A handful of Congressmen and Senators soon will meet to iron out differences between the House and Senate versions of the Farm Bill. The House proposal is about 500 pages but the Senate plan is 1,600 pages, so wide differences of opinion about farm policy are obvious. Most Cornbelt farmers will be impacted by the commodity programs, and there again the differences are wide. Do you know which is best for your farm, and have you made that call to lobby for one or another?

The choices that the Congressional Conference Committee has are the Average Crop Revenue (ACR) variable payment program that came from the Senate and the House proposal for a Revenue Counter-Cyclical Program (RCCP). You will be dealing with one or the other for the next five years, so an understanding of the two is necessary for you to make an educated call to your Congressman and Senators.

Ohio State ag economist Carl Zulauf compared the two choices and says they are very different revenue programs:

1) ACR addresses the systemic risk that state revenue at harvest is below state revenue expected at planting. Its revenue target changes with prices, which allows ACR to provide assistance if prices decline from their current high levels. The ACR program uses a 3-year moving average of pre-planting revenue insurance prices along with a trend line yield to determine revenue expected at planting. The ACR revenue target is 90% of that value. Thus the revenue target goes up and down as prices fluctuate.

2) RCCP addresses the systemic risk that U.S. revenue is low. Its revenue target is fixed. Because low price and revenue frequently coincide at the national level, RCCP overlaps considerably with the price counter-cyclical program. The RCCP program will have a fixed revenue target in the Farm Bill that reflects the political consensus of what constitutes low revenue.

So, what is the risk? In the past 14 planting seasons, one year out of five saw the revenue per acre for the major commodities decline by at least 10% between planting and harvest. That is on a national scale. On a state scale, those declines could be larger for a state because yield declines could be larger for a given state than for the national average.

But would crop insurance not manage that risk? The revenue declines were less than 25% in the prior example, so a crop insurance policy with 75% coverage would not have been triggered. Since there is always the chance at revenue decline, to at least the 80% or 85% coverage level, few policies are purchased that would be triggered because of the higher premium rates.

The current economic environment is high prices and high production costs. Economist Zulauf says commodity prices are 65% above the targets set by the House in its RCCP program and an October calculation put production costs 26% above their 5 year average. His point is that with high costs and the uncertainty over prices there will likely be financial stress on the farm before the RCCP target is reached. Comparatively, Zulauf says the ACR program gives more timely assistance since formulas are based on yields and revenues on a more local level.

The RCCP program can be closely compared to the counter-cyclical price program implemented by the 2002 Farm Bill. Although the RCCP program is revenue instead of just price like the CCP program, Zulauf says it would provide only $4 more per acre in payments because the national scope of the calculation.

The impact on markets is more with the RCCP program than the ACR program according to Zulauf, because the RCCP program establishes a floor revenue, and the ACR program adjusts downward, based on a 3-year moving average if prices fall, and conversely if prices rise.

During the Senate preparation for the Farm Bill, considerable effort was made to create a permanent disaster program, which the Senate calls the Crop Disaster Assistance (CDA) program. It covers crop revenue loss not covered by the crop insurance deductible if a farm is in a federal disaster declaration. The fewer the crops produced the greater the chance a farm will benefit. The CDA payment is made with a low yield and a county-based disaster declaration, but an ACR payment is made on revenue, based on total state averages. However, theoretically, both programs could make a payment on the same loss.

Summary:
Congressional conferees reconciling differences in the House and Senate versions of the Farm Bill will be challenged to merge the House Revenue Counter Cyclical Payment program that establishes national target prices and the Senate Average Crop Revenue program which calculates a safety net payment based on state yield and price trends. The ACR program is also supplemented by the Senate’s permanent disaster aid program that covers a crop insurance deductible and other non insured crops when a disaster declaration is made.