Insurance Implications of the 2014 Farm Bill
With the passage of the 2014 Farm Bill comes new options for crop insurance coverage. These changes will not affect your 2014 crop insurance, but changes could be made for your 2015 coverage.
The following are some highlights of new programs and provisions that could influence your future crop insurance decisions, including two new programs designed to supplement crop insurance.
Agriculture Risk Coverage
The first of two choices you have to augment your crop insurance is the agriculture risk coverage (ARC) program. Under ARC, a payment is made when revenue for a crop is below 86 percent of a predetermined or benchmark level of revenue.
You can choose to receive payment when either your farm’s revenue from all crops or the county’s revenue is below the benchmark. Above-normal yields reduce the chance of ARC payments; below-normal yields increase the chance.
Price Loss Coverage
The price loss coverage program (PLC) is the other choice you have to supplement your crop insurance. This coverage provides income for farmers when the market price for a covered crop is below the set reference price.
If you choose PLC, it could overlap with your crop insurance, meaning you could be paid twice for the same price decline.
You may be allowed to substitute PLC for crop insurance to gain assistance against price declines, and you could replace revenue insurance with more affordable yield insurance.
Area Risk Protection Insurance
The area risk protection insurance policy (ARPI) is also a new part of the Farm Bill and replaces the group risk and group risk income plans.
The group risk and group risk income plans made payments based on county yields or revenues. ARPI will still make payments in the same way the previous policies did, but the payout will based on lower county yields and revenues than before. The ARPI policy also enforces production reporting and final planting dates by which planting must occur in order to have coverage.
Supplemental Coverage Option
The supplemental coverage option (SCO) can be combined with your current crop insurance and offers coverage based on county average yield or revenue. SCO provides producers with subsidies of 65 percent of their premiums.
SCO is only available to crops with price loss coverage, so if you’ve chosen the agricultural risk coverage program, you cannot add SCO.
Stacked Income Protection Plan
The stacked income protection plan (STAX) is another new supplemental crop insurance product. It is only available to upland cotton producers and begins in 2015. STAX can be used to supplement insurance coverage available through the federal crop insurance program or can be purchased as a stand-alone policy. Similar to traditional crop insurance, STAX is not subject to payment limitations or adjusted gross income eligibility limits.
Non-insured Crop Assistance Program
This program—which provides coverage for crops when low yields, loss of inventory or prevented planting occur due to a natural disaster—was expanded with the passage of the Farm Bill.
The expansion allows for additional “buy-up” coverage above the catastrophic loss level. However, payments under the noninsured crop assistance program cannot exceed $125,000 per individual for a single crop year.
Dairy Margin Insurance
Dairy producers will now have two program options: the margin protection program (MPP) and livestock gross margin-dairy (LGM-dairy) insurance.
MPP provides producers with indemnity payments when actual dairy margins are below the coverage levels the producer chooses on an annual basis. It’s designed to protect against destructively low margins. Premiums are set for the duration of the Farm Bill (until 2018) and indemnity payments are unlimited.
LGM-dairy protects producers against declines in average dairy income-over-feed-cost margins for a period of up to 10 months. Premiums vary with market conditions, but subsidies are limited.
We Can Help
The farm bill is a complicated piece of legislature with many new and changing parts. Southwest Risk Management can help you discover the best crop insurance options for your farm.
For more information visit AGRICULTURE or contact a SW Risk Agribusiness Specialist at 1-866-924-7976 (SWRM).