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 county-triggered
“In the case of the corn example, SCO at the 70 percent coverage pays about $6 more than going to 60 percent coverage. However, SCO would be county-triggered. If you don’t think your yields match the county, it may not be a good risk protection instrument.
“The other thing with the tables is these are average results coming out of our computers looking at probabilities of disastrous yields or big price declines. Also, they look at great crop weather and great price movements.
“All the products you see will have years when they pay zero. That’s different than the direct payment program. We have scenarios where none of the programs pay and years where they pay a lot more than the average.”
On probabilities of proposed program pay-outs…
“When we talk about 90 percent coverage on SCO or STAX, you probably won’t collect more than 40 percent of the time. Out of the next five years, you might collect twice. And you may have a big hit one year and nothing for four years. That’s very plausible.
“People need to realize that about these proposed programs. From a cash-flow standpoint, producers will have to get into a new mindset. Payments won’t come yearly but when there’s a bad event.
“The idea behind these programs is that the payments will come when there is low revenue. If you add a government payment to market revenue, they want the programs to smooth out producer income.
“I really think farmers and lenders will have to have serious conversations if we pass this farm bill. Both producers and lenders will have to dig in and understand how these programs work, when they’ll pay. Lenders won’t be able to just pencil in ‘X’ dollars.
“The complexity is high. (Agricultural economists) do this for a living and we’ve been pulling our hair out trying to figure out all the possible scenarios.
“Before the Senate changed the bill, SCO looked really good in terms of expected payout. But once they made the change to a 10 percent deductible on top of SCO, in many simulations the average payment has a bit of variation. But the difference between participating in ARC plus some SCO versus staying out varies little -- $46.76 and $47.31 are within the margin of error.
“And the story with other crops, the story is similar. Our simulations show it’s almost a toss-up between participating in ARC and staying out with SCO. That leads me to believe farmers more worried with payment limits might be inclined to go towards SCO. Someone who believes their yields don’t match up with the county might prefer farm-triggered ARC instead.
“And once you make the county/farm decision on ARC, you’re locked in for the (life of the farm bill). You can jump in-and-out of SCO or STAX every year.”
More on cotton and STAX…
“Cotton is different because ARC isn’t available. In (table 7 on page 6 of the study) we have SCO and STAX side-by-side.
“STAX is paying out a bit more per acre. We’ve assumed the producer has taken the 1.2 factor and that STAX has upside price protection.
“One caution: these results are for a typical farm in terms of yield variability in the county. If your yields are significantly different than the county, your results could be different than what the table shows.”