December 13, 2018

NEW FARM BILL PROVISIONS FINALIZED

The U.S. House and Senate have now passed the new Farm Bill, titled the “Agriculture Improvement Act of 2018”. The Farm Bill will include provisions for the twelve Titles that are included in the legislation. The new Farm Bill will govern USDA programs from 2019 to 2023 and will be very similar to the current legislation, outside of a few tweaks to the commodity and conservation titles. The commodity provisions of the new Farm Bill will be implemented for the 2019 crop production year. As of this writing, the new Farm Bill has passed both Houses of Congress; however, it has not been signed into law by President Trump. All indications are that this will occur before the end of 2018.

Once the new Farm Bill is signed by President Trump, it will likely take a few weeks before USDA initiates implementation of the legislation and releases farm program details to local FSA offices and producers. While none of the farm program details in the new Farm Bill are “official” as of this writing, here are a few insights on some of the provisions that are in the final Farm Bill that was passed by Congress:

• Commodity Programs

• Producers will again get to choose between the price-only “Price Loss Coverage” (PLC) and county yield revenue-based “Ag Risk Coverage” (ARC-CO) program choices for the 2019 and 2020 crop production years. Calculation formulas, etc. for the ARC-CO program will remain similar to the current farm program.

• Beginning with the 2021 crop year, producers will be able to make an annual election between the ARC-CO and PLC program choices. If it had been available, this ability to switch between the two programs would have been quite beneficial under the current Farm Bill, especially to corn and wheat producers in 2017 and 2018. During these two years, farm program payments were much more favorable under the PLC program; however, a large majority of producers were “locked-in” to the ARC-CO program in 2017 and 2018.

• ARC-CO payments will now be based on the county where an FSA farm unit is located, rather than the county that the producer chose as the FSA administrative office (as currently exists). The current method created an unfair advantage in certain instances.
• The reference prices for PLC and ARC-CO programs will be established at the greater of the current reference prices or 85 percent (85%) of the market year average (MYA) price for the most recent five years, excluding the high and low year. The reference price can not exceed 115% of the current reference price. The current reference prices are:
  • Soybeans = $8.40/bu.
  • Wheat = $5.50/bu.
  • Corn = $3.70/bu.
• Crop base acres will remain at current levels for all crops on most farms.
• Producers will have the opportunity to update their farm program payment yields beginning with the 2020 crop year. Yield updates will be based on 90 percent (90%) of the average farm yields on planted acres for eligible crops for the 2013 to 2017 crop years. If the updated yields are lower than current levels, producers can choose to keep their current FSA program yields. The farm program yields are used to calculate PLC payments on individual FSA farm units, so this ability to update yields may be quite important to some farm operators in the coming years.
• The Risk Management Agency (RMA) yields that are used for crop insurance yield calculations will now be used as the primary yield data source for determining ARC-CO payments, rather than the National Ag Statistics Service (NASS) yields that are currently being used. The trend-adjusted RMA yields will also be used to determine the benchmark yields for the ARC-CO program rather than the current 5-year “Olympic average” yields, which should help eliminate the wide swings in benchmark yields from county-to-county following a couple of low production years.
• There will be new RMA trend-adjusted average “plug yields” to serve as farm program yields on farms that do not have a yield history. The “plug yields” will be set at 80 percent of the average yields, rather than the current 70 percent level, which will be beneficial to producers that acquire additional farm units.
• Farm operators that lose farm program payments on unplanted acres over a designated timeframe will now qualify for conservation payments, if they agree to keep those acres in grass.
• Nephews, nieces and cousins will now be treated as eligible family members to receive farm program payments, provided that they meet the FSA “actively engaged” in farming requirements.
• The maximum allowable adjusted gross income (AGI) level to be eligible to receive farm program payments will remain at $900,000, and maximum farm program payment level will remain at $125,000 per qualifying individual or farm entity.

• Commodity Loan Rates

Many producers utilize the CCC commodity loan program through local FSA offices to offset short-term farm operating credit needs, in addition to operating credit through their normal ag lenders. The CCC loans are also usually at a reduced interest rate compared to normal farm operating loans. The CCC loans are taken against unsold grain from eligible commodities that is being stored by the producer for future sale or use. The CCC national loan rates are also used to determine the price at which PLC payments end, and where loan deficiency payments (LDP’s) are initiated. County loan rates are adjusted from the national loan rates, based on local grain prices and geographical price differences.

Following are the CCC national loan rates that are being proposed in the new Farm Bill for the most common crops in the Upper Midwest, beginning with the 2019 crop year:

• • Corn = $2.20 per bushel (currently $1.95/bu.)
  • Soybeans = $6.20 per bushel (currently $5.00/bu.)

• Wheat = $3.38 per bushel (currently $2.94/bu.)              

• (Note — These national CCC loan rates have not been finalized and could be adjusted in the final passage of the new Farm Bill.) 

• Dairy Programs

The new Farm Bill will make some significant improvements to the current Dairy Margin Protection Program (MPP), which will now be named “Dairy Margin Coverage” (DMC). The DMC upgrades will especially for benefit small to medium sized dairy herds (under 250 cows). These improvements are in addition to changes that were made earlier this year in the federal budget bill.

• Crop Insurance

The new Farm Bill will make very few changes to the crop insurance program, so overall crop insurance provisions for 2019 and beyond should remain very similar to the current crop insurance program. However, the USDA Risk Management Agency (RMA) has the ability to make year-to-year adjustments in crop insurance program options, within the parameters of the Farm Bill legislation.

• Conservation
• The maximum level of Conservation Reserve Program (CRP) acres would be increased from the current 24 million acre maximum to a new maximum of 27 million acres by 2023, with two million of the added CRP acres designated for the Grassland Reserve Program.

• The maximum CRP rental rates would be set at 90 percent (90%) of the average FSA “prevailing” rental rates in an area for the Continuous CRP program, which focuses on the most environmentally sensitive land, and at 85 percent (85%) for General CRP sign-ups. Currently, the maximum CRP rental rate is 100 percent (100%) of the FSA “prevailing” rental rate.
• The Conservation Stewardship Program (CSP), which involves implementing conservation practices on operating farms and is quite popular in Minnesota and neighboring States, will not be eliminated in the new Farm Bill (as was proposed in the U.S. House Farm Bill). Some of the funding for the CSP program will be reduced over the next five years (2019-2023) and redirected to other programs.
• The Environmental Quality Incentives Program (EQIP), which provides funding to help offset the cost of implementing farm-level conservation measures, will get increased funding in coming years.Once the new Farm Bill is signed, USDA will begin the task of finalizing all the rules and regulations for the new Farm Bill. Most likely, the new and changed provisions for the commodity title of the new Farm Bill will receive high priority, since farm operators will be finalizing their 2019 crop planting decisions very early in the year. Official information and sign-up details for the 2019-2023 farm programs will come from USDA through local FSA offices, most likely beginning early in 2019. Local FSA offices will also likely be holding informational meetings on the new Farm Bill and the changes in the commodity farm program choices.The choice between the ARC-CO and PLC program for 2019 and 2020, the first two years of the new Farm Bill, will likely vary both geographically and among eligible program crops. There will be a lot of information coming out on the farm program choices and provisions, once the new Farm Bill is signed, including through this Column. Farm operators need to take time to understand the farm program provisions in the new Farm Bill and to analyze the best choices for their farms. These decisions could have important economic implications during this period of very tight profit margins in crop farming.

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior

Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone — (507) 381-7960)

E-mail — kent.thiesse@minnstarbank.com)