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APH yield exclusion option improves farmers’ ability to secure crop loans

Drought has damagedSouthwest crop and livestock operations for more than three years A provision being implemented in the Agriculture Act of 2014 will allow row crop producers to discount disaster years from the actual production history
<p>Drought has damagedSouthwest crop and livestock operations for more than three years. A provision being implemented in the Agriculture Act of 2014 will allow row crop producers to discount disaster years from the actual production history.</p>
Under the new farm bill program, yields can be excluded from farm APH when the county average yield for that crop year is at least 50 percent below the 10 previous consecutive crop years&#39; average yiel

Farmers across the country, but especially in the Southwest, are applauding the U.S. Department of Agriculture’s announcement today that The Actual Production History (APH) Yield Exclusion, a key element of the Agriculture Act of 2014, will be available nationwide for the 2015 crop year.

Under the new farm bill program, yields can be excluded from farm APH when the county average yield for that crop year is at least 50 percent below the 10 previous consecutive crop years' average yield.

Agriculture Secretary Tom Vilsack explained that the exclusion will provide relief to farmers affected by severe weather, including drought. The APH exclusion allows eligible producers who have been hit with severe weather to receive a higher approved yield on their insurance policies through the federal crop insurance program.

By excluding unusually bad years, farmers will not have to worry that a natural disaster will reduce their insurance coverage for years to come, Vilsack said.

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Southwest farmers and commodity associations expressed gratitude to USDA for implementing the program. Implementation for 2015 was not assured until today’s announcement. The region has been hard hit since the fall of 2010 with excessive heat, drought and some storm damage, leaving farmers vulnerable to lower production history, higher insurance costs and uncertain financing.


Significant for financing

The exclusion could mean the difference between a farmer receiving adequate financing for the 2015 crop year and having to cut back or leave farming. The APH exclusion also could mean a significant economic benefit to rural communities across the nation.

Matt Huie, a Beeville, Texas, cotton, corn, grain sorghum, wheat and cattle producer and a board member for the Southwest Council of Agribusiness, says today’s decision relieves some pain “at the bank,” because of declining collateral created by poor crop yields and low commodity prices the last few years.

“I'm thrilled that RMA has decided to get this done,” Huie says. “I've already called my banker to tell him. This certainly won't take the risk out of this business, but it will help mitigate the damage to our production history caused by several years of drought. It will also allow me a more realistic level of protection for what I expect to produce and what I need to finance that production.

“I am thankful that USDA has realized the importance of this provision and agreed to make it a priority, especially in a time of depressed prices following years of drought.”

It’s a good day for Southwest cotton. “We are very pleased that USDA has seen fit to implement this important provision in the Agriculture Act of 2014,” says Steve Verett, executive vice president, Plains Cotton Growers, Lubbock.

“It’s extremely important because of the effect drought has had on the Southwest. It will be a big help to producers of spring commodities as they seek financing for crops.”

He says the APH exclusion allows producers to present a more realistic picture of production capacity.

Verett also said that no crop needed the APH adjustment more than cotton. “It’s important for all crops but for cotton, crop insurance is all we have.”

World Trade Organization rulings in a cotton subsidy complaint brought by the Government of Brazil left cotton with nothing but crop insurance as a safety net in case of market or production losses.

“We are disappointed,” he adds, “that the decision did not come in time for wheat producers.”

Karin Kuykendall, executive vice president, Rolling Plains Cotton Growers, Stamford, Texas, says cotton farmers need the exclusion. “We need everything in the (farm bill) law concerning crop insurance,” she says. “Crop insurance is cotton farmers’ primary safety net.”


Good day for producers

Kuykendall says it’s a good day for producers to “show how we can work with government agencies to create a safety net. We worked with a lot of groups and USDA and RMA to get this done,” she adds, “and we will continue to work together to get the program implemented.”

Jeff Nunley, executive director, South Texas Cotton and Grain, says a number of details remain to be worked out as the APH exclusion is implemented before the end of the year. “But it’s not insurmountable,” he says.

“We are grateful that USDA is implementing this program for 2015,” he adds. “South Texas farmers need it. We have just finished harvesting and now farmers are visiting bankers to set up financing for next year’s crops. This will help them make plans for 2015. I am excited for South Texas producers.”

Ricky Bearden, president of the Southwest Council of Agribusiness (SWCA), praised USDA for initiating the APH yield exclusion for the 2015 crop year.

“We very much appreciate that Secretary Vilsack heard our appeals and responded favorably,” said Bearden. “We remain concerned that the provision will not be implemented in time for this year’s winter wheat crop but having the provision in place in time for the spring crop is extremely important to all producers in the southwest region.”

The National Cotton Council commended RMA for implementing this provision that is important to cotton production areas that have been hit with drought and other adverse weather in recent years.

NCC Chairman Wally Darneille said, “Many producers across the Cotton Belt have incurred yield losses due to severe weather, particularly the past three years. This will greatly assist our producer members who are already making plans for next season.”

Rick Palkowitsh, with the Colorado Corn Growers and a board member on the Southwest Council of Agriculture, says assessing the benefit of the APH exclusion will be difficult. “It is hard to quantify,” he says. “Each farmer is different and each county is different, but I feel like this provides us another tool and another opportunity for farmers hurt by drought in Oklahoma, Colorado, Texas and other areas, to get their APH up.”

He says premiums will be a little higher. “I don’t know where they will be. But for some farmers, this will be the difference in whether they farm another year or not.”

He also would have liked to have seen winter wheat included in the APH exclusion but understands the logistics that made that difficult. “We are thankful to USDA for getting this implemented for spring crops,” he says.


Insurance advantage

Raford Hargrove, Hargrove Insurance, Rotan, Texas, says the APH adjustment will be a lifesaver for Rolling Plains and South Texas farmers

“The effects of getting this rule implemented are beyond measure,” he says. “It will raise the average APH for cotton, grain sorghum and corn in West Texas and South Texas by 20 percent to 30 percent, offsetting the effects of declining prices on crop insurance guarantees.

“For many people, the effect is not 20 percent to 30 percent; the effect is literally the difference between farming and not farming.”

He expressed appreciation for leaders who worked tirelessly to see that the program was implemented. “Everyone in the Southwest owes a huge debt of gratitude to all those who helped to get this done, including members of Congress, staff of the House Agriculture Committee, producer organizations and USDA. Special thanks go to Combest-Sell and Associates, and Charles Stenholm, who continue to work tirelessly on behalf of Southwest Agriculture.”

One of those legislators, Rep. Frank Lucas, R-Okla., Chairman of the House Agriculture Committee, released this statement following the announcement:

"I commend Secretary Vilsack and his team on their efforts to implement this critical provision in the farm bill. The APH adjustment means everything to farmers all across the country who have suffered through year after year of devastating drought conditions. It is the difference between having viable crop insurance for the coming year or not. It is for these reasons that I worked to include the APH adjustment in the farm bill and why I am pleased the Secretary redoubled his efforts to get it done this year. I remain hopeful that USDA will also work to make the same relief available to winter wheat producers."

Vilsack praised the USDA Risk Management Agency and Farm Service Agency staffs for implementing several 2014 Farm Bill programs—the Agricultural Risk Coverage, the Price Loss Coverage, Supplemental Coverage Option and Stacked Income Protection Plan—ahead of schedule.  

He said USDA is able to leverage data from the Agricultural Risk Coverage and Price Loss Coverage to extract the information needed to implement APH Yield Exclusion earlier than expected.

"Key programs launched or extended as part of the 2014 farm bill are essential to USDA's commitment to help rural communities grow,” Vilsack said. “These efforts give farmers, ranchers and their families better security as they work to ensure Americans have safe and affordable food. By getting other 2014 farm bill programs implemented efficiently, we are now able to offer yield exclusion for spring 2015 crops, providing relief to farmers impacted by severe weather."

Spring crops eligible for APH Yield Exclusion include corn, soybeans, wheat, cotton, grain sorghum, rice, barley, canola, sunflowers, peanuts and popcorn. Nearly three-fourths of all acres and liability in the federal crop insurance program will be covered under APH Yield Exclusion.

RMA will provide additional program details in December 2014.

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