What is in this article?:
- Senate farm bill programs would mean tough choices for farmers
- Would be delivered as crop insurance
- Would be county-triggered
• New analysis of the legislation shows passage would leave producers with tough decisions to make.
• Mississippi State University study looks at major farm bill program proposals, the options available in each, and how farmers would likely be impacted in various scenarios.
Would be delivered as crop insurance
“Both STAX and SCO would be delivered as crop insurance and they’d both have a premium. Farmers need to keep that in mind. Another thing: both are area-based.
“As I understand it, STAX allows for an upside price protection. It also allows you to vary how much coverage you purchase. That way, if your expected yield is above or below the county average yield, you can adjust coverage to reflect that.
“SCO is based on a design that came out of the High Plains of Texas. Texas Rep. Randy Neugebauer’s proposal looked at lot like SCO. It will function in a similar fashion.
“But with both STAX and SCO producers need to realize that they allow two insurance policies on the same crop acre. We’ve never had that before. If you plant 300 acres of cotton then you could have STAX and individual level crop insurance as well. In the past, with such area revenue insurance products it with either/or.”
“It’s been difficult to sort out exactly how some of these (proposed programs) would work. We’ve illustrated how they’d have worked in the past few years. Producers can look at the analysis and remember what the weather and prices were like in, say, 2009.
“With STAX and SCO, you’d use a springtime futures price as guarantee. ARC, meanwhile, would use an Olympic average.
“In a time when prices are moving down the Olympic average would fall more slowly than a futures price. On the other hand, when prices are going up it will climb more slowly. That’s a fundamental difference between ARC and STAX/SCO.
“Another consideration is that there are payment limits associated with ARC that aren’t with either SCO or STAX.”
Scenarios, pay-out probabilities, more on STAX
On farm scenarios…
“There is no target price in the Senate farm bill. We included that, of course, because the rice and peanut industries have pushed hard for target prices.
“See this table at http://www.agecon.msstate.edu/what/policy/briefs/pdf/farm_policy_brief_june_2.2.pdf. It is included to provide examples of how a target price of $13.98 would have worked in the past. If we’d had the target price program that was in the bill drafted (in conjunction) with the ‘super committee’ last fall, it would have had something that looked like this.
“The $13.98 price is above CBO-projected levels.
“The interesting thing about a target price program is that, as it was proposed last fall, it would pay on planted acres. In many Mississippi cases that would be less than base acres. It would pay on program yields, which in many instances are now relatively low.
“That means while rice producers might say ‘that target price sounds good’ they need to keep in mind that planted acres in historical counter cyclical payment yields are, in many cases, about half their expected yield. For example, if you’re dealing with the insurance products, your current yield history would be used. That would guarantee a lot more yield than with the target price program.
“When we get to representative farm scenarios (beginning with Table 5 on page 5), we looked at six scenarios for all crops except cotton. We looked at the ARC program – either farm or county; we looked at SCO – either as a standalone or with ARC. That’s allowed in the legislation. And we look at two insurance coverage levels.
“In Table 5, you’ll see ‘SCO 90/60’ or ‘90/70.’ That means SCO would trigger at 90 percent and cover down to 60 percent. We’re assuming you bought a 60 percent coverage revenue insurance policy.
“Looking at revenue insurance 70, we’re assuming the same SCO except that you bought a higher level of crop insurance.”
That would mean $39.31 and $46.76 for a Delta corn farm…
“That’s right, the total of the two. There’s a tradeoff there. If I buy 70 percent crop insurance the net, after premium, would be higher than if I went to 60 percent coverage and my SCO would be lower.