STUTTGART — Farmers face far-reaching choices in the next few months in a process so complex that computers are needed to make a choice, but the software needed to do that is not yet available.
Archie Flanders, University of Arkansas, Northeast Research and Extension Center at Keiser presented, during the 2014 Arkansas Rice Expo, what is currently understood about the decision process looming for farmers. "Keep in mind that you’ll be making a decision in 2014 that is going to affect your farming operation for the next five years," he said.
"In a nutshell," the 2014 Farm Bill retains the current marketing loan rates. The primary change essentially retains market prices but under different names – Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC), Flanders said.
PLC is a fixed-target price, while ARC is a moving-target type price, "it changes as averages and prices … change through time."
The Farm Bill also increases the availability of subsidized crop insurance, but replaces direct payments, Flanders said.
Cotton has other considerations and is not a covered commodity under either PLC or ARC, but is covered under the Stacked Income Protection Plan (STAX), Flanders said.
Choosing between PLC and ARC can be on a crop-by-crop basis, or use PLC for one, such as rice, and ARC for another, such as soybeans; and it can be changed between farms.
The complexity comes in with reallocation of base acreage and in choosing which plan, PLC or ARC, will be used, Flanders said.
This is a one-time reallocation based on the planting mix between 2009 and 2012, but base acres cannot be added. The mix can be re-arranged, but the total cannot exceed the 2009-12 total, Flanders said.
If PLC is being considered, yields can be updated for the highest possible payment yield. However, reallocation and updated payment yield are separate decisions, "You can do one and not the other … you need to decide which would be the best revenue protection for your farm," he said.
Whichever decision, it will be based on expectations of commodity prices, Flanders said.
In making the enrollment decision, the key point of PLC is the reference price, in ARC it is the revenue guarantee, Flanders said.
PLC reference prices established in the Farm Bill are: corn $3.70/bu.; rice (delta) $6.30/bu.; soybeans $8.40/bu.; wheat $5.50/bu.; sorghum $3.95/bu.; peanuts $535/ton.
If the national average market price falls below these levels, it would trigger a PLC payment, Flanders said. Payments are 85 percent of the base acres for the crop.
The keys for PLC are the payment rate, payment yield, and payment acres with results from those multiplied by base acreage to determine the payment amount, Flanders said. "This is just simple arithmetic."
The key for ARC coverage is the benchmark revenue used to arrive at a revenue guarantee, Flanders said. Determining the benchmark revenue is a calculation based upon olympic average yield, (either county or farm) for the commodity and the olympic average national price.
Payments are 85 percent of base acreage for county ARC, and 65 percent of total base acres for farm ARC.
If ARC (farm) is chosen, every crop on the farm is in ARC. Crops under ARC (county) can be mixed with PLC, "ARC-farm puts every crop in ARC," Flanders said.
ARC-county also allows for irrigated and non-irrigated benchmark revenues, he added.
"The benchmark for ARC will always be changing. Every year for the county where you are farming there will be another benchmark revenue," Flanders said. There will be an ARC payment when the actual crop revenue falls below the ARC guarantee.
PLC enrollment is automatic if no enrollment decision is made by the farmer.
Payments are issued in October of the following crop year, Flanders said. The effect of the delay on loan payments is going to be up to discussion with lenders, he said.
"The enrollment decision made for the 2014 crop year is irrevocable for the duration of the Farm Bill. So you are going to make a decision in 2014 … and it will be what your farm has for the next five years."