Crop Commodity Program Provisions-Title I
Note: This page refers to the 2014 Farm Act and is being updated to reflect the 2018 Farm Act. Details on the 2018 Act can be found at Agriculture Improvement Act of 2018: Highlights and Implications.
Note: Details on Farm Bill program provisions under other titles can be found at the following ERS pages
- Crop Insurance Program Provisions
- Dairy (Update in process)
- Sugar & Sweeteners (Update in process)
- Animal Production & Marketing (Update in process)
- Fruits & Tree Nuts (Update in process)
- Vegetables & Pulses (Update in process)
- Organic Agriculture
- Local and Regional Foods
- Beginning and Disadvantaged Farmers
- Conservation Programs
- Food & Nutrition Assistance
- Rural Development
The 2014 Farm Bill repealed the Direct Payments (DP) program, ending nearly 20 years of fixed annual payments. Payments were calculated based on historical production (base) acres, and yields and were paid to producers regardless of whether their farms faced losses. The 2014 Farm Bill also repealed two other programs linked to DPs: Countercyclical Payments (CCP), which provided payments to producers on historical base acres and yields but were triggered by movements in current prices, and the Average Crop Revenue Election (ACRE) program, which provided payments to producers when their revenues fell below benchmark levels.
Under Title I of the 2014 Farm Bill, the U.S. Department of Agriculture’s Farm Service Agency (FSA) will operate two new crop commodity programs—Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC)—along with the Marketing Assistance Loan Program, which continues almost unchanged.
Participants in these programs must be actively engaged in farming, meet revised Adjusted Gross Income (AGI) eligibility limits, and may not receive payments above revised payment limitations.
Price Loss Coverage (PLC)
Producers who hold base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses (covered commodities) are eligible to enroll in the PLC program on a commodity-by-commodity basis. Payments are made when market prices fall below the reference price set in the 2014 Farm Bill (see table below). The payment rate is the difference between the reference price and the annual national-average market price (or marketing assistance loan rate, if higher). For each covered commodity enrolled on the farm, the payment amount is the payment rate, times 85 percent of base acres of the commodity, times payment yield. Producers may also receive payments on former cotton base acres (termed “generic base acres”) that are planted to a covered commodity. A one-time opportunity is offered to reallocate a farm’s base acres (except generic acres) based on 2009-12 plantings and to update the farm’s payment yields for covered commodities to their 2008-12 average yields. Producers may choose which of their covered commodities to enroll in the PLC program, but once the election is made it remains in place for the 5-year life of the 2014 Farm Bill. Payments will be reduced on an acre-by-acre basis for producers who plant fruits, vegetables, or wild rice on payment acres.
|Covered commodities||Reference prices|
|California medium-grain rice (temperate japonica)||$16.10/cwt*|
|*115% of long-grain/medium-grain rice reference price.
Source: Agricultural Act of 2014, Title I.
Agriculture Risk Coverage (ARC)
Producers who hold base acres of wheat, feed grains, rice, oilseeds, peanuts, and pulses (covered commodities) are eligible to enroll in ARC on a county or individual farm basis.
Enrollment in the county ARC program is on a commodity-by-commodity basis. Producers may choose which of their covered commodities to enroll in the Price Loss Coverage (PLC) program and which to enroll in the county ARC program, but once the election is made, it remains in place for the life of the 2014 Farm Bill. County ARC payments are made when county crop revenue for the enrolled commodity (actual average county yield times national farm price) drops below 86 percent of the county benchmark revenue (5-year Olympic average) county yield times 5-year Olympic average of the national price or the reference price, whichever is higher for each year). (Olympic averages drop the highest and lowest numbers and average the remaining.) For each covered commodity enrolled on the farm, the county ARC payment amount is the difference between the per acre guarantee (as calculated above) and actual per acre revenue (but no greater than 10 percent of the commodity’s benchmark revenue), times 85 percent of base acres of the commodity. A one-time opportunity is offered to reallocate a farm’s base acres (except generic acres), based on 2009-12 plantings. Producers may choose which of their covered commodities to enroll in ARC, but once the election is made it remains in place for the 5-year life of the 2014 Farm Bill. Payments will be reduced on an acre-by-acre basis for producers who plant fruits, vegetables, or wild rice on payment acres.
Enrollment in individual ARC is on an individual farm basis. An individual ARC farm is defined as the sum of FSA farm units in which the producer has an interest that are enrolled in ARC within a single State. Individual ARC payments are made when the actual individual crop revenues, summed across all covered commodities on the ARC farm, are less than the ARC individual guarantee. The farm’s individual ARC guarantee equals 86 percent of the farm’s individual benchmark guarantee, defined as the sum across all covered commodities, weighted by plantings, of each commodity’s average revenue—the ARC guarantee price (the 5-year Olympic average of national price or the reference price—whichever is higher for each year) times the 5-year Olympic average individual yield. The payment amount is the individual farm payment rate (the difference between the individual farm guarantee and actual individual farm revenue, but no greater than 10 percent of the farm’s benchmark revenue) times 65 percent of base acres for all covered commodities for the individual farm. A one-time opportunity is offered to reallocate a farm’s base acres (except generic acres), based on 2009-12 plantings. Producers may choose which of their farms to enroll in ARC, but once the election is made it remains in place for the 5-year life of the 2014 Farm Bill. Payments will be reduced on an acre-by-acre basis for producers who plant fruits, vegetables, or wild rice on payment acres.
Marketing Assistance Loan Program
The Marketing Assistance Loan Program is a post-harvest nonrecourse commodity loan program with marketing loan provisions for producers of wheat, corn, grain sorghum, barley, oats, upland cotton, extra-long staple (ELS) cotton, long- and medium-grain rice, soybeans, other oilseeds, peanuts, wool, mohair, honey, dry peas, lentils, and small and large chickpeas.
These loans allow producers of eligible crops to borrow at a commodity-specific rate per unit of production by pledging their harvested production of that commodity as collateral. A producer may obtain a loan for all or part of new commodity production and hold that loan until the commodity is sold.
Commodity loans may be settled in three ways:
- Repayment at the loan rate plus interest (commodity loans are made at below-market interest rates)
- Repayment at the alternative loan repayment rate when market prices fall below the loan rates, or
- Forfeit of the pledged crop at loan maturity.
|Extra-long staple cotton||pound||$0.7977|
|*The loan rate for upland cotton is the simple average of the adjusted prevailing world price for the 2 immediately preceding marketing years, but in no case is it less than $0.45/pound or more than $0.52/pound.
Source: Agricultural Act of 2014, Title I.
When market prices are below the loan rate, farmers are allowed to repay the commodity loans at a lower repayment rate. Marketing loan repayment rates are based on local county prices for wheat, feed grains, and oilseeds or on the prevailing world market prices for rice and upland cotton. The world market price for rice is determined by a formula adjusted for U.S. quality and location. A quality adjustment for upland cotton is made based on cotton of comparable quality delivered to a definable and significant international market.
When a farmer repays a loan at a lower loan repayment rate, the difference between the loan rate and the loan repayment rate, called a marketing loan gain, represents a program benefit to producers. In addition, any accrued interest on the loan is waived.
Loan program benefits can also be taken directly as loan deficiency payments (LDP), a cash payment equal to the difference between the loan rate and the loan repayment rate. The LDP option allows the producer to receive the benefits of the marketing loan program without having to take out, and later repay, a commodity loan.
Instead of taking out a commodity loan, eligible farmers may choose to receive LDPs when market prices are lower than commodity loan rates. The LDP rate is the amount by which the loan rate exceeds the loan repayment rate or prevailing world market price and is thus equivalent to the marketing loan gain that could alternatively be obtained for crops under loan.
Just as when a marketing loan gain is received on a given collateralized quantity that quantity is not eligible for further loan benefits, when an LDP is paid on a portion of the crop, that portion cannot later be used as collateral for another marketing loan or for another LDP.
Eligibility Requirements and Payment Limitations
In order to receive some types of commodity program payments, individuals must meet eligibility requirements based on the level of their participation in farming activities and on their income. Once individuals are eligible, payment limitations cap the total amount they can receive.
Must Be Actively Engaged In Farming
Producers who participate in the PLC or ARC programs are required to provide significant contributions to the farming operation to be considered as “actively engaged in farming.” The 2014 Farm Bill requires the Secretary of Agriculture to promulgate regulations to define “significant contribution of active personal management” as part of this determination.
Must Meet Adjusted Gross Income (AGI) Limit
Under the previous Farm Bill, the limit on eligibility to receive farm program benefits distinguished between farm and nonfarm income. The 2014 Farm Bill established a single AGI limit, under which any individual with an annual AGI above $900,000 (including both farm and nonfarm income) is ineligible to receive farm program payments under commodity or conservation programs.
For those who meet active engagement and income eligibility requirements, payments are limited to $125,000 for each individual, without specific limits for individual programs. A spouse may receive an additional $125,000. The limitation is applied to the total of payments for covered commodities from the PLC and ARC programs, as well as marketing loan gains and loan deficiency payments under the marketing assistance loan program. A separate $125,000 limit is provided for payments for peanuts under these programs. Cotton transition payments are limited to $40,000 per year.