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Policy Report: Program changes and decisions will take careful analysis and consideration of enrollment options.

January 10, 2019

5 Min Read
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REVISIONS AHEAD: The new farm bill keeps existing ARC and PLC programs in place but makes some revisions to both. Producers will need to reanalyze their participation to make an optimal program decision.

By Brad Lubben

Before Christmas, Congress passed and President Donald Trump signed the Agricultural Improvement Act of 2018, more commonly known as the 2018 Farm Bill.

While the debate may be over, the questions and decisions for producers are just beginning.

The basic framework of the new farm bill had been expected for months, with the familiar commodity, crop insurance and conservation programs still in place. However, the final bill was anything but certain with the debate and delays in negotiations between congressional ag leaders.

When the agreement was completed and pushed through Congress in less than a week, producers, landowners and USDA officials could look forward to program implementation and enrollment decisions.

Since then, however, much of USDA and other federal agencies have been furloughed by the federal government shutdown, stopping any progress on farm program rule-making and implementation, as well as delivery of other USDA programs such as the Trade Facilitation payments. When USDA reopens and works on program implementation, producers will recognize many of the same programs and acronyms but also will find some new details and decisions ahead for commodity and conservation programs.

Commodity programs
The new farm bill keeps the existing Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs in place but makes some revisions to both. Responding to producer input over the past few years, both the House and Senate pushed to shift the primary source of ARC-CO (county-level ARC) program yield data from NASS survey data to crop insurance data. The change was included in the final bill and may improve the consistency of yield data, particularly for major crops in primary growing regions, although it will not solve yield data gaps for some crops and some regions of the country.

More significantly for ARC-CO, the five-year Olympic average yield now will be calculated based on a trend-adjusted yield. Similar to how the trend yield endorsement is available for crop insurance policies, this change will effectively increase the yield history to better reflect yield potential and increase the effective ARC guarantee.

For example, in a county where the corn trend yield adjustment factor is 2 bushels per acre per year, the five-year trend-adjusted Olympic average yield could effectively increase by 6 bushels over the previous formula, resulting in a guarantee more than $19 higher per acre at current price levels.

There also are changes to the PLC program, with both a yield update and a potential increase in reference prices. The new program will give producers a chance to update program yields based on 2014-18 production. However, the update is limited by both a 90% update factor and a pro-rata adjustment between 2009-13 and 2014-18 average yields, limiting the benefit primarily to producers that faced significantly below-average yields in the 2009-13 period used for the last yield update.

The new effective reference price is equal to the higher of the existing reference price or the five-year Olympic average price multiplied by 85%, limited to an effective reference price no higher than 115% of the existing reference price. For corn, that means the effective reference price could move above the existing $3.70-bushel rate, but only if the five-year Olympic average price moves above $4.35 per bushel ($4.35 x 85% = $3.70). Of note, this effective reference price also would be used for the ARC program, as well.

The most important change for crop producers is a new decision between ARC and PLC under the new bill. Producers will face a single, new decision in 2019 for the 2019 and 2020 crop years, and then will face an annual decision beginning in 2021. With substantially different price levels now when compared with the last ARC v. PLC decision in 2014, producers will need to reanalyze their participation to make an optimal program decision.

Dairy producers also face substantial changes in support programs with the new Dairy Margin Coverage program. The new DMC makes continued changes to the previous Margin Protection Program (MPP) beyond what was revised in the 2018 appropriations act. The new DMC will provide increased protection levels and reduced premium costs on the first 5 million pounds of production enrolled each year. Coverage for production above 5 million pounds is cheaper than before at low levels of protection, but is more expensive at higher levels, limiting the benefits of the new program to larger dairies.

Conservation programs
In the conservation title, producers and landowners will need to consider changes to each of the major programs, particularly the Conservation Reserve Program, the Environmental Quality Incentives Program and the Conservation Stewardship Program (CSP).

Both the House and the Senate proposed increases in the 24-million-acre enrollment cap for CRP. The House proposed to raise the cap to 29 million acres, while the Senate proposed an increase to 25 million acres. A compromise split the two numbers with a new, 27-million-acre cap by 2023. To pay for the additional acres, the final language also cut the maximum rental rate to 90% of the county average rental rate for continuous enrollment and 85% for general enrollment. Among a few other provisions for the CRP are some efforts to pilot both long-term 30-year CRP contracts and short-term three- to five-year contracts. These changes may affect the calculations for some producers and landowners when weighing potential CRP enrollment against continued cropping or other practices.

The EQIP and CSP programs face opposing prospects. The CSP program has been reduced substantially, but some of the stewardship incentive components have been incorporated into EQIP with added funding. On net, the two programs face about a $1 billion reduction in expected spending over the next five years relative to baseline projections if programs had continued unchanged. Some of the cuts to working lands programs also help backstop disappearing funding for easement and regional partnership programs. The changes mean both some new and some reduced opportunities for producers and landowners to study when considering the economics of conservation practices and program participation decisions.

Although the debate on the farm bill is complete, producers still need to pay attention as program rules are written and implemented. Program changes and decisions will require careful analysis and consideration of enrollment options. Educational materials and programs are sure to be available from both Nebraska Extension and from USDA’s Farm Service Agency to help producers and landowners as the implementation and enrollment process begins.

Lubben is an extension policy specialist at the University of Nebraska-Lincoln.

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