Monty Hall would love it. And farmers who gamble on the markets and big stakes revenue crops would be in hog heaven. And for those who were fans of the daytime television show Let’s Make a Deal will appreciate the choices they might be afforded if the Congress approves a new Farm Bill with a trio of optional programs.
Agricultural economists Carl Zulauf of Ohio State University and Gary Schnitkey of the University of Illinois suggest farmers may have three choices of programs for a farm safety net based on what the House and Senate Agricultural Committees may develop. The Committees are slated to begin marking up their versions of a new Farm Bill in the next few days, reworking their proposals for the 2012 Farm Bill that did not get considered in the House.
Door #1 Revenue Program
While they did not get much attention per se, the Senate’s Agriculture Risk Coverage (ARC) and the House’s Revenue Loss Coverage (RLC) were designed to provide year to year financial support for agriculture, since crop insurance guarantees only provide support for a single crop, and crop values can change significantly from year to year (e.g. 2012 to 2013).
The ARC and RLC programs contained complex formulas involving price averages over multiple years, then multiplied by a coverage level, which was 89 percent in the Senate and 85 percent in the House. When revenue fell below threshold levels, payments were made on a per acre basis taking gross revenue into account along with crop insurance indemnity payments.
The reason a farmer would not want to pick Door #1 is because price trends, as the result of large crops, will decline and financial support will decline in lockstep. Crop revenue insurance makes payments on a price guarantee or yield insurance makes payments on bushels produced.
As a result, multiple years could provide minimal insurance indemnity payments and the multiple year season average prices may work their way lower as well. Rapid declines would be protected, but slow declines would not and farming operations would have to learn to live with less USDA farm supports.
Both ARC and RLC are connected with crop insurance, and provide financial support where farmers may lower their cost by having a higher deductible. If a 65 percent or 75 percent crop insurance coverage is selected the ARC and RLC programs provide a payment that begins where the crop insurance ends, but does not guarantee 100 percent of expected revenue, only a “shallow loss.”