On February 7, 2014, a new five-year farm bill, the Agricultural Act of 2014, was signed into law. The 959-page Act affects hundreds of federal programs involving agriculture, dairy, conservation, nutrition and international food aid. The cost of the Act is estimated at $956 billion.
The short version of the Bill — repeal the existing crop subsidy programs and use part of the savings to expand Crop Insurance Programs. There’s a ton more, but that is basically it.
No More Direct Subsidies To Farmers
The New Farm Bill eliminated direct payments to farmers.  The farm bill programs of the past paid subsidies directly to the farmer for eligible crops. The subsidies were based on historical averages and yields. Farm prices tend to cycle. The subsidies countered the lean years. In other words — it was a safety net. What many non-farmers could not understand was that many times farmers did not have to plant the crops to get the benefits. Well that’s all gone now.
Expanded Crop Insurance Subsidies
The new farm bill had replaced the direct payments with two new programs and an expansion of federally-subsidized crop insurance.
There Were Two Programs To Choose From
Farmers needed to choose between two programs: Price Loss Coverage or Agriculture Risk Coverage. It was important to understand the difference. The choice you made was irrevocable for the entire 5 year period covered by the new Farm Bill.
In Short, Price Loss Coverage provided payments if market prices fell below established reference prices. Agricultural Risk Coverage will provide payments if actual crop revenue falls below established revenue guarantees. There will also be an election between Agricultural Risk Coverage based upon county or individual revenue levels.
There were complicated payment formulas, but the main distinction is that there will no longer be automatic payments. Instead, the programs are designed to provide payments only when market prices or crop revenue fall below threshold amounts.
Ag Risk Management & Insurance LLC has an expert understanding of the processes and formulas to guide you in your decision on which is the best program for you and for your operation.
As with the old law, it is all based upon ‘base acres’. You can choose to retain the base acres of the past or reallocate base acres among covered crops according to acreage in each covered crop planted over the past four crop years. Once again the method you decide upon is irrevocable. AgRM&I has the tools to help you make the best decision for your circumstances.
New Payment Limitations
The payment limitations have been changed, as well. The most a person or entity can receive is $125,000 per year or $250,000.00 for a married couple. Also a person becomes ineligible if their 3 year average exceeds $900,000.00.
The Act provides an expansion of the federally-subsidized crop insurance. There are different types of crop insurance coverages. Farmers can buy policies to insure a specific per acre yield or to insure a given level of revenue. The amount of insurance available is dependent upon historic acreages and crop yields. Banks typically require crop insurance to extend crop loans.
Supplemental Coverage Options
There is also now a Supplemental Coverage Option. This option provides farmers with the option of buying insurance that covers a part of the deductible under both yield and revenue loss policies. Cotton now has its own program called stacked Income Protection Plan, starting in 2015.
Livestock Provisions
The Act repeals the Dairy Product Price Support and Milk Income Loss Contract (MILC) programs. These will be replaced with a new Margin Protection Program for Dairy Producers, which will be managed by the Department of Agriculture and operate similar to insurance.
The program will make payments to dairy farmers based on the difference between the price of milk and the cost of feed to produce the milk. Dairy farmers will be able to elect different coverage levels between $4 and $8 per hundredweight.
Hundreds of other Provisions
There are hundreds of other agriculture and nutrition programs affected by this New Farm Bill. Among them:
- Marketing Assistance Loans to farmers
- Livestock indemnity payments to eligible producers with excessive livestock losses.
The new law includes premium schedules for purchasing coverage. The insurance premiums go up for milk production in excess of four million pounds. There will also be limitations on coverage based on historic production. These will function like a base plan to provide a disincentive to increase production; however, the Act provides a formula to allow new producers to participate in the program.
As you can see, this is a very complicated landscape. There are many nuances of these programs that can greatly affect your bottom line and the future success of your agriculture operation.
Ag Risk Management & Insurance LLC Has The Answers
The good news, Ag Risk Management & Insurance LLC knows what is happening in agriculture today and can help you navigate this landscape and take every advantage you can to better your financial position. That is why we are more than just Crop Insurance. We have the expertise to help you manage all the risks associated with your livelihood.
