after that. You guys have had some of the toughest run that we’ve had for probably a couple of decades in there.”

The financial situation with the new farm bill looks pretty different from the last time around, according to Vandeveer. Using Kansas Farm Management Association data, those government payment programs made the “difference between being in the red and being in the black for the average KFMA member.”

“That year things have bounced back a little bit, but the farm program payments or all the government payments, that would include the MFP—they’ve been important for us the last few years,” Vandeveer said.


Commodity programs like ARC and PLC deserve a little deeper look.

“This is the same thing we had last time around,” Vandeveer said. “Remember, we could choose PLC or ARC.”

Essentially there were “two flavors of ARC.” The county ARC or individual ARC.

“The problem with the individual ARC was it was only paid on 65% of your base,” he said. “I think less than 1% of the farms signed up for ARC individual.”

Vandeveer said if a farmer is eligible for PLC or took PLC; he was also eligible for supplemental coverage option.

“The insurance coverage is based on county yields,” he said. “Hardly anybody signed up for that, it turned out. But that’s still part of the coverage. That’s the sign up we had last time.”

The simplest change, however, may be the most important. Last time it was a five-year decision that had to be made.

“You had to make that call at the beginning for the next five years,” Vandeveer said. “What they’ve done this time is, we’ve got four signups. The signup you’re doing this time is going to cover the first two years.”

Those will cover the 2019 crop and 2020 crop. After that, farmers get to make an annual decision—ARC versus PLC each year.

“So you’re not stuck with making that five-year guesstimate on what’s going to happen,” he said.

It’s hard to forecast what’s going to happen five years out, and maybe the biggest advantage producers get from this change is they get to make a decision four more times about what program they want to be in.

PLC is akin to former programs—target prices, deficiency payments, counter cyclical—in previous farm bills. But it works on the same principle of the government setting a target price, or in the case of PLC, it’s reference price.

“If the market price comes in below, the program pays the difference,” he said. “I think everybody’s pretty familiar with that. The key thing here is what is that payment rate going to be? What’s that price differential, the reference price versus that marketing year average price.”

Vandeveer shared a formula to “plug in” payment rate times program yield. It’s paid on 85 percent of the base acres under this farm program.

“They put a new provision in there that allows the reference prices to change during the life of the farm bill,” Vandeveer said. “They also gave you an option to update your program yields.”

The program yield update gets a little trickier. In the previous farm bill, the yield period was based on 2008 to 2012.

“That was set of really bad years for a pretty good chunk of the country, right?” Vandeveer said. “There was no advantage to updating using yields from crummy years. So they decided to give you guys another chance.”

The new period for updating yields is going to be taken from yields in 2013 to 2017.

“They also have this yield club rule,” he said. “So if your farm yield is low that year, you can plug in a percent of the county yield instead. FSA will work through all that with you.”

In this formula a recent farm yield average is multiplied by 90 percent. That number then is multiplied by the de-trending factor.

“The idea there is we’re trying to discount these this period yields back to that period of yields,” he said. “Don’t get caught up too much in this formula, because FSA will do the calculations for you.”

Vandeveer warned to not delay going to the FSA office and seeing what the options are out there for the various crops and farm programs. He also suggested visiting to find several estimating spreadsheets to help making decisions as to which program to sign up for.

“Be careful, don’t get caught in that trap of, well, I picked ARC last time I better go with PLC,” he said. “Run the numbers, and be satisfied with what you think you actually expected.”

Kylene Scott can be reached at 620-227-1804 or [email protected].