FARE Blog

Food, Agriculture, and Resource Economics

Implications of Hurricane Michael on the Seed Cotton ARC/PLC Selection Decision

By Don Shurley and Yangxuan Liu

Download the PDF version of the factsheet.

We recently released a factsheet which compares between the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) for this year after Hurricane Michael. We conducted the analysis based on some representative counties in GA.  With the hurricane causing tremendous damages to our cotton industry, a lot of counties suffer from tremendous yield losses. For some heavily-impacted counties, the yield loss might trigger for ARC payments. Below are the main points from this factsheet.

  • Many producers were expecting very high yields for both irrigated and non-irrigated, especially non-irrigated compared to average. Some producers report little difference in yield between irrigated and non-irrigated.
  • For 2018, ARC is most likely going to be the way to go for producers in a county with 50 to 60% or more yield loss—“loss” being measured relative to the yield that was expected pre-Michael.
  • ARC vs PLC also depends on the farms seed cotton PLC payment yield.  Landowners can update the payment yield but if this can’t be done and/or if the PLC payment yield is low compared to county yields used for ARC, then PLC may already be at a disadvantage or have less of an advantage than it otherwise have.
  • There are uncertainties.  Any PLC payment for 2018 is a moving target.  The Seed Cotton (SC) Marketing Year Average (MYA) Price is yet to be determined.  This will also effect ARC because the 2018 SC MYA Price partially determines 2018 Actual Revenue.  The 2018 SC county yield is also TBD.  We used estimates provided by UGA county Extension agents.  There is also the uncertainty of another ARC/PLC election opportunity for any farm bill extension.  Both House and Senate versions call for another election in a new farm bill.

Information on Disaster Assistance Programs

By Adam N. Rabinowitz

Click here for a PDF version of this post.

Last week Hurricane Michael ripped through the heart of Georgia agriculture, devastating the southwest region and destroying a significant amount of our farmers’ hard work.  While government programs can never fully replace the loss, there are a number of resources that are available to help farmers recover from disasters.  Some general tips and good practices include:

  • Collect documentation! Prior to starting any cleanup activity, make sure to take pictures of damage and losses that have occurred.
  • If you have crop insurance, contact your crop insurance agent to report losses or damages. It is important to do this before starting any cleanup activities so that everything can be documented properly.   Furthermore, farmers need to notify their crop insurance agent within 72 hours of discovery of a loss.  Beyond that, farmers should make sure that a signed written notice is provided within 15 days of the loss.
  • If you have noninsured crop disaster assistance or are eligible for other disaster assistance programs, contact the local FSA office. It is important to do this before starting any cleanup activities so that everything can be documented properly and a waiver can be issued prior to cleanup.

Important Disaster Resources

The USDA has a disaster website for Hurricane Michael that can be accessed at: https://www.usda.gov/topics/disaster/storms.  At that link there is information on FEMA and other disaster programs.  There is also a more direct resource related to agriculture that can be accessed at: https://www.farmers.gov/recover.  Some of the disaster assistance programs potentially applicable to hurricane losses include:

More information about each of these programs can be found at the above websites.  In addition, there have been some specific disaster related questions which are answered below.

  • What is the next step(s) after receiving crop damage? (reporting claims, documentation, etc.)

Depending on the program, contact either your crop insurance agent or local FSA office.  Make sure to take pictures of the damage and do not burn any debris.  An adjuster or FSA representative will need to survey the damage, thus it is important to wait before starting any cleanup until this has happened or permission to cleanup has been granted.

Keep in mind certain crop insurance deadlines.  Notice to your crop insurance agent must occur before abandoning a crop within 72 hours of a loss.  A written notice needs to be signed within 15 days of loss.

In addition to documenting the damage and loss, keep track of expenses related to cleanup.  It is advisable to keep records of all activities related to the disaster.

  • Do farmers have to pick the crop (in certain situations)? (requesting an appraisal, pros/cons of picking vs. taking the appraisal)

This is a difficult question that depends on individual circumstances.  Some issues that need to be considered is whether there is any salvage value of the crop and the quality of anything that can still be harvested.  If it is a good crop then it should be harvested.  The farmers crop insurance agent can help make a determination of how to proceed.

  • If you don’t pick the crop, how bad will it hurt the established yield?

If there is crop available to pick and you choose not to then it will count against the loss.

  • What if a farmer has an FSA loan on a structure that was damaged?

Contact the local FSA office immediately to report this damage.

  • What additional disaster relief may become available and when?

After many natural disasters that result in widespread damage there are often additional programs that become available to aid with agricultural losses.  This, however, is not guaranteed and it does take time before they are available as they require a special appropriation from the U.S. Congress and signature of the President.  One such example is the 2017 Wildfires and Hurricanes Indemnity Program (WHIP) that covered losses from Hurricane Irma that caused widespread damage in September 2017.  Allocation for that program was not made until February 9, 2018 as part of the Bipartisan Budget Act of 2018.  Sign up for that program did not begin until July 16, 2018.

While a special allocation may not be immediately available, it is important to document losses and to communicate to your legislators in a way that illustrates the impact that Hurricane Michael has had on your farming operation.  This information will help drive policy decisions and additional allocations that may become available.

 

Disclaimer

The information provided in this document is not a specific recommendation.  Producers should make disaster assistance decisions in consultation with their crop insurance agent local Farm Service Agency or other government entity responsible for program administration.

 

Changes to the Dairy Program from the House-Passed Farm Bill

by Levi Russell

H.R. 2 of the 115th Congress, the Agriculture and Nutrition Act of 2018 passed by a 2-vote margin in the house on June 21, 2018. On June 25th it passed a motion to proceed in the Senate and is now being debated. There are some key differences between this bill and the current Senate version I wrote about here. At this time it is not clear which version of the Farm Bill will become law or if other changes will be made. In this post I will go through the changes the House bill makes to what is currently known as the Dairy Margin Protection Program. I will continue to post updates to http://fareblog.uga.edu as the process continues.

There are several changes made to the Dairy Margin Protection Program in the House bill. Some of them address concerns the industry has voiced while others make the program cheaper and more flexible for small and medium size dairies. Below are a list of these changes.

  • The program is renamed the Dairy Risk Management Program and is authorized through 2023
  • Calculation of the Actual Margin remains the same as well as most of the changes made back in February, such as the monthly calculation of the margin and payments
  • Coverage levels of $8.50 and $9.00 are added for Tier I only
  • Producers can buy coverage ranging from 5% to 90% instead of the previous 25% to 90% limits. Coverage can be purchased in 5% increments
  • The table below details the new premiums for Tier I. Tier II premiums are the same as in the 2014 Farm Bill. In general, Tier I premiums are about 1/5 of premiums in the 2014 Farm Bill.
  • The House directs the Secretary of Agriculture to address a few issues with the feed cost component of the margin:
    • The Secretary is to conduct a review of feed cost calculation and to determine whether it reflects actual costs paid by dairy producers
    • A report is to be made on the use of corn silage as a feed ingredient including a report on the cost difference between the use of corn silage and corn
    • NASS will revise monthly alfalfa price survey reports to include high-quality alfalfa prices in the top-five dairy producing states as measured by the volume of milk produced in the previous month
  • The House bill allows producers to use both LGM and Dairy Risk Management, but not on the same production. For example, half of a producers’ production could be covered by LGM while the other half could be covered by the Dairy Risk Management Program
  • Production history updates for the purpose of payment calculations end as of 2018
  • Payments to a dairy are prohibited if the Secretary of Agriculture determines that the dairy business was reorganized expressly for the purpose of qualifying as a new operation
  • Producers have 90 days after the passage of the bill to elect a margin coverage level for the duration of the program

In general these changes make the program less costly for producers to cover 5 million pounds of milk or less. The combination of allowing producers to cover as little as 5% of their production and the significantly lower Tier I premiums accomplish this. In addition, the flexibility to use LGM and the Dairy Risk Management Program is likely to be helpful in managing risk across the entire operation. Time will tell whether the House or Senate versions or some compromise between the two make it into law. Subscribe to the blog in the upper-left corner if you’d like to receive updates in your email!

 

 

Tentative Changes to Dairy Support in the 2018 Farm Bill (Senate)

by Levi Russell

UPDATE: This post has been updated to include information from Senate amendments passed June 27th and 28th, 2018. The changes have been made by marking through the previous text and adding new text after it in italics.

Last night’s cloture vote on the 2018 Farm Bill in the Senate is an indication that we are progressing well on passage of a bill this year. Though that vote was for the House version of the bill (which you can read about here), I thought I’d give an update on my reading of what the Senate Ag Committee changed in Title 1 for dairy since the changes are significant. Keep in mind that things are in flux right now and that this information could be obsolete in the near future. If that is the case, I will write a new post to let you know and provide updates to the process as it unfolds.

The Margin Protection Program has been renamed Dairy Risk Coverage and extends through the year 2023. The basic logic of the program remains the same, but there are significant changes to margin coverage levels and premiums. The margin calculation remains the same.

  • Premiums are still split into two tiers and the threshold remains the same. Lower premiums for less than or equal to 5 million pounds of milk covered and higher premiums for milk covered in excess of 5 million pounds.
  • Premiums are discounted based on the dairy’s total annual production. For dairies with 10 million pounds or more of production, there is no discount. For dairies with 2 million to 10 million pounds of total annual production, there is a 25% discount on all premiums. For dairies with 2 million pounds of production or less, there is a 50% discount on all premiums.
  • In addition to the $4.00, $4.50, $5.00, $5.50, $6.00, $6.50, $7.00, $7.50, and $8.00 margin coverage levels producers covering less than 5 million pounds of milk can choose $8.50 and $9.00 coverage levels.
  • Producers can select a catastrophic coverage level that covers a $5.00 margin. Producers can cover 40% of historical production. No other choice of coverage level is allowed under the catastrophic coverage option.
  • Producers who select catastrophic coverage will be required to pay an additional $100 administrative fee on top of the original $100 administrative fee carried over from the 2014 Farm Bill. There is no other premium associated with catastrophic coverage.
  • There is no longer a 25% minimum production coverage level. Producers can choose coverage as low as 5% up to 90% of their production in 5% increments.
  • Production history is still based on 2011-2013 production, but adjustments will end in 2019.
  • Other changes made in the Bipartisan Budget Act of 2018 remain the same, such as the monthly calculation of the margin and payments.
  • Producers who paid MPP premiums in excess of the indemnity payments they received in 2015, 2016, and 2017 will receive a refund of the difference between the premiums they paid and the payments they received.

The tables below show the premiums for the three different levels of annual production. In general, premiums for both Tier I and Tier II are higher than the current premiums for 2018. However, these higher premiums are offset to some extent by discounts for what the proposed law calls “small and medium” dairies. The 50% discount for dairies with 2 million pounds of annual production or less pushes the new premiums lower than those in the Bipartisan Budget Act of 2018 this year. The 25% discount offsets the increase in premiums to a degree, but not completely.

The program is now more flexible in that it allows producers to purchase coverage for as little as 5% of their annual production. While this doesn’t offset the higher premiums, it does allow producers to cover a smaller percentage of their production if they wish. For example, a larger dairy could use hedging techniques or the new dairy insurance product created by Farm Bureau to manage most of their risk and still participate in the Dairy Risk Coverage program at a lower level.

I will keep this site updated with new information as votes occur and changes are made.

 

 

 

 

 

 

 

2018 Farm Bill and Seed Cotton Program Timeline Update

By Don Shurley, Yangxuan Liu and Adam N. Rabinowitz

The legislative process leading to the next farm bill has now begun.  The current 2014 farm bill will end with the 2018 crop year.  On April 18, the House Agriculture Committee approved The Agriculture and Nutrition Act of 2018 (HR 2).  This was the first step in the legislative process that will lead to the next/new farm bill beginning with the 2019 crop year.

House consideration of the bill is expected this week (week of May 14, 2018).  The Senate Ag Committee has not yet considered it’s version of the new farm bill.  The Senate Ag Committee is expected to consider its version of a new farm bill in late May or possibly sometime in June.  The goal remains to have the new farm bill completed this year.  Debate in both the House and Senate is expected to be contentious, however, where Democrats are opposed to proposed farm bill revisions in the nutrition title.  There is also, as always, likely to be debate on payment limits and payment eligibility.

A factsheet titled House Ag Committee Farm Bill Proposal and Seed Cotton Program FSA Timeline (Click here to download the factsheet) discusses some of the changes in HR 2 compared to the current 2014 farm bill, discusses the remaining farm bill process, and updates to the timeline for the generic base conversion and new seed cotton program.

 

More information can be found at Georgia Agricultural Policy Webpage.

 

Publication: Surviving the Farm Economy Downturn

by Levi Russell

A new publication entitled “Surviving the Farm Economy Downturn” is now available online free of charge. The publication provides a general farm economy outlook as well as discussions of topics such as risk reduction, cost control, alternative crops, livestock sales during drought, crop insurance, ARC and PLC payment forecasts, stress and suicide, and other issues. Please follow the link below to check out essays on these and other topics:

https://afpc.tamu.edu/extension/resources/downturn-book/

Information on Livestock Emissions Reporting

A recent court case striking down the agricultural exemption for reporting under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) means that many producers will have to start reporting complicated emissions information in May of this year. Currently, a federal Senate bill is being considered that will make the exemption legal, but congress must act swiftly.

In the event that action by congress fails or is delayed, producers should be aware of the rules and how they will impact their operations. Extension agricultural lawyer Paul Goeringer has a pair of short podcast episodes available that explain the rule. Click below to listen!

Part 1

Part 2

Understanding Your Generic Base Conversion Options With the Seed Cotton Program

by Don Shurley and Adam N. Rabinowitz

We have developed a third publication in a series of fact sheets on the new seed cotton program. Included in this document is a little history of what happened with the 2014 farm bill that led to the development of the seed cotton program.  We provide an example of the decision process and identify things to think about when making the decision.

The PDF can be downloaded here.

MYA Prices and Calculating Payments with the Seed Cotton PLC

by Don Shurley and Adam N. Rabinowitz

This post presents a second fact sheet in a series of publications that briefly explain the basic workings of the new seed cotton program.

Effective with the 2018 crop, “seed cotton” is now a covered commodity under Title I of the 2014 farm bill and eligible for PLC (Price Loss Coverage) payments. For purposes of the legislation, “seed cotton” is unginned upland cotton—a combination of both cotton (lint) and cottonseed.

The linked document discusses:

  • Reference price and payments,
  • Marketing year average prices and how to calculate them,
  • What would have been the past 10 years had the seed cotton program been in place,
  • Payment yields, and
  • A payment calculator

Click on this link to access the factsheet.