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Frequent information updates for agricultural audiences

Frequently Asked Questions about the 2014 Farm Bill - from Kansas St. University

Posted by John Fulton -

Frequently Asked Questions:

Title I Programs of the 2014 Farm Bill

August 2014

Robin Reid G.A. "Art" Barnaby Mykel Taylor Extension
Associate Extension Specialist Assistant Professor Kansas State
University Kansas State University Kansas State Universit 785-532-0964
785-532-1515 785-532-3033

Frequently Asked Questions on Title I Programs of the 2014 Farm Bill

1. What new programs are available with the 2014 Farm Bill?
Farmers have the option of two programs; Agricultural Risk Coverage (ARC) and Price Loss Coverage
(PLC). If not enrolled in ARC, they also have the opportunity to purchase a Supplemental Coverage
Option (SCO) as additional coverage to Risk Protection (RP), Risk Protection-Harvest Price Excluded
(RP-HPE), and Yield Protection (YP), all reinsured by the Risk Management Agency (RMA).

2. What programs are no longer available with the 2014 Farm Bill?
Direct Payments, Countercyclical Payments, and the Average Crop Revenue Election (ACRE) were

3. How is the PLC guarantee set?
The PLC guarantee is written in the statutes of the 2014 Farm Bill. This "strike" or "reference"
price for common Kansas commodities is $5.50 for wheat, $3.95 for sorghum, $3.70 for corn, and
$8.40 for soybeans.

4. When is a PLC payment received?
Payment is made if the Marketing Year Average (MYA) price falls below the reference price. The
payment is calculated by taking the difference in the MYA price and the reference price, multiplied
by the program yield, multiplied by 85% of base acreage. PLC payments are dependent on national
commodity price and not related to yield. Planted acres that have no base are not eligible for PLC
or ARC payments.

5. How is the ARC guarantee set?
The ARC guarantee is set by multiplying the 5-year moving Olympic average MYA price by the 5-year
moving Olympic average County Yield and then by 86% (to factor in the 14% deductible). The farmer
also has the option of selecting a farm level guarantee instead of the county level, in which case
the average County Yield would be replaced by the "expected" Farm Yield.

6. When is an ARC payment received?
If a farmer selects the county level option, the farmer will receive payment if the actual county
revenue is less than the guarantee. Actual county revenue is determined by the current year's MYA
price multiplied by the current year's county yield, times 85% of the base acres. If the farm
level is selected, a payment will be received if farm revenue is below the guarantee. The payment
will be in the amount of the difference between the guarantee and the actual revenue, times 65% of
the base acres. Both ARC-county and ARC-individual are subject to a 10% stop loss that will cap
the payment. ARC payments are dependent on price and yield (revenue).

7. What does 10% stop loss on ARC payments mean?
The maximum payment per acre that a producer can receive from ARC is 10% of the ARC approved gross
revenue that is determined before the 14% deductible is applied. For example, if the county's ARC
guarantee is $190, then the gross revenue is $223.53 (86% X $223.53 = $190) and the maximum payment
is $22.35 (10% X $223.53) per acre.

8. What is the difference between ARC at the county level versus the farm level?
If a farmer enrolls in ARC at the county level, they will receive payment on 85% of their base
determined by the difference in county level revenue and the guarantee. They will also have the
freedom to enroll some acreage in ARC and some in PLC.
If a farmer chooses ARC at the farm level, they will only receive payment on 65% of the base
acreage determined by the difference between farm revenue and the guarantee. To choose this option,
all crops by farm serial number must be enrolled. If a farmer has multiple farms with multiple
serial numbers, all production from all farm serial numbers, by county, enrolled in farm level ARC
will count against the guarantee. Benchmark revenue will be established on the farm and the
guarantee will be set at 86% times the benchmark revenue.

9. What is the Supplemental Coverage Option (SCO) ?
Signing up for PLC and purchasing crop insurance gives you the option to sign up for SCO (SCO is
not available if the farmer chooses ARC). SCO will help to cover some of the deductible in the crop
insurance policy. SCO covers all planted acres, not just base acreage. There is not payment limit
and it is not subject to budget sequestration. It can be purchased by talking to your crop
insurance agent. Farmers must be in conservation compliance to be eligible for this program.

10. How is the Marketing Year Average (MYA) Calculated?
Marketing years correspond to when the crop was harvested until the next harvest. For corn,
sorghum, and soybeans, the Marketing Year starts on September 1 and ends on August 31 of the next
year. For wheat, the Marketing Year starts on June 1 and ends on May 31 of the next year. Wheat is
most heavily marketed in the first three months after harvest and then varies in amount thereafter;
consequently the Marketing Year Average is weighted by the percentage of the crop that is marketed
each month. Corn, soybeans, and corn carry the largest weights in the 5 months of the marketing
year. The National Average price each month is multiplied by the percentage of the crop marketed
that month and then these weighted prices are added up to become the Marketing Year Average.

11. What is an Olympic Average?
The five most recent years of MYA prices are used to set the guarantee in ARC using an Olympic
Average. Out of the 5 years, the highest and lowest MYA's are dropped and the remaining 3 years are
averaged together. If the MYA price falls below the reference price (set by statue in the Farm
Bill), that low price year is replaced with the reference price when calculating the Olympic
average. A county's benchmark yield is also determined by a 5-year Olympic average of county yield,
which is used for the ARC program.

12. Once a farmer signs up for a program can they change their d ecision?
When choosing between ARC and PLC, no. The farmer will be locked in for 5 years (until the next
farm bill). The option to purchase SCO, along with PLC, is an annual decision, so changes can be
made numerous times until the next Farm Bill.

13. When will sign-up start and when will it go into effect?
Sign-up will start whenever Farm Service Agency offices are ready, most likely this fall or winter.
PLC and ARC are already in effect for 2014 crops, but SCO will not be available until 2015 and then
only on selected crops and in selected counties.

14. If a farmer does not sign up for a program, what will happen?
PLC is the default option if a farmer/landlord does not sign up. They also will give up any 2014

15. What is the maximum payment amount a farmer can receive with a program?
Both ARC and PLC have a $125,000 limit per individual actively involved in farming per year
(including any marketing loan gains or loan deficiency payments(LDP), but farmers may forfeit the
grain under loan). Spouses may collect an additional $125,000. Crop insurance payments and SCO are
not subject to payment limits. Any individual with a 3-year average Adjusted Gross Income (AGI)
over $900,000 (farm and non-farm combined) is ineligible to receive farm program payments, but are
eligible to purchase federally backed crop insurance if the meet conservation requirements.

16. Which farm program(s) and features should be chosen?
Basically what it comes down to is how much each program will pay over the 5-year span and which
program provides the most protection. While there is no way to predict the markets exactly over the
course of the program, there are tools to help producers choose what is best for their operation.
Current publications and a spreadsheet tool are or will be available on that can
help answer this question. Check often or signup for the free email from KSU that will notify when
new information is posted on AgManager.

17. Does the landlord or tenant decide the program?
The landlord and tenant must agree on a program at sign-up. If tenants change in the course of the
5 years, the land will remain in the original program that was selected at sign up.

18. Can base acres and payment yields be updated?
Yes. Farmers are offered a one-time opportunity to reallocate a farm's base acres based on 2009-
2012 plantings, however farmers cannot build base. They also can update the farm's payment yields
by using a 2008-2012 average yield with a 75% yield plug based on county yields. Ninety- percent
of this adjusted average will become the updated payment yield. Some farmers may benefit from the
payment yield update and others may not, so it is important to run the numbers before the decision
is made. Even if a farmer chooses not to enroll in the PLC program, they may want to update their
payment yields. Watch for FSA the announcement on when farmers may submit the paper work for these
features. The date may be different from the sign up for the commodity programs.

19. Should crop insurance still be purchased even though a farmer is signed up for ARC or PLC?
ARC and PLC are not replacements for crop insurance. ARC "insures" only about 7% of revenue,
since it only pays on 85% of the base acres, has an 86% deductible, and has a 10% stop-loss. Also,
there is no actual harvest price on ARC, so higher MYA prices may offset lower yields and eliminate
any payment. PLC only protects against price loss and offers no protection against yield loss.

20. What changes were made to crop insurance ?
Talk to your crop insurance agent for specifics, but some of the major changes with the new farm
bill include:

- The condition that farmers meet conservation compliance requirements in order to have RMA pay
a share of the premium cost (subsidy).
- The government will pay an additional 10 percentage points of the premium for
beginning farmers (less than 5 years of experience). Young farmers should check this provision with
their crop insurance agents to see if they qualify.
- The following provisions are in the Farm Bill, but have not yet been implemented by
o Enterprise units may be separated by dryland versus irrigated acreage of the same crop and
different coverage levels selected.
o If a county suffers at 50% yield loss, the farmers in that county and contiguous counties are
allowed to exclude that year's low yield from their APH history. If the county trigger is met more
than once in the past 10 years, farmers may also exclude those years from their APH history. This
is to help maintain APH during multiple years of catastrophic losses.

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