by Leave a Comment

No doubt about it!

Yes Curt, There Is a Santa Claus!

There is no doubt about it, Santa delivers!  We have a new Farm Bill!

The economic outlook facing farm country is undeniably bleak, considering net farm income is expected to drop another 10-15% in 2018 and possibly further in 2019.  With this uncertainty looming over agriculture, I was pleased to see that the 2018 Farm Bill has passed with the largest bipartisan support of any measure in recent history.  Only 37 congressional members declined to support the final version that will be sent to the president’s desk for a signature.  I was surprised that both houses and parties could agree to anything, let alone at this level of support.  So what is the final outcome for farmers?

First and foremost, crop insurance came through the process with unparalleled support.  Most members of Congress could see the overall benefit of this stabilizing force in the farm sector.  Knowing that there is a safety net in place will make planning for 2019 much easier for ag producers.  With lower commodity prices and lingering effects from the tariff tussle, many farmers are dealing with tight margins and the reality that, if less than ideal weather conditions occur, it will be a struggle to break even.  Break-even doesn’t sound like too severe a situation until we compare this same scenario to another business type.  If I owned a store, and I borrowed money to purchase items to sell, sold them for the same amount of dollars as I spent initially, and then had to pay for operating costs (labor, lights, heat, etc.).  I couldn’t operate my store for very long.  Break-even is the outlook in farm country right now.

Two safety net options that were introduced in the 2014 Farm Bill were PLC and ARC.  Farmers were given the opportunity to choose between Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC).  These two programs will be reopened to farmers in early 2019.  The 2014 Farm Bill made our previous selections permanent through the life of that bill.  The 2018 version will now allow farmers to again select, by farm and county, whichever program looks to be the most beneficial to their operation, and then reconsider again in 2021 and yearly after that.  ARC uses Olympic average of a commodity price as a baseline for a county revenue guarantee and individual production is not considered in the calculation.  PLC uses a reference price established in the current law and the ability to update individual yields by farm and county.  Given the better yields we have experienced in recent years, the PLC option looks very attractive for the upcoming years.

Conservation is still a major focus of farm bill policy.  The CRP (Conservation Reserve Program) acre cap is back up to 27 million acres and the CSP (Conservation Stewardship Program) is expanded and is enhanced with increased flexibility.

With the passage of the 2018 Farm Bill my Christmas wishes have come true.  I can sleep with visions of a solid safety net dancing in my head.  The gloom of the Break-even scenario is lifting.  Thanks, Santa!  Happy New Year!

Image Credit: Angelo Amboldi

by Leave a Comment

All I Want For Christmas Is a New Farm Bill

Dear Congress, 
What I would like for Christmas is a New Farm Bill! 
Sincerely,
Curt

 

One of my favorite things about living in South Dakota is the changing of seasons. While we can be burning up, working in the sun on a 95o summer day, we take comfort in knowing that in 6 months, we will be wearing 3 layers of clothing doing our best to stay warm in -10o while doing the exact same tasks.  The yearly seasonal weather extremes that are encountered in the Midwest reinforce the need for a strong crop insurance program to be included in the next Farm Bill.

The time for action is now as the Agricultural Act of 2014 – known widely as the Farm Bill – has expired and farmers are making their projections for the 2019 crop year. Funding for Multi-Peril Crop Insurance subsidies is included in the Farm Bill and widely used by farmers in South Dakota to help protect some of the risk that is inherent when raising crops in the upper Midwest. A farmer that operates 1000 acres and has a corn/soybeans crop rotation may invest between $300-500 per acre over the course of a growing season depending on crop type and yield goal. He/she invests the same dollar amount as the market price of a nice $300,000-$500,000 house. Farmers put that amount at risk every single year they farm.

Opponents of crop insurance generally voice the concern that subsidies for the farmer’s premium is too generous. The big fact often missed in many discussions about crop insurance funding is the level of loss incurred by the farm operation before any loss indemnity is paid to the grower. The typical deductible that SD farmers choose on their crop insurance policies is 25% or a 75% coverage level which keeps the cost of their crop insurance in the realm of affordable. This means the farmer must incur a loss of between $75,000-$125,000 before any payment is made on their policy. The same catastrophic weather events in this area that cause home damage consequently cause crop damage. If, in comparison, I had a $400,000 home, a common deductible on my homeowner’s insurance policy would be only $1000-$5000.

Since the adoption of crop insurance by a majority of farmers in the US, we no longer have ad hoc disaster relief bills coming thru Congress. Disaster relief comes after the fact and seems to always be offered to everyone, even though they have not contributed toward the funding.  With crop insurance, farmers choose their deductible, pay their premium, and are then paid in the event of a loss only up to your coverage level. Farmers pay a fair share of the premium and, many years, never have a loss (which is always the goal of policyholders.)  No farmer ever wants to incur a loss on their policy. They also understand that if there are fewer loss claims, there is a lower loss ratio, and, therefore, lower premiums – a win for everyone involved!

Our great country’s ability to have a sustainable and stable crop insurance program helps to ensure that farmers are willing AND able to continue providing the cheapest (based on % of annual income) and safest food supply in the world.  We hope that if the lame duck Congress doesn’t pass a Farm Bill, the new mix in Washington D.C. can come to common ground and quickly pass this important legislation in the New Year.

Featured Image Credit: J. David Ake