Many farm operators in the Upper Midwest will be receiving a significant farm program payment in the coming days from the USDA Farm Service Agency (FSA). Most crop producers in Minnesota and northern Iowa who are enrolled in the county yield-based Ag Risk Coverage (ARC-CO) farm program choice on their corn base acres will earn a farm program payment for the 2014 crop year. In addition, farm operators in some counties will also earn an ARC-CO payment on soybean base acres for the 2014 crop year.
The direct payments that existed under the last Farm Bill were in place for nearly two decades, and were paid to producers on the basis of crop base acres, regardless of crop prices or yields. The ARC-CO program payments in the current Farm Bill are based on changes in national price levels and the county-level yields for a given crop. This change has resulted in some confusion surrounding the pending ARC-CO payments, and there will likely be more confusion, once the payments are received.
The first confusion surrounding ARC-CO payments is why producers in one county get the maximum payment for a crop for the 2014 crop year, and producers in another county get zero payment for the same crop. The difference in 2014 ARC-CO payments from county-to-county is dependent on the 2014 county NASS yield, compared to the 2014 county benchmark (BM) yield, which can be expressed as the “% of BM yield.” The “% of BM yield” is more important than the final county yield in determining estimated ARC-CO payments. If the 2014 NASS county yield, expressed as a “% of BM yield” is below 100%, there will likely be a 2014 ARC-CO payment for corn and soybeans. However, as the 2014 “% of BM yield” increases above 100%, the 2014 ARC-CO payment for corn or soybeans is reduced, and if that percentage is high enough, there would be no 2014 ARC-CO payment.
The estimated 2014 ARC-CO payment for corn in most southern Minnesota and northern Iowa counties will be at the maximum level, which ranges from $70-80 per corn base acre, with slightly lower payment rates in central and northern Minnesota. The ARC-CO estimates for corn will likely be different in states such as Illinois and Indiana that had much higher county NASS corn yields in 2014, and probably had a much higher 2014 “% of BM yield.” Approximately 99% of the corn base acres in Minnesota, and 97% in Iowa, are enrolled in the ARC-CO program.
The estimated 2014 ARC-CO payments for soybeans in Minnesota and northern Iowa is significantly different than corn, and will be totally dependent on the 2014 “% of BM yield” for a given county. The estimated 2014 ARC-CO payments for soybeans in southern Minnesota and northern Iowa are likely to range from zero to just over $50 per soybean base acre. About half of the counties in that region would get either a partial or maximum payment, depending on the 2014 county yield, expressed as a “% of BM yield”, compared to the 5-year county average benchmark yield. Over 98% of the soybean base acres in Minnesota and Iowa are enrolled in the ARC-CO program.
There can be a wide variation in 2014 ARC-CO payments from county-to-county, even in neighboring counties. For example, Blue Earth County in south-central Minnesota is likely to receive the maximum 2014 ARC-CO payment for soybeans, due to having a 2014 “% of BM Yield” of only 93%. However, neighboring Watonwan County had a 2014 “% of BM yield” of 110%, and producers will receive no 2014 ARC-CO payments for soybeans. Understanding the “% of BM yield,” and why there is such a wide variation in 2014 ARC-CO payments from county-to-county, can be very difficult for producers to understand.
The second confusion regarding 2014 ARC-CO payments surrounds a FSA rule regarding the fact that payments are based on the FSA administrative county for the producer, and not where the farm is located. This could be an issue for farm operators that farm in multiple counties. For example, if a producer that farms in two Counties is in an a FSA administrative County that is not eligible for a 2014 soybean ARC-CO payment, but most of the soybean base acre are in the neighboring County that receives the maximum 2014 payment, they would receive no 2014 soybean ARC-CO payment on any of their soybean base acres. This issue is likely to be an ongoing concern in future years.
The third confusion regarding the 2014 ARC-CO payments is regarding the required sequestration reduction of the payments. Sequestration is the reduction, of annual spending for most Federal programs, including USDA farm programs, which was part of the 2011 legislation passed by Congress intended to reduce the Federal budget deficit. There were several different percentages being reported for the sequestration reduction. USDA has now clarified that the reduction will be 6.8 percent on 2014 farm program payments, which will also likely be the reduction for potential 2015 payments.
The final confusion is differentiating between 2014 ARC-CO payments and potential for 2015 payments. This is mainly due to the fact that the 2014 payments are being made right in the middle of harvest season for the 2015 corn and soybean crop. The 2014 ARC-CO payments were finalized as of September 30, 2015, once the 2014 market year average (MYA) prices for corn and soybeans became final. Potential 2015 ARC-CO payments will not become reality until September 30, 2016, when the 2015 MYA average prices are finalized. Potential 2015 ARC-CO payments for corn and soybeans will also be highly dependent on final 2015 NASS county yields expressed as a “% of BM yield.” NASS usually releases final county yields from the previous year in late February or early March.