Working through the new farm bill, wins, losses: Part I

The initial decision-making for the 2014 farm bill programs has been completed, and farmers are settling in, trying to figure out exactly what they have to look forward to over the remaining four years of the new law.

For those producers still growing cotton – and that number seems to be dwindling with every new USDA forecast – the answer may not be what they want to hear. These are not the best of times in cotton country.

“Our challenges were different than those the rest of U.S. agriculture faced because we had an adverse ruling in the WTO in a case that was brought by Brazil,” says Gary Adams, president and CEO of the National Cotton Council. “So we knew we had to make some very significant changes in cotton policy.”

Some of those changes “have not been popular in the countryside and have taken a lot of time to understand,” said Dr. Adams. “These changes were not necessarily a path we chose to go down, but we knew the challenges we would face if we didn’t put this WTO case behind us so we had to look to the crop insurance world to try to find support for a safety net for producers.”

Dr. Adams was speaking at the Agricultural Council of Arkansas board of directors meeting in Brinkley. The Ag Council members were not a hostile audience, but, in other forums, growers have questioned why cotton didn’t fare better in the new farm bill.

The new insurance product that’s specific to cotton – STAX or Stacked Income Protection Program – is designed to address a level of risk for which producers have not had affordable protection in the past, according to Dr. Adams. 

10 to 30 percent coverage

“By that I mean a level covering those losses from 10 percent down to the 30 percent or, if you want to think about the flip side of it coverage from 90 down to 70 percent,” he said. “It is available to producers, and this is the first year it is available in almost all counties where crop insurance is offered.”

The Cotton Council is still gathering data and does not know how many acres will be covered by STAX in 2015. They do know that a little more than 11,000 policies have been purchased across the Cotton Belt, including about 180 in Arkansas.

“The information is still coming in, and we think we’ll have a better feel for that in three or four months,” Dr. Adams said.

Cotton farmers do have other choices about how they could “mix and match” their federal crop insurance coverages. Producers of other crops had to make choices on whether to sign up for agricultural risk coverage or price loss coverage. The deadline for making that decision has now passed.

The National Cotton Council along with the university Extension services are planning to conduct more meetings aimed at educating producers about the new crop insurance options available to them. Growers will continue to sign up annually for crop insurance coverage.

New rules that limit farm program payments to $125,000 per legal entity are also commanding attention, especially for producers who make use of the marketing loan program or request loan deficiency payments.

Tracking problem

For the 2014 crops, marketing loan gains or LDPs will also count against the $125,000 payment limit along with any ARC or PLC payments the producer may receive. Farmers have a separate limit for peanuts but any payments from those categories for cotton, grains and oilseeds will count against the $125,000 limit.

 “That has been a problem, and, as we move through the 2015 marketing year, it continues to be a problem because at the same time this new limit came into place under the farm bill, we’re all well aware of how cotton prices moved lower, and, in October, we began seeing marketing loan gains and loan deficiency payments in cotton.”

Farmers have continued to receive those gains and LDPs for most of the last six months or so, which has created a challenge for USDA’s Farm Service Agency. FSA must track those payments throughout the year to avoid overpaying farmers.

“In many cases, the actual redemption decision to bring cotton out of the loan may not be made by the grower,” Dr. Adams noted. “It may be made by someone given the authority to do so by the producer, such as a marketing cooperative or merchandising firm.”

This is the first time USDA has had to deal with marketing loan gains applied to the payment limit at the same time they’ve had direct attribution of payments.

“So they’re working on a process to track those benefits,” Dr. Adams said. “They’re getting closer, but they’re not completely there yet. We have been part of a group that is trying to work through that process and minimize the surprises.

“But there will be surprises in the countryside when we get to Oct. 1 (when ARC and PLC payments are scheduled to be made). You need to be aware that limit applies to anything you receive for the 2014 crop. We may have some worst case scenarios in which growers receiving marketing loan gains and LDPs have gone past their limit when they get to Oct. 1.”

Adams said the National Cotton Council is continuing to seek ways to get relief in terms of the impact on the marketing loan gains and LDPs. “But be aware that for the time being that is still with us in terms of applying payments to the limit for the 2014 crop, and we assume it will apply to the 2015 crop as well.”

For more information on the Agricultural Act of 2014 or the new farm bill, visit http://www.ers.usda.gov/agricultural-act-of-2014-highlights-and-implications.aspx

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