Billy Carlson sat at a small table in the breakfast nook of his Williamson County, Texas, home, across from USDA Farm Service Agency Administrator Val Dolcini, and talked, candidly, about the puzzling process he followed to sign up for the new farm programs.
Carlson, a corn, cotton and cattle producer near Taylor, Texas, began the process late last fall, attending numerous meetings to get a handle on a program that was as new to FSA employees as it was to farmers.
Also around the table were Texas FSA staff members, including Texas State Farm Service Agency Director Judith Canales.
“This is the most confusing farm bill I have ever worked with,” Carlson said. “It’s hard to predict what prices will be in coming years. We can’t know what’s going to happen.”
His decisions will be in effect through the life of the 2014 farm bill so he and other farmers will be tied to either the Price Loss Coverage (PLC) or the Agricultural Risk Coverage (ARC) option for five years—a scary proposition since the wrong choice could mean significant income losses in later years.
Dolcini said Congress took a much different approach with this farm bill than for any previous agricultural legislation. “With this program farmers should not look at what’s the best payout but at what offers the best risk management,” he said.
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The direct and counter cyclical payment provisions in previous farm programs were easier to understand “and administer,” he added. “This program requires producers to spend time,” looking at yield histories, marketing and production costs.
Carlson agrees. “With the old DP programs we knew what we could get. Our bottom line is still the same—we have to make a profit.”
Homework was crucial
He did his homework. He and several other farmers sat down with the Texas A&M Agricultural and Food Policy Center decision aid tool and worked on various options. He recalls that one of the producers ran some numbers and thought the ARC option would suit his operation. After working through other scenarios, however, all three determined that PLC was the better choice. “The decision aid tool helped a lot,” he said.
So did the opportunity to reallocate base acreage. Carlson started that process early and at one point had figured a heavier corn base would offer a better opportunity than grain sorghum. “I looked at it again and reworked acreage allocation back to milo,” he said.
The yield exclusion played a role in his decision. The Actual Production History Yield Exclusion (APH Exclusion) allows producers to exclude any year from their insurable production (APH) if the county’s yield per planted acre for the crop in that year is at least 50 percent below the simple average of the previous 10 consecutive years of the yield per planted acre for the crop in the county.
“Yield adjustment was a great option,” Carlson said. “But we still can’t predict price.”
He’s always believed in crop insurance and has enterprise unit coverage as well as hail insurance. The hail insurance will take care of damage to a field, regardless of how much damage occurs on the rest of his acreage. “We’ve always come out okay with hail insurance,” he said. “The enterprise units give me a floor.”
He looked at other options, including the stacked income protection plan (STAX) for his cotton acreage, as well as the supplemental coverage option (SCO). SCO, considering the coverage gaps and cost, was not a good fit this year for Carlson. “I am trying STAX. I want to see how it will work.”
Carlson said 2011 was a good test of crop insurance. “We zeroed out a lot of acres,” he said. “At least we didn’t have to harvest 10-bushel-per-acre corn and add harvest costs.”
Value of crop insurance
With the enterprise unit insurance and the good prices available for corn and cotton that year, “we survived it OK, but it was a tough year.”
A bit of creativity and persistence allowed him to retain the cattle herd, too. He and his father had built this herd over several years and did not want to liquidate. “We kept them penned in a smaller area and fed baled corn stalks and minerals with hay we had put up previously. We got a little rain in November and planted forage. We kept our herd intact, but a lot of folks sold a lot of cattle.”
He said many pastures still have not recovered from the 2011 drought.
Carlson told Dolcini that the livestock programs included in the new farm bill has been a godsend. “The livestock forage protection program was unexpected but a big help,” he said.
That program has been a significant benefit to many Texas livestock producers, says Texas State FSA Director Canales. “Our office had very high traffic last fall and early winter from the LFP signup. That’s an important program here. Livestock is a big product for Texas.”
“We’ve already paid out $850 million in LFP benefits, just for Texas,” Dolcini said. “We have another 5,000 producers in the register.” Others will qualify as the drought continues.
Carlson said the 2011 drought was a record-breaker, but droughts in 1996 and 1998 “hurt more,” since commodity prices were much lower.
Conditions improved in central Texas in 2012 and “we saw some good prices with $8 corn.” Markets declined some in 2013 and were significantly lower for last year’s crop, but yield was exceptional.
“We averaged 145 bushels across the board (2,300 acres) last year, and we made two-bale cotton (1,150 pounds per acre) on 500 acres. We’ve made good crops for the last three years, but prices killed us last year.”
With cotton and corn prices at current levels, producers have to make good yields in 2015 to break even.
2014 was good year
“I’ve been farming for 43 years, and 2014 was the best year ever,” Carlson said. “Normally, we average 80 to 100 bushels of corn per acre with average rainfall. At current prices, that will not be enough to make a profit.”
Production costs, including crop insurance, means “we can’t make money at $3.70 and 90-bushel corn. Seed and technology are good but they are expensive.”
Bad years, Carlson says, take a toll. “It takes longer to get out of a bad year than it does to take advantage of a good one.”
Those are issues Carlson had to consider as he waded through the swampy terrain of new farm bill decisions. That’s why he started early, earlier than most U.S. farmers, according to Dolcini, who says December is earlier than most farmers began to check into FSA offices to begin the process.
Carlson also attended numerous meeting, including USDA sessions as well as meetings sponsored by Extension and various farm groups.
“Williamson County farmers have been well-informed about the new programs,” said Craig Engelmann, county FSA director. “When they come into the office, most know what they have to work with.”
Those meetings paid off. “We held a town hall meeting back in November, and we cooperated with the Extension Service on a number of meetings.”
Carlson said he attended several and also worked scenarios with the decision aid tool.
Steep curve for FSA
Dolcini said FSA had a steep and a fast learning curve as well. They began preparing as soon as the bill was signed into law in February, 2014. They had to train staff in time to roll out the livestock provisions and then begin preparation for the crop programs.
The educational opportunities for farmers have been crucial, Dolcini said. “We used an old-fashioned, shoe-leather approach, holding informational meetings. We’ve conducted 6,000 of those meetings across the country, more than 500 in Texas. We’ve used a lot of low-tech communication opportunities, pamphlets and brochures, for instance, to get the word out.”
It seems to have paid off in Texas where 92 percent of the 2013 DCP enrollments have signed up for either ARC or PLC, Canales said.
The best outcome for farmers is that they will not need PLC, ARC, STAX or SCO, that weather and prices will be good enough that crops fare well and revenues are adequate to stay in the black.
For Carlson, 2014 is off to a good start. Corn is planted and doing well; some cotton is up. The 1,000 acres of pasture is recovering from drought and the 220 mother cows are doing well. “We have good soil moisture and recent rainfall has helped, too,” he said.
Also, the stress involved in figuring what to do with the new farm bill is behind him. Except for annual insurance coverage decisions and analyzing STAX and SCO each year, his course is set for five years. He still faces uncertainty, especially with market movements, but he’s done his homework, reviewed yield histories and balanced one program against another.
For now, he just has to farm.