“Everyone pretty much accepts that direct payments are gone," says Keith Coble, professor of agricultural economics at Mississippi State University. "You need to discuss this with your banker. Bankers like direct payments — they’re easy to plug into their bottom line. But if this legislation passes, everyone — producers, bankers, crop insurance agents, marketing personnel — will have to become more sophisticated about the way they utilize these new financial products."
No matter which farm bill eventually emerges — House, Senate, or some combination thereof — producers will be coping with an alphabet soup of new government program acronyms, and more choices than ever before for risk management.
And, says Keith Coble, professor of agricultural economics at Mississippi State University, “We’re going to have to educate some folks in the banking industry and financial sector on what these programs will and won’t do.”
For example, he said at the Mississippi Farm Bureau Federation and Mississippi Soybean Association joint soybean advisory committee meeting, “Everyone pretty much accepts that direct payments are gone. You need to discuss this with your banker. Bankers like direct payments — they’re easy to plug into their bottom line.
“But if this legislation passes, everyone — producers, bankers, crop insurance agents, marketing personnel — will have to become more sophisticated about the way they utilize these new financial products. And there’s new terminology we’ve got to learn: deep loss programs, shallow loss programs, and layered loss programs.”
While there are significant differences in the House and Senate bills (the Mississippi Farm Bureau is favoring the House version), Coble notes that both are centered on crop insurance and other risk management tools as opposed to direct payments. The Senate bill uses revenue-triggered shallow loss programs, he says, while the House bill has revenue-triggered programs and price-triggered programs.
“With either bill, you’re going to have some interesting choices about what you’re going to do in terms of participation in these programs. It’s not going to be the old way, where you had price protection in this program, yield protection in that program.
“In the Senate bill, for example, you potentially could be stacking three programs together on the same acre of soybeans. You’re really going to have to get educated so you can go and talk to your banker about stacking programs and figuring out how much risk you’re incurring.”
With all of the shallow loss programs, Coble says, “Don’t let your landlord or your banker think these programs are going to pay every year. Our analyses indicate they will pay about two years out of five. You’ve got to explain this to them, and you’ve got decide whether these programs will pay when you need them to pay.”
In both the House and Senate bills, he says, not much has been done to change crop insurance. “The national crop insurance people have said, ‘We just want to be left alone,’ and that’s pretty much what has happened. Five years ago, if you mentioned crop insurance everybody got angry and frustrated— but we’ve been seeing some positive discussions on this.”
The Mississippi Farm Bureau, the Mississippi Soybean Promotion Board, the Delta Council, and other farm groups have done a good job, Coble says, of “getting out in front on these issues the last few years and trying to think about ways to effectively handle risk management.”
(See Policy & Risk: Farm Policy Briefs at http://agecon.msstate.edu/what/policy/briefs/farm.php)