Farm Bill 2018

Farm Bill 2018

I am a little late on getting a summary post of the 2018 Farm Bill changes out, but nonetheless I wanted to make sure I got it done. In a lot of ways this post will aim to provide clarity for farmers and others in agriculture, so if I do not break down a program well enough for anyone who is not familiar with them please leave a comment or send feedback with any questions or issues you want clarified. I will also say an upfront “thank you” to the National Association of Wheat Growers staff for putting together many of the highlights included here.

In a lot of ways the 2018 Farm Bill is similar to the 2014 Farm Bill. It did not make the fundamental changes to the commodity programs that we saw in the 2014 Farm Bill. The full text of the bill can be found here. The 2018 Farm Bill does have quite a few important updates that impact farmers across the country including updates to the commodities programs, trade title, conservation, crop insurance and some other miscellaneous programs.

** Disclaimer — all of these programs will have to go through a rule making process which may alter the end result of the programs slightly.

Title 1 – Commodities 

The Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) from the 2014 Farm Bill were both reauthorized. Both ARC Individual (ARC-IC) and ARC County (ARC-CO) were reauthorized. It was somewhat of a surprise to see ARC-IC included in the final bill given the low participation rate from 2014-2018, however for Montana producers it was a welcome sight.

Farmers will now have the option to re-elect programs several times during the length of the 2018 Farm Bill. Farmers will be able to re-elect their program for the 2019 crop year and then beginning in 2021 will have the option to do so annually.

One of the more contentious issues during the conference committee between the House and the Senate was a proposed change to base acres from the House Bill. The final language maintained the current base acre structure as well as the current payment structure (85% of base acres for PLC and ARC-CO and 65% of base acres for ARC-IC). There was a small change made to base acres though that will impact some producers. For the 2018 Farm Bill you are required that a farm that has only been planted to pasture or grass from 2009-2017 will not be eligible for farm payments. The farm will maintain their yields and base acres, but they will be ineligible for ARC/PLC payments for the duration of the 2018 Farm Bill. This was done to allow flexibility for consideration in the 2023 Farm Bill. Producers impacted by this change will be eligible to enroll in the Grassland Conservation Initiative through the Conservation Stewardship Program (CSP) if they are willing to address an existing resource concern. These payments will be capped at $18 per acre per year.

ARC Changes

One of the top complaints about the ARC program for the past 4 years was way the data collection cascade functioned. The yield data necessary for the program was collected from National Agriculture Statistics Service (NASS) first, then the Risk Management Agency (RMA) was used if NASS data was unavailable, followed by the use of the state Farm Service Agency (FSA) committees. In the 2018 Farm Bill the cascade will now prioritize RMA data, followed by NASS, and then the county committees if necessary. Given the priority placed on this issue by farmers and commodity groups it was no surprise to see it included in the final text. RMA data.

The change in the data cascade is not expected to change the overall budget needs for the program, meaning it is not expected to increase total payments. It will, however, make the payments based on actual production reports that are required by law to be accurate as opposed to surveys. The data cascade will still require the same number of reports (for either RMA or NASS) as it did in the 2014 Farm Bill. For details on how those yields are calculated please see the Background Info for Use of Detailed Yield File or the ARC/PLC program page, linked here.

The Montana Grain Growers Association and the National Association of Wheat Growers also pushed for, and got, an important change to the ARC-CO program. We now have the ability to break some large counties into smaller sub-counties (limit of 2 sub-counties per county). This was an issue that is particularly important to Montana producers. We are known for large counties that are geographically and climatically diverse. The sub-county allowance is fairly limited and counties are only eligible if they have over 190,000 base acres and are larger than 1,400 square miles. The program is currently limited to up to 25 counties nationwide.

Other minor ARC changes also include the following:

  • An increase in the yield plug from 70% to 80%.
  • The USDA must calculate and utilize a trend-adjusted yield (similar to the trend adjusted yield used in the crop insurance program).
  • The program will utilize an “effective reference price”. These prices have certain requirements, similar to the changes to the PLC program (I will detail those changes in the next paragraph).
  • Requires separate irrigated and non-irrigated in each county.
  • USDA is required to publish the payment rate within 30 days of the end of the marketing year.
  • USDA is required to publish the data source.
Testing out the wheat to see if it is ready to harvest.

PLC Changes

The changes to the PLC program were fairly limited. One of the biggest changes was the addition of an “effective reference price.” To utilize the new effective reference price, an Olympic average of the past 5 years of marketing year average prices times 85% must exceed the statutory reference price. This effective reference price can increase to 115% of the statutory reference price. The reference price can never drop below the current statutory reference price (I will show the current 5 year Olympic average prices in my examples but the payment rates cannot drop to those levels).

Since that was difficult to explain, I will provide a few examples:

Current Statutory Wheat Reference Price$5.50
Current Olympic Average Price x 85%$4.01
Minimum Olympic Average to trigger Reference Price Increase$6.47
Maximum Wheat Reference Price (115% of $5.50)$6.33
Current Statutory Corn Reference Price$3.60
Current Olympic Average Price x 85%$2.85
Minimum Olympic Average to trigger Reference Price Increase $4.24
Maximum Corn Reference Price (115% of $3.60)$4.14

The 2018 Farm Bill will also allow producers to update their yields for the PLC program. This largely stems for the long term drought that plagued the Southern Plains from roughly 2009-2014. The long term drought made it difficult for them to update their yields under the 2014 Farm Bill as a result of multiple failed crop years in a row. Under the 2018 Farm Bill farmers will be able to update their yields in the 2020 crop year. Once again, the update is relatively complex. Farmers will get to use 90% of their average farm yields from 2013-2017 crop years (a plug yield of 75% of that average can be used if any year is below that number). That number will then be multiplied by a ratio created by dividing the 2008-2012 national average yield by the 2013-2017 national average yield (limited to 90-100%). Thank you to the National Association of Wheat Growers for creating the following example (it saves me quite a bit of research to use it).

Current PLC program yield (wheat)50 bushels
Average 2013-2017 wheat yield60 bushels
90% of the 2013-2017 wheat yield54 bushels
National Average Ratio
2008-2012 Average: 42 bushels
2013-2017 Average (Est): 43 bushels
0.9767
90% of 2013-2017 wheat yield x 0.976752.7 bushels
New PLC program yield (wheat) 52.7 bushels

Marketing Assistance Loans

The Marketing Assistance Loans (MAL) and Loan Deficiency Payment (LDP) programs were maintained and some commodities will see an increase in the loan rates. Wheat rates will increase from $2.94 per bushel to $3.38.

Payment Limitations and Actively Engaged Requirement

Payment limitations were maintained, with a current hard cap of $125,000 per person or entity for ARC/PLC. The MAL and LDP payments were removed from the calculation for payment limitations.

The actively engaged rules were also maintained, producers are still required to contribute land, capital, and labor to the farming operation. Family farms are exempt from some of these requirements (subject to the rule making process) and there was an expansion of the family member definition to include first cousins, nieces and nephews.

Non-Insured Crop Assistance

The Non-Insurance Crop Assistance Program (NAP) was largely maintained. The fees for the program increase slightly from $250 per county per crop with a cap of $750 to $325 per county per crop with a cap of $825. Total producer costs across multiple counties will be changed from $1875 to $1950. The 2019 Provisions for NAP insurance have been published already utilizing the 2014 Farm Bill rates so these rates will likely not be in effect until 2020.

Title 2: Conservation

When the Farm Bill went to the conference committee the conservation title contained some stark differences between the House and Senate versions of the bill. The end product, however, did not contain the significant and fundamental changes to the programs that had first been in the House version.

Conservation Reserve Program

The Conservation Reserve Program (CRP) was expanded to include 27 million acres (the expansion occurs in increments over the life of the Farm Bill). The current acreage cap is 24 million acres. The entire 2018 Farm Bill is budget neutral, meaning its budget is the same size as the 2014 Farm Bill, which means the CRP expansion had to be funded by reducing the per acre payment rates. The rental rates are capped at 85% of county rental rates for general sign-up and 90% of rental rates for continuous sign-up. The county rental rates are not the previous CRP rental rates, they are based off county cash rental rates. The best reference for that prior to the rule making process is the Economic Research Service cash rental rates. I will link the data from 2017 here, the link includes every county and state but it can easily be manipulated to include less data.

Several pilot programs were also created within the CRP program. One allows for 30 year contracts (CLEAR30) while the other focuses on taking low production farmland in some of the Prairie Pothole states out of production to improve soil health, conserve water, or meet some other resource concern. I will not go into any further detail, as pilot programs are fairly limited and the rule making process will determine a lot of the details, including eligibility and scope.

The CRP program also saw several updates to the haying and grazing programs (both emergency and maintenance). The changes to the emergency grazing hopefully allow for areas to get approval for emergency haying and grazing within the primary nesting season faster and easier. The maintenance program had the time frame altered slightly to a 3 year rotation, that should allow producers to do maintenance haying or grazing more often. Each provisions has detailed requirements but look for changes coming, hopefully as soon as Summer 2018.

Conservation Stewardship Program

The status of the popular (yet polarizing) Conservation Stewardship Program (CSP) has been uncertain due substantial changes the House made to the program in their original version of the 2018 Farm Bill. The program was eliminated and combined with the Environmental Quality Incentives Program (EQIP) in the House version. The conference report merged the two programs into one funding line for CBO budget and scoring but the two programs will operate separately.

The change in funding is an important one because it fundamentally changes how CSP the funding caps function. Prior to the 2018 Farm Bill re-enrollments were limited to two (2) contracts. Producers were allowed their initial five (5) year contract as well as one re-enrollment for another five (5) year contract. The re-enrollments were all but guaranteed as long as you added new resource conservation practices above and beyond your existing practices. Under the 2018 Farm Bill the funding switches to a dollar figure instead of an acreage cap. Prior to this bill CSP had an acreage cap which then determined the budget. It was statutorily allowed 10 million acres a year. CSP is not a mandatory funded program, which allowed the acreage cap to be reduced through the appropriations process.

The move to a funding cap as opposed to an acreage cap means that every re-enrollment will now have to compete with new signups for both ranking and funding. Previously they were separated because they knew the number of acres enrolled as well as the number they expected to re-enroll. It is also important to note that any existing CSP contracts that expire before December 31, 2019 will be allowed a one year extension before they are required to compete with all new signups under the new funding structure.

Contract values for CSP are still capped at $40,000 per year. Also included under the CSP structure is the new Grassland Conservation Initiative for anyone impacted by the base acre changes (discussed above under Commodities). The $18 per acre payments under that program should be separate from the $40,000 per year cap. That was the intent of the committee and I believe was included in the Manager’s Statement.

Environmental Quality Incentives Program

EQIP was largely maintained however the funding for the program was increased slightly. The program maintained its requirements for allocation of funding toward livestock and grazing (50% instead of 60%) and wildlife habitat (10%). The 2018 Farm Bill also added some incentive payments for addressing specific resource concerns. These priority resource concerns will be determined by the states. EQIP also will have several “sub-programs” that include On-Farm Innovation Trials and Soil Health Trials. The On-Farm Innovation Trials program is designed to test cutting edge technology and practices on farm. The Soil Health Trial allows producers to conduct soil health practices as well as establish programs to measure and test carbon levels, establish advanced soil health practices, and to evaluate the financial impact of these practices.

Wheat growing in a no-till production system.

Title 3: Trade

The Trade title in the Farm Bill is fairly limited, however this will be the wonkiest portion of this review. Two critical programs within the trade title are the Market Access Program (MAP) and Foreign Market Development Program (FMD). These two programs are essentially cost-share programs that allow us to develop and maintain our export markets. Organizations such as U.S. Wheat, U.S. Grains Council, and many others depend on the funding in these programs to help maintain their overseas operations. FMD has previously been funded at $34.5 million per year under the last Farm Bill.

All things related to the federal government spending are “scored” by the Congressional Budget Office (CBO). The CBO establishes “baseline” for a programs funding based on it’s past costs. This is how the overall “baseline” was established for the 2018 Farm Bill. Within that though, each program maintains its own baseline funding. Because of a weird quirk within the CBO, any program that spends less than $50 million annually does not generate baseline. The CBO considers it a $0 program (essentially a rounding error). FMD (as well as several other “orphan” programs within the Farm Bill) has not been generating baseline as a result of it’s $34.5 million annual budget.

When a Farm Bill expires and is extended any program without baseline remains unfunded. A lack of baseline funding also creates budgetary headaches for the House and Senate Agriculture committees to create a budget neutral bill. The CBO gives them their baseline for the previous bill but it is missing the $34.5 million spend annually on FMD as well as the other orphan programs. To maintain a budget neutral bill, the committees have to find the savings somewhere. Cutting these programs is a real risk.

In an effort to save the FMD program as well as a flat out need for increased funds, commodity groups asked for double the funding for both MAP and FMD. The request to double the funding came as a result of stagnating funds allocated to the programs as well as an increase in demand for the money. Information on that request can be found here from U.S. Wheat.

Unfortunately we were not successful in doubling the funding for MAP and FMD but we were successful in getting the programs altered to eliminate the baseline funding issue. MAP and FMD were combined with two other programs to create the Priority Trade Promotion, Development & Assistance program. This program is required to spend $200 million per year on the MAP program and $34.5 million for FMD (identical to 2014 funding levels). The Technical Assistance for Emerging Crops (TAEC) and Emerging Markets Program (EMP) are also included under this umbrella. There was also a Priority Trade Fund with $3.5 million in annual appropriations to be designated by the Secretary of Agriculture.

MAP and FMD provide substantial returns on the tax-payer investment.

Rural Mental Health and Healthcare

I am going to break from running through the various titles in the Farm Bill for this section as it crosses two different Titles (Rural Development and Research). Suicides in agriculture have been an important topic recently. I have previously written about mental health in agriculture and growing farmer suicides, linked here. The original CDC report that indicated farmers have the highest suicide rate in the nation has since been amended – there was an error in their calculation (my post needs updated to reflect that) – however that does not mean mental health is not a significant issue in agriculture.

The Farm Bill reflects that as there are three programs in the Rural Development title related to funding telemedicine, allowing rural healthcare facilities to refinance debt under certain conditions, and a focus on substance abuse care. The opioid crisis also has a firm grip on rural America.

The Farm and Ranch Stress Assistance Network was created under Title 7: Research, Extension & Miscellaneous. This program will allow for partnerships and grants for state and local agencies to address mental health issues (including suicides) in rural America. The programs are not just for farmers – anyone involved in agriculture can fall under the jurisdiction of this program. The program also has mandatory requirements for reporting to Congress on their findings, successes, failures, and hopefully will create further guidance for the future of the program.

The picture I took after I sought help for postpartum depression.

Title 11: Crop Insurance

There were not any substantial changes to the crop insurance title. There were however some minor improvements for producers. Specifically there is now language to allow for research and study of quality loss adjustments. Quality loss and how they are reflected in crop insurance has been a critical issue for the wheat industry for the past few years. Allowing study and development of new methods for quality adjustments is an important step. Developing new crop insurance tools is often a slow process. Crop insurance programs are required to be actuarially sound and to do so requires a fairly slow and deliberate development process.

Cover crops and crop insurance have been at odds for the past few years, as the utilization of them has negatively impacted the crop insurance coverage the following crop year. The 2018 Farm Bill has amended language in the Crop Insurance Title that considers cover crops a good farming practice as long as they are terminated by a certain date (those dates are different for different areas). If summer fallow is an insurable practice then you will be able to still claim a summer fallow practice if the cover crop is terminated by a certain date. This has been an important issue in states like Oregon, Washington, and Montana where summer fallow is still common. For producers like us, our summer fallow production guarantees are substantially higher than continuous crop (if we even have a continuous crop production history).

In areas (such as Oklahoma and Texas) that graze their wheat as well as harvest it for grain they will now be able to buy crop insurance for both practices. Enterprise units will now be allowed to cross over county lines. Previously enterprise units could not cross county lines, producers will now have the option to create larger enterprise units across county lines.

Miscellaneous

There are many, many other updates and changes within the Farm Bill. A few others that are important to highlight is a focus on developing, expanding and improving rural broadband as well as improvements to the Drought Monitor. Rural broadband is an increasingly important issue in rural America as technology advances to continue within our industry and society. Many areas are still without reliable internet (of any kind) and/or cell service. Ensuring everyone has access to reliable internet and cell service has become a rural priority.

The Drought Monitor is utilized for several programs including the Livestock Forage Program and CRP Emergency Haying & Grazing. In the past few years there have been complaints about the accuracy of the Drought Monitor. The 2018 Farm Bill instructs the Secretary of Agriculture to work with the National Oceanic & Atmospheric Administration Administer as well as the National Drought Mitigation Center to improve reporting and data collection for the drought monitor. With producer programs tied directly to the monitor it is essential that it accurately reflect the conditions in an area.

The 2018 Farm Bill will also substantially increase the loans available to Young, Beginning, and Socially Disadvantaged Farmers and Ranchers. The increases will allow for a substantial increase in the loan caps for the various programs. This has long been a request by many in agriculture to allow for a more accurate reflection of the capital needed to operate a farm or ranch in today’s economy.

Haying Season 2018

Conclusion

This is certainly not a comprehensive list of the changes for the 2018 Farm Bill. I have left out substantial chunks of the Farm Bill as they are areas I am not as familiar with, including: Dairy, Sugar, Nutrition and Forestry. While I have read most of the 2018 Farm Bill I have not read every page (mostly I have skipped those programs that I am not familiar with). As I said previously, thanks to the National Association of Wheat Growers for doing a substantial amount of the legwork. I read every part of the bill that I discussed in this post, but their breakdown allowed me to compare the text and a summary at the same time. Once again, if you need something clarified or would like further information on a specific program please let me know. The implementation and rule making process will take some time so some details may not be immediately available.

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