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Estimated Cost Per Acre of Bare-Ground Vegetable Production Damaged by Hurricane Michael

By: Esendugue Greg Fonsah1, Brian Hayes2, Will Gay3, Ty Torrance5, Justin Shealey5

1Department of Agriculture and Applied Economics, University of Georgia, Tifton, GA, 2-5Michel Co., Colquitt Co., Grady Co., and Echols County Extension Coordinators, University of Georgia.

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In Georgia, vegetables are grown using either the plasticulture system and/or on bare-ground. Hurricane Michael affected both cultural practices.  This study focuses on the cost of bare-ground production system damage by the Hurricane.  Our calculations are based on the recommendation of the Extension Vegetable Team, Vegetable Growers and County Agents in South Georgia (Table 1).

Although plasticulture has several advantages, which include higher yields, the system is much more expensive. As a result, many Georgia Growers still use bare-ground production system, which accounts for approximately 64%, equivalent to 38,000 acres of the vegetable production damaged by Hurricane Michael.  Sweet corn was the largest acreage crop at approximately 15,000 acres. Producers using bare-ground production system experienced crops (particularly corn, snap beans, fresh pick, etc.) being laid over, excessive wash-out from rain of rows and field lay-out (roadways, access roads, etc.), and loss of residual fertilizer and soil fumigant. Additionally, land preparation was needed to recover fields for future planting.

 

Table 1: Analysis of the Estimated Costs of Bare-Ground Production Loss Due to Hurricane Michael in South Georgia, 2018.

Description $-Total/Ac
Land structure recovery from Hurricane Michael damage1 
Tractor/driver/equipment – $17.76/A x 2 passes $     35.52
Land prep including mowing and harrowing under damaged plants
Tractor driver @ $15.53/hr. – ½ hr./A x 3 passes2 $ 23.30
Tractor/fuel @ $10/A   x 3 passes $   30.00
Lime – ½ T/A – $36.50/A for soil fertility adjustments $   18.25
Fertilizer – 450 lb./A – $600/ton ($.30/lb.) 3 $ 135.00
Fumigant – 8 gal./A – $ 20/gal. 4 $   160.00
Cover crop to prevent erosion damage
Seed for cover crop – $20/A $ 20.00
Fertilizer for cover crop – $40/A $ 40.00
Planting – tractor/driver/fuel – $17.76/A $ 17.76
Total Bare-ground Production Loss5 $ 479.83

1Land preparation – leveling/rows/roads, etc. 2#hrs/acre depends on the size and/or HP of the tractor. 31.5 x normal rate due to leaching loss. 41.25 x normal rate due to leaching loss & pest pressure. 5These figures are guidelines as growers adopt different agricultural practices and obtain different prices for inputs.

To recover from the damage caused by Hurricane Michael, the following agricultural practices were needed: (a). Land preparation due to unharvested crop, (b) plant material to prevent spread of insect and disease field wash-out, and; (c). replacement of fertilizer/fumigant lost through leaching.  In many cases, a cover crop was required to prevent soil erosion by water or wind.  Table 1 below is an estimated breakdown economic analysis itemizing the operational recovery cost per acre for bare-ground field production damaged by Hurricane Michael.

The total cost of bare-ground production loss due to the October 10, 2018 Hurricane Michael damage in South Georgia is estimated at $479.83/acre (Table 1).

If you have further questions or need any clarification, by all means, do not hesitate to contact us via email: gfonsah@uga.edu; hayesbw@uga.edu; torrance@uga.edu; wgay5@uga.edu; bstarr@uga.edu; or justin1@uga.edu

Estimated Cost Per Acre of Removing and Replacing Plastic Mulch Damaged by Hurricane Michael in Georgia

By:  Esendugue Greg Fonsah1 and Justin Shealey2

1Department of Agriculture and Applied Economics, University of Georgia, Tifton, GA, 2Echols County Extension Coordinator, University of Georgia, Statenville, GA.

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After the damage caused by Hurricane Michael on October 10, 2018 for which the Georgia Vegetable industry suffered a total loss of $480 million, we decided to calculate the estimated cost/Acre of removing and replacing destroyed plastic mulch, by growers. Our calculations are based on the recommendation of the Extension Vegetable Team, information gathered from Vegetable Growers and County Agents during our multiple visits of vegetable farms in South Georgia to collect data needed to generate 2020 vegetable budgets for the state of Georgia (Table 1).

Georgia vegetables are grown either in a system called ‘plasti-culture’ or on ‘bare-ground’. There are many advantages of plasti-culture production including higher yields, but it is much more expensive than ‘bare-ground’ production.  For growers using plasti-culture, a planting bed approximately 12 inches high and 3-4 feet wide covered with plastic is required.  Beneath the plastic, drip lines are run for irrigation, fertilization and pesticide applications.  In addition, during the process of laying the plastic mulch, the bed is fumigated for soil borne diseases and weed seeds and/or weed control.

It is important to note that Growers normally use the plastic bed for 3-4 crops before having to reshape and re-fumigate the beds, re-place the plastic and drip lines. In many cases and during our visit and assessment, Hurricane Michael damaged or destroyed the beds and plastic, requiring re-

laying of plastic, drip lines and fumigation. Table 1 below is a simplified breakdown economic analysis itemizing the operational recovery cost per acre for possible replacement of field production, plasti-culture damaged by Hurricane Michael.

Table 1: Analysis of the $-Value of Replacing Plastic Mulch Loss Due to Hurricane Michael    

               to the South Georgia Vegetable Industry, 2018

Description $-Total/Ac
Removal of plant material, plastic mulch, stakes and disposal at land fill.
Removal of plastic – 4 workers @ $14.53/hr. – 2 hr./A $ 116.24
Removal of drip tape – 2 workers @ $14.53/hr. -1 hr./A $     29.00
Removal of stakes – 6 workers @ $14.53/hr. – 1 hr./A $     87.18
Removal of string – 4 workers @ $14.53/hr. – 1 hr./A1 $     58.12
Mowing old plants – 1 worker @ 14.53/hr. – 1 hr./A $     14.53
Plus fuel $       9.60
Disposal at landfill – $     50.00
                                 Total of Planting Material Removal $ 364.67
Laying new plastic, land prep, materials, fertilization, fumigation, labor.
Land prep – tractor/driver/fuel – 3 tractors – $10/A $     30.00
Fertilizer – 300 lb./A – $600/ton ($.30/lb.) $     90.00
Fumigant – 135 lb./A – $4.40/lb. $   594.00
Plastic – 8,712 ft./A – $0.055/ft.2 $   479.16
Tape – 8,712 ft./A – $ 0.014/ft. $   125.84
Tractor & Equipment to Lay plastic $   150.00
Labor – Fumigation/Fertilization/plastic laying: 10 workers @ $14.53/hr. – 1 hr./A $   145.30
Irrigation Hookup – 2 workers @ $14.53/hr. – 2 hr./A $     58.12
Stakes – 2200/A – $0.25/stake $   550.00
Labor to install stakes – 12 workers @ $14.53 – 1 hr./A $   174.36
Total Laying New Plastic, land-prep, material, fertilization, fumigation, labor $ 2,396.78
                                                   Grand Total Costs3 $2,761.45

========

1Cost of strings are not included because that is a cost for the new crop and in normal operations, the string is lost.

2Plastic costs will be higher for tomato growers because they would need silver mulch to control White fly instead of using black mulch.

3The Grand Total Cost does not include interest rate of 6.5% used in the enterprise budgets.

 

The total $-value for replacing plastic mulch loss due to Hurricane Michael to the South Georgia Vegetable Industry, 2018 is estimated at $2,761.45 (Table 1).

 

If you have further questions or need any clarification, by all means, do not hesitate to contact us via phone 229-386-3512 or 229-559-5562 office or email: gfonsah@uga.edu or justin1@uga.edu

2019 Cotton Outlook

By Yangxuan Liu

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In 2019, Georgia’s farmers planted 1.4 million acres of cotton, which is the third-highest planted acreage for the past decade, down 30 thousand acres from 2018. The average cotton yield is forecast at 932 pounds per acre. Production is forecast at 2.7 million bales, which would be the second-highest on record. There are three major contributing factors to the increase in cotton acres in Georgia in recent years. First, the high cotton price in 2018 encourages more cotton production for 2019. Second, the declining in commodity prices due to trade tension with China makes cotton more competitive with other row crops. Third, the Bipartisan Budget Act of 2018 authorized seed cotton as a covered commodity and eliminated generic base and thus the eligibility for payments when planting other covered commodities on farms, such as peanut, with generic base.

U.S. upland cotton planted acreage is 13.5 million, down 319 thousand acres from 2018, but it is still the third-highest for the past decade. The 2019 U.S. upland cotton is forecast at 21.1 million bales, which is the highest on record since 2005, up 3.6 million bales from 2018. During the years with large production, U.S. cotton exports are expected to increase. However, exports to China as expected are down, and additional Chinese tariffs on U.S. cotton make U.S. cotton less competitive in the Chinese market. Exports are currently forecasted to be 16.5 million bales for the 2019 – 2020 crop year, which would be the second-highest on record after 2005 at 17.7 million bales. The U.S. ending stocks for the 2019 – 2020 crop year are expected to increase to 7.2 million bales, which is the highest ending stocks for the past decade. The increase in supply due to increasing production and ending stocks in the U.S. creates downward pressure on U.S. cotton prices.

The world cotton production is currently forecast at 124.9 million bales, which is the highest in history. World cotton use or demand has improved in recent years but the upward trend slows down for the past two years due to the uncertainty of the global economy and trade. The current world cotton consumption is forecast at 121.7 million bales. Expanding world supplies over demand has increased the global stock-to-use ratio, which is often accompanied by a fall in global cotton prices.

Several other issues make cotton profitability challenging. In Georgia, the cotton basis since the implementation of Chinese tariffs has been lower than in previous years due to the smaller shipments to China. Before the tariff on cotton was implemented, China made purchases in large quantities, and often large shipments were sent to the same destination. However, after the tariffs on cotton were implemented, the large shipments to China were replaced by smaller shipments to other importers. The change in the size of the shipments has increased transaction costs for merchants and reduced the local basis for cotton. The other issue here is that China accounts for about 40% of apparel imported by the United States, of which 30% is made of cotton. The 25% U.S. tariff on Chinese apparel makes it more expensive for U.S. consumers to buy cotton apparel, which reduces the demand for apparel. Moreover, the appreciation of the U.S. dollar relative to other currencies makes our agricultural products more expensive in the export market and result in a reduction of prices.

Futures prices (Dec 19) for the 2019 crop are currently at or around 61 cents per pound. The cash prices for the current calendar year of 2019 ranges from low of 54.41 to high of 74.46 cents per pound. USDA forecasts the marketing year average price for the 2019 – 2020 crop year at 58 cents per pound, compared to the 2018 – 2019 crop year average of 70.5 cents per pound.

Reported Peanut Acreage in Georgia: Implications from USDA Reports

by Adam N. Rabinowitz and Walter Scott Monfort

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The United States Department of Agriculture (USDA) National Agricultural Statistics Service (NASS) released their Crop Production report on August 12, 2019. Their report forecasts 2019 harvested acres in Georgia at 590,000, down from 650,000 in 2018. The basis for this forecast comes from the Crop Acreage report on June 28, 2019 and a survey of plantings and planting intentions from early June. The NASS reported 2019 Georgia acres are 600,000 for peanuts. If in fact, 600,000 acres of peanuts were planted in 2019 in Georgia, this would represent a 10% decline from 2018 when 665,000 acres were planted. While initial forecasts are prone to error and actual behavior may differ from plantings, the current NASS estimates are substantially lower than what is seen in other available data. This has substantial implications for expected marketing for farmers as there are likely more peanut acres in Georgia headed to market this harvest than what is currently forecast by the USDA NASS.

The USDA Farm Service Agency (FSA) also reports acreage data based on producer self-reporting for participation in government programs including the Price Loss Coverage, Marketing Assistance Loans and Market Facilitation Program (trade assistance). On August 12, 2019, FSA reported acreage data as of August 1, 2019. FSA reports 663,000 acres of peanuts in Georgia. Thus, one must ask which number is best representative of the current peanut situation.

To help answer this question, let’s take a look back at prior years. In June of 2018, NASS reported 700,000 planted acres of peanuts. The August 2018 report indicated a forecast of 690,000 harvested acres. At the same time, FSA reported 657,000 planted acres with their first release of data in August 2018. Subsequently, FSA reported the final acreage for peanuts in 2018 was 659,000. Meanwhile, NASS ended with a planted acreage of 665,000. This discrepancy is rather common as NASS will update their forecasts and FSA will not include producers who do not report acreage since they do not participate in the government programs. Therefore, one expects FSA reported acres to be lower than actual planted acres and NASS estimates to improve throughout the season. Based on this reasoning, which is commonly seen during prior years, FSA acres would be expected to be lower than NASS acres. In other words, FSA acres can also be thought of as a minimum number of acres that were actually planted during a given year.

So, for 2019, we are left with NASS reporting 600,000 planted acres and 590,000 harvested acres. While FSA is reporting 663,000 planted acres. It is highly likely that the FSA reported acreage is closer to reality and the NASS figures need to be revised upwards by more than 10%. If this holds true, we are looking at planted acres in 2019 that are very similar to the number planted in 2018. Furthermore, production estimates need to also consider about 63,000 additional acres of peanuts planted in Georgia. NASS has forecast yields for Georgia at 4,400 pounds per acre. We expect this may also be a little high at this time, although we will save the debate on yield forecasts for another time. If for now we assume the NASS yield estimates, then an additional 138,600 tons of peanuts should be expected to be available this fall. In other words, there would have been no change in production between 2018 and 2019 in Georgia. Given the continued high levels of peanut stocks, this is not going to help prices during the current growing season and any expectation of rising prices due to lower acreage in Georgia should be tempered.

References:

U.S. Department of Agriculture, National Agricultural Statistics Service, Crop Production, August 12, 2019.

U.S. Department of Agriculture, National Agricultural Statistics Service, Acreage, June 28, 2019.

U.S. Department of Agriculture, Farm Service Agency, Crop Acreage Data, August 12, 2019.

Dr. Rabinowitz is an Assistant Professor and Extension Economist in the Department of Agricultural and Applied Economics at the University of Georgia. Dr. Monfort is an Associate Professor and Extension Peanut Agronomist in the Crop and Soil Sciences Department at the University of Georgia.

USDA Trade Assistance Programs: 2019 Impacts on Georgia Producers

by Adam N. Rabinowitz

On July 25, 2019, the USDA announced the 2019 trade assistance payment rates for the Market Facilitation Program. We have published a policy brief that contains the following helpful information:

  • Details of the county based payment rate and potential maximum payments by county for non-specialty crops. Most notably for Georgia this includes producers of cotton, peanuts, corn, soybeans, and wheat.
  • Payment rates for specialty crop products (pecans), dairy, and hogs, including potential payments for each of these products produced in Georgia.
  • Program deadlines, eligibility, and payment limits.

Our estimates are that GA agricultural producers may receive about $341 million in assistance to alleviate negative impacts from retaliatory tariffs.

The full policy brief can be downloaded from the UGA Center for Agribusiness and Economic Development through this link:

https://caed.uga.edu/content/dam/caes-subsite/caed/publications/center-reports/MFP2019%20GA%20Impact.pdf

 

The Costs to Agriculture from Recent Trade Disputes: A Georgia Perspective

By Gopinath Munisamy, Yangxuan Liu, and Adam Rabinowitz

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American agricultural and food producers have been caught in the middle of ongoing trade disputes between the United States and some of its major trade partners. Most trade partners – China, Mexico, Canada, and others – facing tariffs from the United States have chosen to retaliate against American agricultural exports.

Last year, American agriculture lost overseas markets and revenues, some of which have been partly compensated by the Trade Mitigation Programs and exports to new sources. However, as the U.S. – China trade dispute gets reignited in May 2019, American agriculture faces several critical challenges, including 1) whether U.S. agriculture can recover from the original and continued loss of overseas markets; 2) will the tit-for-tat tariffs cloud the prospects for new markets for American agriculture; 3) how can American agriculture compete with its non-agricultural sectors for labor and capital/credit; and 4) whether the recent rise in farm wages and a decline in farm solvency ratios point to farm financial stress.

Munisamy, Liu, Rabinowitz, and Dorfman recently released an article, entitled “The Costs to Agriculture from Recent Trade Disputes: A Georgia Perspective”. This article shares insights on the impact of the ongoing trade disputes on American and Georgia agriculture and on emerging farm financial stress. Detailed discussions on cotton, pecans, peanuts and broiler meat are included in the article. Agricultural and food producers nationwide have faced the direct effects of retaliatory tariffs, but changes in market prices alone may not fully capture the losses seen in crops that Georgia has large national shares in the production of, notably cotton, peanuts, and pecans. The search and adjustment costs for new and smaller markets may be reflected in a weakening local basis and an average national price for compensation will likely understate Georgia’s loss.

Trade issues are compounding the financial stress already present in the agricultural production sector.  Nationally, the farm debt-to-equity ratio forecasted for 2019 is the highest of the past decade. At a time when many Georgia farmers are in tough financial conditions following several hurricanes, macroeconomic factors, especially the appreciation of the U.S. dollar, and a trade war add to the financial pain being felt by many producers. Georgia may actually be in a more vulnerable position than the average for American farmers.

American agriculture appears to be buffeted by uncertain markets for products and inputs, and the marginal damage from the latest round of tariffs is likely to be significantly higher than the historical average. Whether the resolution of trade disputes will restore not only the original market access but also the foregone growth in American exports during the dispute remains an open question.

Federal Disaster Aid Package Becomes Law

by Adam N. Rabinowitz

On June 6, 2019, the disaster aid package (officially known as H.R. 2157, “Additional Supplemental Appropriations for Disaster Relief Act, 2019.”) was signed into law.  The bill contains substantial money that will aid Georgia in the recovery from Hurricane Michael, as well as addressing other disasters throughout the U.S. during calendar years 2018 and 2019, including Hurricane Florence, other hurricanes, floods, tornadoes, typhoons, volcanic activity, snowstorms, and wildfires.  I have outlined below key highlights of the legislation directly relevant to Georgia agricultural producers.

  • A total of $3 billion has been allocated to losses of crops (including milk, on-farm stored commodities, crops prevented from planting in 2019, and harvested adulterated wine grapes), trees, bushes, and vines.
  • Block grants will be provided to states for forest restoration, poultry, and livestock losses.
  • Tree assistance payments are to be made to eligible orchardists or nursery tree growers of pecan trees with a tree mortality rate that exceeds 7.5% (adjusted for normal mortality) and is less than 15% (adjusted for normal mortality) for losses incurred from January 1, 2018 and December 31, 2018.
  • Not more than $7 million for agricultural producers whose Whole Farm Revenue Protection indemnity payments were reduced following 2018 crop year losses due to state authorized disaster assistance programs.
  • Crops eligible for Federal Crop Insurance or Noninsured Crop Disaster Assistance Program (NAP) are limited to payments not to exceed 90% of the loss for those that obtained either of these policies. For producers that did not obtain available crop insurance or NAP, payments are limited to 70% of the loss.  The expected value of the crop is defined as the greater of the projected price or the harvest price.
  • Additional allocations were made for the Emergency Forest Restoration Program ($480 million), Emergency Conservation Program ($558 million), Emergency Watershed Protection Program ($435 million), and rural community facilities programs ($150 million).

Keep in mind that dollar figures included here are not allocations only for Georgia but are for all producers throughout the nation that are eligible for aid.  It is expected that the crop losses will be managed through the Farm Service Agency (FSA) using the Wildfires and Hurricanes Indemnity Program (WHIP) in the same fashion as was applied in 2018 for Hurricane Irma, with the exception of the increased payment limits to 90% and 70% for insured and uninsured acres, respectively.  The signup process and payment dates are not known at this time.  More information is forthcoming.

Cotton Payments, Disaster Assistance, and Safety Net Update

By Don Shurley and Yangxuan Liu

Download the PDF version of the factsheet

MFP (Market Facilitation Program) Payments

USDA announced last July that it would act to assist farmers damaged by tariffs and reduced exports.  In September, the Market Facilitation Program (MFP) was initiated and the signup began.  MFP payments are received on actual 2018 production.  The payment rates for crops commonly grown in Georgia are listed below:

Initially, the signup deadline was January 15, 2019 but due to the partial government shutdown that included Farm Service Agency (FSA) offices, the signup deadline was extended to February 14, 2019.  The signup period has now ended.  Before payments can be received, in addition to signing up for MFP, the 2018 production must be certified.  The deadline for certifying production with FSA is May 1, 2019.

A first/initial payment was authorized on half of 2018 production.  If the farm was signed up for MFP and 2018 production has already been certified, the first payment has likely already been received.  A second payment—at the same MFP rate on the other half of production, was announced on December 17, 2018.  If the farm is already signed up and certified the production, the second payment has also been made or should be made shortly.

Producers did not need to sign up again for the second payment.  If the first payment has not been or was not received, one payment for the total amount will be received.  Below is an example for how the payment is calculated. Assuming a farm produced 750,000 lbs or approximately 1,500 running (gin count) bales of upland cotton lint in 2018.

Example First Payment:

Total Certified Production = 750,000 lbs

MFP = 750,000  x  ½  x  $0.06  =  $22,500

Example Second Payment:

Total Certified Production = 750,000 lbs

MFP = 750,000  x  ½  x  $0.06  =  $22,500

Example Total (All In One Payment):

Total Certified Production = 750,000 lbs

MFP = 750,000  x  $0.06  =  $45,000

Unfortunately, MFP payments for cotton will be less than expected.  This is due to crop loss caused by Hurricane Michael and excessive rains and delayed harvest during the entire harvest season that followed.  Prior to Hurricane Michael, USDA projected the Georgia crop at 2.9 million bales or approximately 1.4 billion pounds.  The MFP on that amount would have been approximately $83.5 million.  The latest USDA projection for the Georgia crop is approximately 936 million pounds and MFP of $56.1 million—a 33% reduction.

The limit on MFP payments is $125,000 per person or legal entity for corn, cotton, grain sorghum, soybeans, and wheat combined and applicants must have an AGI of less than $900,000.  The limit on MFP is separate from the limit on ARC/PLC.

Given the relative crop acreages in Georgia and the relatively small payment on corn, on average, the majority of a person or entity’s MFP will be on cotton if the operation grows cotton.  For example, to reach the $125,000 payment limit from cotton only, it would require about 2 million pounds (4,340 USDA 480-lb statistical bales or about 4,183 “running bales” from the gin).  At the state average yield of 693 pounds per acre, this would be equivalent to roughly 3,000 acres of cotton per person or legal entity at that yield.  Had yield been higher as expected (and many producers have said they had a record crop prior to Michael), the limit would have reached the cap at much smaller production and would have been an issue for some producers.

2018 Disaster Assistance

At the time of this is written, there is yet no 2018 disaster relief package but the outlook appears to be improving for having legislation soon.

After months of budget negotiations, disagreements, delays, continuing resolutions, and a partial government shutdown, both the House and Senate passed the final budget package for FY19 on February 14, 2019 and President Trump signed the legislation into law on February 15, 2019.

Unfortunately, although included in earlier budget bills that never fully passed through both House and Senate, 2018 disaster funding was omitted from the February 14 final FY19 legislation.  This means that disaster funds will now come in the form of a separate (supplemental) appropriations bill.

Recently, a bi-partisan group of Senators spearheaded by Senator David Perdue (GA) introduced legislation to the Senate for $13.6 billion in relief efforts including $3 billion for crop-related losses during 2018 due to Hurricanes Michael and Florence and other natural disasters.

Details and the specific workings of the program are unknown and yet to be determined by USDA, should the legislation proceed forward and become law.  From what is known, this Senate legislation seems to closely align with a similar House bill that passed back in January.  Therefore, if the Senate bill passes, it should not be difficult and time-consuming to work out the differences in a conference bill.  President Trump has indicated he will sign disaster legislation when it reaches his desk.  It is hoped that the Senate bill can be considered and passed later this month.

It appears that this legislation for 2018 losses would provide relief through the Wildfires and Hurricanes Indemnity Program (WHIP) in a similar manner as for 2017 crop losses.  In general, the WHIP payments formula is:

WHIP Payment = WHIP Expected Value – WHIP Harvest Value – Insurance Indemnities

The WHIP Expected Value is based on the crop insurance Actual Production History (APH) for the crop and the coverage level of crop insurance elected for the crop.  A WHIP factor of 70% to 90% is proposed and would be applied to the APH—the higher the insurance coverage level, the higher the WHIP factor.

The WHIP Harvest Value is based on the actual yield.  Insurance Indemnities would be the amount(s) received on the crop.  Efforts are on-going to have the premium paid deducted from this amount.

The idea or concept behind WHIP disaster assistance is to pay the producer something above what crop insurance elected on the farm would pay—to provide an additional amount above what crop insurance is going to pay.  This amount will vary depending on whether the crop was insured or not and, if so, at what coverage level.

Because many producers in Georgia were anticipating a record crop, especially for non-irrigated production, it is realized that because WHIP is based on the farms APH, that any payment received cannot fully compensate for the actual loss.  Any amount of payment is helpful, however.

The following website illustrates an example of how WHIP worked for 2017 crop losses.  The WHIP factors will have to be updated/revised based on how similar legislation would compensate for 2018 losses.  Nevertheless, the illustrated example is useful in understanding the concept.

http://www.cotton.org/econ/govprograms/ag-disaster-asst-programs.cfm

Seed Cotton (SC) Program Update

Seed cotton (SC) became a covered commodity and eligible for ARC (Agricultural Risk Coverage) and PLC (Price Loss Coverage) effective with the 2018 crop—the last year of the 2014 farm bill.  Seed cotton continues as a covered commodity in the new 2018 farm bill.  Payment for both ARC and PLC is received on 85% of the farms seed cotton base acres.

The PLC Payment is the PLC Payment Rate times the established seed cotton payment yield for the farm times 85% of the farms seed cotton base acres.

Currently, the projected seed cotton PLC Payment Rate is 2.9 cents per pound.  This is based on the most recent projections of the 2018 market year average (MYA) price for upland cotton and cottonseed.  The SC MYA Price is a weighted average price (based on production upland cotton and all cottonseed) as shown in the table below.  Currently, the SC MYA Price is projected to be 33.8 cents per pound.  This is subject to change—the marketing year for 2018 cotton does not end until July 31, 2019.

The PLC Reference Price for seed cotton is 36.7 cents per pound.  A PLC payment is received if the SC MYA Price is less than 36.7 cents.  Currently, the SC PLC projects to be 2.9 cents per pound (36.7 – 33.8 = 2.9).

For 2019, producers on a farm must elect ARC or PLC for seed cotton.  The 2019 election will be for the 2019 and 2020 crops.  Starting with the 2021 crop, an election will be made each year for the 2021, 2022, and 2023 crops.  The choice of ARC or PLC is not always clear cut and can be confusing.  In making the decision, the main factors to remember are:

  • PLC payment is triggered by price only.
  • The PLC payment for the crop on a farm will depend on the farms PLC Payment Yield for the crop.
  • ARC is triggered by revenue.
  • An ARC payment depends on county yield, not the farm’s own yield.

How PLC and ARC compare is going to vary and will be specific to the farm because the amount of any PLC payment, and thus how ARC and PLC will compare, will be determined in-part by your own PLC payment yield for your farm.  FSA guidelines for ARC/PLC election and enrollment for the 2019 and 2020 crops have not yet been announced.

Beginning with the 2019 crop (the first year of the new farm bill), the PLC Reference Price will be allowed to “float”.  A PLC Payment will be received if the MYA Price for the crop is less than the “Effective” Reference Price for the crop.  The Effective Reference Price will be the higher of the Statutory Reference Price (36.7 cents, for example for seed cotton) or 85% of the 5-year OA (Olympic Average) MYA Price but not to exceed 115% of the statutory price.

This “Effective Price” also impacts ARC.  In ARC, this Effective Reference Price is used as a substitute for the MYA Price in calculating the Benchmark Price if the MYA Price is lower than the Effective Reference Price.

Seed Cotton ARC/PLC and STAX

Most producers have already made their seed cotton generic base allocation decision and election and enrollment of either ARC or PLC for the 2018 crop.  These decisions had to be made or the producer had to already be on FSA’s list (register) waiting to be serviced by December 7, 2018.

The late timing was such that ARC/PLC election and enrollment for 2018 didn’t have to be made until after the start of the 2018 crop marketing year and near the end of the 2018 growing season.  This turned out to be a good thing because Hurricane Michael resulted in large yield loss in some counties and, as a result, some seed cotton bases switched to ARC rather than PLC—ARC being more likely to have a higher payout than PLC for 2018 in some situations.

For the 2018 crop, a farm could have STAX insurance coverage and also have seed cotton base enrolled in ARC or PLC on the same farm.  We suspect this is because the crop insurance sales closing and premium payment deadlines for 2018 spring planted crops occurred months earlier and prior to ARC/PLC election and enrollment.  The sales closing deadline in Georgia, for example, is February 28th.

Effective with the 2019 crop, if a farm has seed cotton base and if that seed cotton base is enrolled in ARC/PLC, all cotton acres planted on that farm are not eligible for STAX.  This has been a source of confusion and misinformation.  The following website is an excellent source of information provided by the USDA Risk Management Agency (RMA) and answers many questions related to ARC/PLC and STAX:

https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/2019-STAX-and-Agriculture-Risk-Coverage-and-Price-Loss-Coverage

In summary, if the seed cotton base on a farm is enrolled in ARC/PLC, all cotton acres planted on that farm are ineligible for STAX.  In Georgia, the crop insurance sales closing deadline for spring planted crops like cotton is February 28th.  This is likely going to be before the ARC/PLC enrollment deadline.  If a producer thinks he/she may want to have STAX coverage for the farm, the producer can purchase STAX first (by the sales closing deadline) then still have the option to enroll in ARC/PLC later, prior to the premium due date, and STAX coverage will be cancelled.  (Note: It is expected that STAX coverage can be cancelled but guidelines concerning this are not yet been released by RMA.)  The sales closing date for 2019 spring planted crops has already passed.

The producer must elect ARC or PLC for seed cotton base on the farm.  In 2019, for example, the producer will elect ARC or PLC for seed cotton base for the 2019 and 2020 crops.  Election does not impact the eligibility for STAX.  The producer will then make a separate decision to actually enroll in ARC/PLC for the crop year.  If seed cotton base on the farm is enrolled in ARC/PLC, then the farm is not eligible for STAX.

ARC and STAX are similar as they are both a form of an area revenue guarantee.  STAX is getting a second look mainly in situations where the cotton acres to be planted on a farm are greater than the seed cotton base on that farm or in situations where cotton will be planted and the farm has no seed cotton base.

First Look at the Farm Bill Title I for Row Crops: Agriculture Improvement Act of 2018

By Yangxuan Liu* and Adam N. Rabinowitz*

Download the PDF version of the factsheet.

On December 11, 2018, the U.S. Senate passed the Agriculture Improvement Act of 2018 (2018 Farm Bill).  The U.S. House Representatives passed the same version on December 12, 2018.  The President of the United States is expected to sign the bill into law on December 20, 2018.  The 2018 Farm Bill continues programs for Title I commodities from the 2014 Farm Bill: the Agriculture Risk Coverage (ARC) program, the Price Loss Coverage (PLC) program, and the Marketing Assistance Loans (MAL) program with Loan Deficiency Payments (LDP).  Below we have identified some major changes in the new farm bill for easy reference.

  • The election between ARC/PLC is one of the key changes for Title I commodities in the 2018 Farm Bill. The initial election will be in 2019 for the 2019 and 2020 crop years. Beginning with the 2021 crop year, producers are allowed to change their ARC/PLC program elections annually.
  • A new effective reference price and updated PLC program yields are created for covered commodities.
  • The statutory PLC reference prices for Title I commodities remain the same as in the 2014 Farm Bill with seed cotton added. The effective reference price permits the reference price to increase up to 115% of the statutory reference price.
  • At the sole discretion of the owner of a farm, the owner shall have a 1-time opportunity to update the PLC payment yield, on a covered-commodity-by-covered-commodity basis. The payment yield is used in calculating the PLC payment for each covered commodity for which the PLC election is made.
  • In the case of seed cotton, for the purposes of determining the average yield per planted acre, the average yield for seed cotton per planted acre shall be equal to 2.4 times the average yield for upland cotton per planted acre.
  • Beginning in 2019, ARC-CO (ARC-County) payments will be based on the physical location of the farm, with farms that cross multiple counties being prorated into each county.
  • When calculating the benchmark revenue for ARC-CO, the effective reference price will be used as part of the calculation for the 5-year Olympic average price when the effective reference price is higher than the marketing year average price. In addition, the 5-year Olympic average yield will use either the county average yield or 80% of the county transitional yield, whichever is higher for that year.
  • Loan rates for the MAL program have increased for most commodities, except peanuts. Peanuts maintain the $355/ton loan rate and cotton will have a factor to limit year-to-year variability.
  • Payment limits are still $125,000, with a separate payment limit for peanuts. First cousins, nieces, and nephews are going to be included in the family members eligible for payments.
  • Unassigned base will remain unassigned and not be eligible for payments.
  • Adjusted Gross Income limits remain at $900,000 per person or legal entity.

 

*These authors contributed equally to this post.