Last week, I posted on the need for landlords and farms with multiple owners to consider updating their power of attorneys with Farm Service Agency (FSA) to allow tenants or a single landowner the ability to make new farm program decisions. Today, let’s talk about what decisions landlords need to consider making with the tenant, making on his/her own, or just signing a power of attorney and letting the tenant handle. Landlords will need to think about reallocating base acres, updating payment yields, and potentially electing whether each covered commodity will participate in either USDA’s new Price Loss Coverage (PLC) or the Agricultural Risk Coverage (ARC) County programs, if the landlord is sharing in the risk (meaning are you using a crop-share lease).
The first decision that landlords will be required to make is updating payment yields and reallocating base acres for covered commodities. The updating payment yields and base acres decision is made by the landowner not the tenant. Payment yields and base acres are based on historical production of covered commodities and had previously been used to calculate Direct Program payments or Counter-Cyclical payments with the 2008 farm bill. Under the 2014 farm bill, the following are covered commodities: wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, small chickpeas, large chickpeas, and peanuts. Fruits and vegetables are not considered covered commodities.
Landlords will have the opportunity to update payment yields established under the 2008 farm bill to reflect 90 percent of the average yield of the planted acres on the farm for the 2008 through 2012 crop years. This will be easy to calculate for a landlord who has required accurate records from the tenant. Tenants with crop insurance records will be able to prove yields. This will also be easy to calculate if there has been no tenant change during the 2008 to 2013 crop years. This could potentially be an issue for a landlord with different tenants over this period .
This decision will need to be made for all covered commodities grown on the farm between the 2008 to 2013 crop years. If the farm produced corn, soybeans, and wheat, the landlord will need to consider if the current payment yield is higher than 90 percent of the average yield for the planted commodities for the 2008 to 2013 crop years. To better understand how to update a payment yield for a covered commodity, see Paulson, N., J. Coppess, and T. Kuethe, 2014 Farm Bill: Updating Payment Yields.
The 2014 farm bill also provides a one-time opportunity to reallocate the farm’s base acres for covered commodities or keep the current base acre allocation. This decision will last the life of the farm bill. The total number of base acres on the farm cannot increase, but a landlord can reallocate those base acres among covered commodities being produced there. If the landlord does decide to reallocate the base acres, the reallocation will reflect the tenant’s covered commodity cropping patterns from 2009 to 2012. This is not a straightforward decision and can be quite complex. To help landowners, FSA has developed a tool to aid in this decision. To make this decision, the landlord will need records to demonstrate the cropping pattern for 2009 to 2012. The Direct Payment and Counter-Cyclical required acreage reporting with FSA. The base acre reallocation decision could potentially be driven by the program election, discussed next, and tenants and landlords will want to work together to ensure that base acres reallocation and program election will work best for the tenant's situation.
Landlords will potentially need to decide which program to participate in: ARC County, PLC, or an ARC Individual option, if the landlord is sharing in the risk. If the landlord does not share in the risk, then the decision will be for the tenant(s) on the farm to make. This decision is irrevocable and will last for the life of the farm bill. This decision also has the potential to impact future rents on the farm; if a program with a lesser likelihood of providing benefits to a tenant is chosen, then the landlord may be forced to accept less in rent.
The PLC program pays when the market year average (MYA) price for the covered commodity is less than the statutory reference price. PLC is a protection against falling prices. The payment is based on the difference between MYA and the reference price times 85 percent of the base acres.
The ARC programs (ARC County and ARC Individual) make payments based on revenues falling below a certain level. Both programs are slightly more complicated than the PLC program. To gain a better understanding of how both ARC programs work, please view this presentation made by Dr. Howard Leathers during the Farm Bill Workshops earlier this summer. PLC and ARC County will be decisions made for each covered commodity and ARC Individual is a decision made for the farm.
What if you just decide to do nothing, and not make a decision? Then you will be enrolled in the PLC program. The drawback to this is that you or your tenant will be ineligible for a 2014 PLC payment (if one is made), which could potentially mean your farm will receive fewer benefits over the life of the farm bill.
To aid you in this decision, FSA worked with a group of land grants to develop decision-making tools which allow the user to input farm yield and planted acre information. The tools also allow you to make assumptions about prices and yields over the coming years to determine which program will work for your farm. The tools are available on the FSA homepage at: (http://www.fsa.usda.gov/FSA/webapp?area=home&subject=arpl&topic=landing). AREC in conjunction with FSA, Maryland Department of Agriculture, and USDA Risk Management Agency will be holding meetings in November covering the decision-making tools and program signup timelines. Please check back here for dates and locations.
The decision-making process for this farm bill is slightly more complicated than previous farm bills. Tenants and landlords need to work together in determining which program will benefit each of the parties over the life of the farm bill. Both parties need to consider the impact of updating payment yields, reallocating base acres, and determining the appropriate commodity program. Please view the Farm Bill page on the AREC homepage, which will house new information as it becomes available: https://www.arec.umd.edu/extension/crop-insurance/2014-farm-bill.
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