What is in this article?:
- Devil is in the details in new farm policy discussions
- Does present complications
• The devil is in the details in discussions to shift farm policy from a traditional target price/direct payment program to revenue insurance for shallow losses.
• Areas of possible conflict or concern include disparities in shallow losses between regions and commodities, financing complications as seen by lenders and creditors and the need for commodity producers to better manage more types of risk.
• Shallow losses focus on paying producers for shallow losses of between 5 percent to 30 percent of expected revenue.
Does present complications
There are some complications to a shallow loss risk program, according to Hudson. “In some areas, like south Texas, a drought may occur quite frequently, which means it pays out frequently, therefore the premiums are quite expensive. This is why we don’t have a private sector version of this. It’s too expensive for producers to have it. Other parts of the country may not experience shallow losses all that often. Their yields are more consistent. What they may be more worried about is the price component.”
In essence, these regional differences “create a difference of opinion over how to construct the underlying policy.”
Groups supporting the shallow loss proposals are hoping the government will subsidize the premium a producer is likely to pay, noted Hudson. “The money that would have been spent on direct payments can be shifted over into this. It gets around the political landmines associated with direct payments. It also means that the producer and the government are sharing the risk.”
The structure of financing could also be affected by insurance-based farm policy, according to Hudson. “Existing policy provides a stable flow of cash, so your banker, or creditor or seed supplier can count on a certain amount of cash. The new proposals change the dynamic completely. It puts the onus on the producer to manage that risk.
“Banks and creditors are going to have to rethink how they are going to securitize loans. It may increase borrowing costs and reduce financing availability for some producers. It will ultimately have an impact because banks will do what banks do, protect their assets.”
John Robinson, Extension economist with Texas A&M University, stressed that producers “should be focusing on the price discovery processes in these revenue products. We need to look where the market is telling us prices are going to be in the January-February period. That’s the price discovery time frame for most of our insurance products.
“There is going to be an even greater importance on learning how to choose level of coverage, revenue and yield products tied to your marketing,” Robinson said.
For a more comprehensive look at the Cotton Council proposal, see http://southeastfarmpress.com/government/ncc-advocates-change-course-farm-policy.
To see policy ideas from the American Farm Bureau Federation, visit http://southeastfarmpress.com/government/afbf-submits-farm-bill-proposal.
Ideas from the American Soybean Association can be found at http://southeastfarmpress.com/soybeans/soybean-growers-announce-farm-bill-proposal.
The National Corn Growers Association has also presented ideas on the 2012 farm bill. These can be found at http://southeastfarmpress.com/grains/corn-growers-introduce-adap-proposal-2012-farm-bill.