New Farm Law Fundamentals

“The Agricultural Act of 2014,” which includes fundamental changes in cotton’s safety net and a greater reliance on crop insurance products, will be implemented over the 2014 and 2015 crops.

By Mark Lange
NCC President/CEO

 
What are some key changes for cotton?

The new farm bill repeals the direct and counter-cyclical programs and authorizes a new revenue insurance product that can be purchased in addition to a producer’s existing coverage. However, enactment of the new law came too late for USDA and the private sector to offer the Stacked Income Protection Plan (STAX) until 2015. Then, it will be available for purchase on all acres planted to upland cotton. As with existing insurance products, STAX will be administered by USDA’s Risk Management Agency. Indemnities under STAX will be triggered by revenue experience at the county level (or combined counties if necessary for an actuarially sound product). The maximum coverage band is 90 percent to 70 percent of expected county income (or combined counties). Specifically, if actual county income falls below 90 percent of expected county income, an indemnity is triggered. In order to keep the product affordable for producers, the STAX premium subsidy is 80 percent.

The new farm law includes a transition payment for the 2014 crop that is designed to bridge the gap until STAX is offered in 2015. The transition payment equates to 5.4 cents per pound paid on all 2013 cotton base acres and direct payment (DP) yields.

For cotton and other crops, the measure includes enhanced coverage options by enterprise units – making permanent the higher premium subsidy and allowing for enterprise unit coverage by irrigated and non-irrigated practices beginning in 2015. Another change involved the adjustment in actual production history (APH) to determine insurable yields whereby a producer may choose to exclude any year from their APH if the yield in the county in that year is less than 50 percent of the 10-year county average. Another insurance change allows for different coverage levels by irrigated/non-irrigated practice beginning in 2015.

What cotton provisions continue from the previous farm bill?

This measure’s Title 1 upland cotton provisions include continued authorization of the upland cotton nonrecourse marketing assistance loan. However, the loan rate level will be set by a formula using the average of the Adjusted World Price (AWP) for the two most recently completed marketing years (as of Oct. 1 in the year prior to planting the crop), but the loan rate for base quality cotton cannot be less than 45 cents/pound or greater than 52 cents/pound. The current redemption rules and AWP calculations continue unchanged in the new bill. Another upland cotton provision continues the Economic Adjustment Assistance Program at three cents/pound with no change in funds use requirements.

As with any new farm law, some provisions are complex. The National Cotton Council will conduct 45 educational meetings in 15 states on March 17-25. Dates, times and locations are at http://www.cotton.org/news/releases/2014/ fbillmeet.cfm and on page 32 in this issue. All cotton producers, industry firms and agribusinesses are encouraged to attend any of these important forums.

Mark Lange is the president and chief executive officer for the National Cotton Council of America. He and other NCC leaders contribute columns on this Cotton Farming page.

 

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