Elk City, Oklahoma, cotton farmer Danny Davis said the farm bill meeting held Thursday in Altus answered a lot of the questions he had about the new farm program.
“And the questions that have not been answered are the issues that have not been determined yet,” said Davis who plants 100 percent cotton.
Some of those unanswered questions include the rates for both the Stacked Income Protection Plan program (STAX) or the Supplemental Coverage Option (SCO). Those insurance-based programs will provide a cotton safety net. Cotton, under the Agricultural Act of 2014, is no longer a covered commodity.
“The value of STAX or SCO will depend on several factors,” Davis said following the meeting, one of many the National Cotton Council is holding across the Cotton Belt. How irrigated and dryland acreage is handled by his particular county will be a key issue, he said. Currently, there is no differentiation but Davis hopes that will change by the time STAX is implemented in 2015. “We are not the only county with this issue,” he added. “By 2015 we hope to have this and other issues worked out.”
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Cost of those insurance programs also will be important considerations. “Each option has bright spots,” Davis said. “I like the lower deductible for STAX. I like the individual revenue option with SCO. But I can’t view either one product as the best until I know the price. It’s the same way I would evaluate fertilizer expenses.”
One of the negatives with either program, he said, is that an individual farmer “is no longer in the driver’s seat,” since payments would be triggered by county averages.
Davis says the final law was “pretty much what I expected.”
Kathy Fowler, a crop insurance agent with Kathy Fowler Agency in Memphis, Texas, said the new law may not be either better or worse than the old program. “It’s just different. It does give farmers some flexibility and options.”
Farmers and industry observers, some 60 in all, attending the Altus meeting had a lot of questions for Craig Brown, NCC vice president, producer affairs, who provided an overview www.cotton.org of the new farm law and fielded questions about how the new programs will function. He said the Council believes the law is “a good risk management program for cotton. For now, we are concentrating on what’s in it and how it will fit into a farmer’s operation.”
Several issues remain to be resolved, including a final definition of “actively engaged in farming,” which the Secretary of Agriculture will clarify.
Brown said the overview is “based on NCC’s interpretation of legislative language; exact implementation could vary based on USDA interpretation/rules.” He also noted that more education sessions will be forthcoming. Land grant universities will be developing tools to evaluate programs and NCC, he said, likely will hold more educational sessions as the program kicks in next year.
Cotton farmers will have a “transition program” for 2014, which will include a payment of 5.4 cents per acre on all base acres from 2013. That will extend into 2015 at a reduced rate in counties where STAX is not available.
Fowler said young farmers may see benefits from an improved risk management product. “Direct payments did not provide risk management,” she said. “We are in a new era for farm legislation.”
Decisions to make
Brown said farmers have decisions to make for both 2014 and 2015.
Decisions for 2014 include:
- Decide between Price Loss Coverage (PLC) or county Actual Crop Revenue (ARC) on commodity by commodity basis or place all covered commodities in farm-level ARC. If PLC is chosen, decide whether to update payment yields. If ARC is chosen, growers are not eligible for SCO starting in 2015.
- Decide whether to retain or reallocate covered commodity bases.
- Growers will have a range of new insurance products.
- For cotton, decide between STAX and SCO.
- Decide between the appropriate levels, if any, of individual insurance to pair with STAX (or SCO).
- Possible, based on availability/implementation: different coverage levels for irrigated and non-irrigated practices. Enterprise units by practice. Option to update APH yield.
Davis said he’s not certain which program he’ll choose in 2015 but he’s “leaning toward STAX.” With SCO, producers are required to have another insurance product; with STAX they are not but may want to “buy up” coverage to reduce possible income gaps.
Davis intends to maintain his current level of insurance.
He’s also pleased with one particular aspect of the new program that he believes will be a boon to cotton farmers. Producers may exclude from their actual production history any year that the county yield falls below 50 percent of the ten-year county average. “That’s a big advantage,” he said, “and puts a tremendous amount of value in buy-up insurance.”
“This marks a fundamental change in cotton’s safety net,” Brown said, with a “greater reliance on crop insurance products.” Those products will be available in 2015, hence the transition program for 2014.