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December 08, 2014

Landowners face 2014 Farm Bill decisions

Landowners need to be involved in 2014 Farm Bill decisions for their farm. In fact, two of the three farm bill decisions required must be made by landowners, rather than tenants.

ST. PAUL, Minn. (12/8/2104)—Landowners need to be involved in 2014 Farm Bill decisions for their farm. In fact, two of the three farm bill decisions required must be made by landowners, rather than tenants.

By Feb. 27, 2015, landowners must make key decisions about updating payment yields and reallocation base acres. Current producers must choose between the price loss coverage (PLC) and agricultural risk coverage (ARC) programs by March 31, 2015. Landowners should be involved in all three decisions, though, since these choices can affect land values and future rental rates.

Yield update

Landowners have two choices:
  • Update payment yields to 90 percent of average yields from 2008 to 2012
  • Keep current payment yields
Yields can be updated on a crop-by-crop basis. This decision is simple; landowners should select the highest yield for each program crop. For most farms, updating the payment yield will be the best choice. Current payment yields either reflect average yields from 1998-2001 or from 1981-1985. Yields have increased significantly since both of those time periods. Payment yields will not be updated if the landowner does nothing.

The biggest challenge for landowners will be getting written evidence that documents the yields for 2008 to 2012. Landowners will self-certify the yield history for 2008 to 2012 to the U.S. Department of Agriculture Farm Service Agency (FSA). They will not have to provide any documentation at the time of sign-up. However, FSA can conduct audits, or spot checks, at any time from 2015 through 2018 to verify the yields submitted.

If the tenant changed during the 2008 to 2012 time period, getting yield evidence for those years may be challenging. But even if tenancy doesn't change, it could before 2018 so getting written yield history and keeping it on file is important. If FSA conducts an audit, the agency accepts four kinds of yield evidence:
  • Crop insurance data from the USDA's Risk Management Agency--specific year yields used in actual production history (APH) records
  • Production evidence based on quantities sold or placed in commercial storage
  • On-farm storage records
  • FSA loan records
Base acre reallocation

Landowners again have two choices:
  • Reallocate base acres based on program crops planted from 2009 to 2012
  • Retain current base acre allocation
Total base acres cannot be increased; existing base acres can only be reallocated. Reallocated acres are based on plantings from 2009 to 2012, versus the current base acres, which reflect plantings from either 1998-2001 or from 1981-1985.

The decision to reallocate base acres is not as straightforward as the decision to update yields. Landowners may want to consult with their renters before deciding whether to reallocate acres.
To minimize risk, a landowner/producer may want to allocate base acres to match as closely as possible to what is typically planted on the farm. This will result in payments more closely corresponding to price and yield changes for the crops currently being produced.

To maximize government payments, the base acre decision should be considered in conjunction with the PLC/ARC decision. Payments for both the PLC and ARC programs are calculated using base acres. The most feasible method to integrate these two decisions is to run one of the national decision aid online tools.

PLC/ARC decision

The PLC/ARC decision is made by the current producer as of the date of signing up for the program. A producer is anyone with a share in the crop and who shares in the risk of producing it. Under cash rental arrangements, the renter will make this decision rather than the landowner. Landowners are considered producers in share rental arrangements, though. Once the election is made, the PLC-or-ARC choice stays with the farm until 2018, even if the tenant changes.

The PLC and ARC programs are designed to protect producers against different types of risk. PLC provides a payment to the producer if prices are below a pre-determined reference price; it helps producers mitigate the impact of low prices. ARC provides a payment if the current year's revenue, price multiplied by yield, is lower than the revenue during the previous five years; it is capped at 10 percent of the previous five-year average. It helps producers manage shallow revenue losses resulting from declining prices or yields.

Detailed fact sheets are available on each of these topics at http://z.umn.edu/cropfarmbill.

Landowners most likely will consult with their tenant to evaluate these choices. The landowner can file an FSA power of attorney form with the local FSA office that allows the tenant to make these decisions for the landowner.



Any use of this article must include the following credit line:

Kevin Klair is a University of Minnesota Extension agricultural economist.

Media Contact: Allison Sandve, U of M Extension, (612) 626-4077, ajsandve@umn.edu
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