ag’s uncertainty

Story Photo

K-State ag economist Art Barnaby (right) visits with one of the more than 330 farmers who attended the Farm Bill information meeting held in Scott City on Tuesday morning.

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K-State ag economist Art Barnaby (right) visits with one of the more than 330 farmers who attended the Farm Bill information meeting held in Scott City on Tuesday morning.

By Rod Haxton, editor

New farm bill leaves

farmers with more

questions than answers

In a profession filled with enough risk, farm bills have offered farmers a safety net they could rely on in the event of natural disasters or low market prices.

Changes to that safety net in the latest farm bill are raising concerns by farmers who are uncertain about the program’s impact and are facing a March deadline in which they must decide in which programs they will participate over the next five years.

That uncertainty has been evident during a series of heavily attended farm bill meetings which have been coordinated by Kansas State University Extension officials and area representatives with the Farm Services Administration (FSA). Tuesday’s meeting in Scott City drew more than 330 attendees while attendance at the previous day’s meeting in Goodland attracted more than 500.

“This is the first time that a farm program has required farmers to do so much guesswork about the future,” said K-State agricultural economist Mykel Taylor.

“Previous programs had a lot more definition to them and payments were a little more certain. This bill is dependent on what happens with prices and yield, and what program you sign up for. There are all kinds of variables driving this.”

 

Taylor, KSU ag economist Art Barnaby and Scott County FSA Director Lora Wycoff out lined provisions in the new farm bill and answered questions during a three hour presentation.

According to Barnaby, the two programs drawing the most interest are Price Loss Coverage (PLC) and Agricultural Risk Coverage at the County Level (ARC-CO).

PLC is the simplest one and the default option should a farmer/landlord not elect to participate in a program.

PLC is based on a national average price of $3.70 for corn and $5.50 for wheat. Barnaby emphasizes this is the national average and not what farmers may be getting at their local elevator. If the average falls below those numbers then farmers are paid the difference.

That makes it very similar to deficiency payments in previous farm bills.

ARC-CO, on the other hand, is essentially a revenue guarantee, says the ag analyst. That guarantee is currently based on a corn price of $5.29 - well above the current market - and the Olympic average county yield. In about a month, Barnaby says those yields will be available from NASS and it will be possible to calculate what payments will be under ARC-CO.

“We’re talking about two very different programs,” Barnaby says. “My guess is that farmers will be split about 50/50 between the two.”

Barnaby believes that PLC will probably pay more on wheat if a producer thinks the national average price will be below $5 a bushel. If they believe corn prices will be below $3 a bushel, it will likely be beneficial to be in the PLC.

On the other hand, if a producer believes corn will average $3.50 to $4 over the next five years, then ARC-CO will probably offer the best return.

Barnaby acknowledges that the March 31 sign-up deadline, combined with some data not being available until October, “will require additional guesswork by farmers.”

“That’s just the first price that comes out on October 1. There will be a new price each year to reflect what’s happening in each new marketing year,” explains Barnaby. “A bigger mystery is what the price will be on October 1, 2019.”

 

Five-Year Commitment

The five-year commitment is another issue which is troubling to many producers.

“A lot of people are investing the time and energy to attend these meetings, to do research on-line and to visit with FSA in order to make the best choice possible,” says Taylor. “It’s because this is not a one year decision but a five year decision.”

If Congress should decide to extend the 2014 farm bill because they can’t come to a decision on the next farm bill, the commitment could be longer than five years, warns Barnaby.

“In the past, they did allow you to change programs, but there’s no guarantee that will be allowed in the future,” he says.

Because of the guesswork involved with projecting future market prices, and the variance with yields from farm to farm, a program that appears best for one producer may not necessarily be the best option for his neighbor.

“Each farmer is making a decision that’s based on their particular situation - their yields, their planting acreage and their program going forward,” Taylor notes. “Unless their operation is identical to yours, the decision that’s best for them may not be the decision that’s best for you.”

Decisions are also based on what one sees for the future.

“Farmers are also making decisions based on their own price and yield expectations going forward. No two people are going to agree on what the price of corn or wheat will be in 2018,” she says.

This is the first time, says Taylor, that a farm bill has required farmers to do so much guesswork.

“Previous programs had a lot more definition to them and payments were a little more certain. There are all kinds of variables driving this,” she says.

And while some safety net features remain, there’s no guarantee when safety net provisions will kick in and how often over the next five years.

“You can’t plan for it. You can’t say with certainty that you will get certain payments that you can build into your cash flow statements. And you can’t build this into what lenders want to see when it comes to paying back loans,” Taylor says.

That could become an even bigger issue for some producers.

 

A good farm bill?

So does that make this a good farm bill or a bad one?

Barnaby said he doesn’t have an opinion one way or the other.

“It varies so much by farm whether or not it’s beneficial,” he says.

Producers ended up with a farm bill that was driven by so many different voices that one clear voice didn’t emerge to provide some direction, Taylor says.

Part of the driving force behind the current farm bill was to reduce program payments. One area in which that was achieved is by reducing the stop-loss provision from 25 percent in the old acreage program to 10 percent in the new farm bill.

“But we also have to be honest enough to say there were enough competing interests in this legislative process, and there was enough inability to build consensus that what we have now is a little bit of everything because of the inability to agree on one thing,” notes Taylor.

“I believe the burden falls upon farmers because they didn’t narrow it down during the legislative process. Congress was hearing so many competing interests that they turned it back on the farmers themselves and said ‘You decide what you want for protection and you decide what program you want to be in.’ In the past, there’s never been this many choices.”

Whether or not that works to the benefit of farmers will be determined over the next five years.

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