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Market Briefs Special: Farm Bill Highlights

Now that the 2018 Farm Bill has been signed into law, farmers and ranchers can begin to plan for the year, and the next five-years, with some certainty about the risk management tools available to them. After the 2014 Farm Bill introduced a major shift for Title I, away from direct payments and into risk management programs, the 2018 bill is considered more evolutionary in nature.

For row crops, the Marketing Loan, Price Loss Coverage (PLC), and Agriculture Risk Coverage (ARC) programs all continue for the next five years. All programs see some adjustments from the previous bill.

PLC provides assistance to producers when the market price for a covered commodity falls below the statutory reference prices. ARC provides assistance to producers when actual crop revenue for a covered commodity falls below 86 percent of the benchmark revenue. The 2018 bill offers producers a new choice between ARC and PLC on a crop-by-crop, farm-by-farm basis, applied jointly for the 2019 and 2020 crop years. Annual election will be available beginning in the 2021 crop year.

Increased loan rates and reference prices
The Marketing loan program allows farmers to use their crop as collateral and receive a loan for a portion of the crop’s value, providing the opportunity to hold the crop after harvest until prices improve. Loan rates had not been meaningfully changed in over 10 years. The 2018 bill updated loan rates to better reflect the current cost of production and market prices and provide more relevant support to farmers.

The bill also allows PLC Reference Prices to adjust with improvements in market prices. The Effective Reference Price is calculated as the greater of 85% of the five-year Olympic average price and the PLC Reference Price established in the 2014 Farm Bill. The Maximum Effective Reference Price represents 115 percent of the PLC Reference Price. To reach the maximum Effective Reference Price, the five-year average price of the covered commodity must exceed the statutory reference price by 135 percent.

Optional yield update
Beginning in crop year 2020, producers will have the opportunity to update the program yield used on the farm to calculate assistance under PLC. Producers may update the yield on the farm for each covered commodity to 90 percent of the average yield per planted acre on the farm from 2013-2017, ignoring years where the covered commodity was not planted, multiplied by a yield factor update designated in the bill.

Agriculture risk coverage-county (ARC-CO)
Farmers electing ARC-CO will see changes in both the price and yield calculations, designed to improve revenue support. The yield plug will increase from 70 to 80 percent of the county transitional yield, and the Effective Reference price will be incorporated into the calculation of benchmark revenue. The bill also adds a trend adjustment factor similar to that used in crop insurance policies, and establishes guarantees for irrigated and non-irrigated yields in each county.

Base Acres and Program Eligibility
The bill suspends ARC and PLC payments base acres that have been entirely in grass or pasture since 2009, to ensure programs are targeted at farms that are producing covered commodities. However, those farms are guaranteed an opportunity to participate in a five-year grassland incentive contract under the Conservation Stewardship Program at a rate of $18 per acre.

The bill also continues regulations to ensure that individuals eligible to participate in farm safety net programs are required to be actively engaged in farming by contributing, land, labor, or capital to the operation and provide the necessary amount of labor and/or management. The bill maintains the current family farm exemption, and expands the definition of family to include first cousins, nieces and nephews.

Payment limits are capped at $125,000 per eligible individual or entity, and marketing loan gains and loan deficiency payments are not included in the calculation. Producers with an adjusted gross income of $900,000 or above are not eligible to participate.

The bill builds on the dairy program passed in the Bipartisan Budget Act of 2018, which added $800 million to the dairy safety net. The bill creates Dairy Margin Coverage (DMC), and eliminates the restriction between DMC and Livestock Gross Margin insurance.

DMC adds $8.50, $9.00, and $9.50 coverage levels for the first five million pounds of covered milk production, and expands the range of production allowed to be covered, currently 5 percent up to 95 percent of production history. Dairies with covered production in excess of 5 million pounds are allowed to enroll in $8.50, $9.00, or $9.50 coverage under Tier I and make an independent coverage level election in Tier II. Premiums are reduced significantly to make catastrophic coverage levels more affordable.

Disaster Programs
The bill maintains important disaster programs for producers not eligible for other Title I safety net programs.

The Livestock Indemnity Program provides assistance to livestock producers in the event of the death or forced sale of livestock due to an eligible cause of loss. Eligible causes of loss are updated to include disease and deaths of unweaned livestock, so all livestock death losses are consolidated under this program.

The Livestock Forage Program provides feed cost replacement for livestock producers in the event of severe drought that results in forage loss.

The Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish program provides assistance to those producers to aid in the reduction of losses not covered under other disaster programs. The 2018 bill removes the arbitrary payment limitation on the program in the 2014 bill.

The Tree Assistance Program offers cost share assistance to eligible orchardists who suffer loss or damage to tree groves. Producers may receive 65 percent of the cost of replanting trees, or 50 percent of the cost to remove damaged limbs and vines. The cost share rate is increased to 75 percent for beginning farmers and veterans.