Most farm operators have been contemplating farm program choices for the new farm bill for the past 6-8 months; however, decision time has now arrived. Producers have until March 31, 2015, to complete their farm program choice at local USDA Farm Service Agency (FSA) offices. Farm program choices include the Price Loss Coverage (PLC), Agricultural Risk Coverage-County (ARC-CO) or Agricultural Risk Coverage-Individual Coverage (ARC-IC) programs. They can potentially make different choices for each crop on a given FSA farm unit. The selected farm program choice will be in place on a FSA farm unit for five crop years, from 2014 to 2018.
USDA recently also extended the deadline to March 31, 2015, for producers and landowners to finalize decisions on crop base acre reallocation and updating FSA payment yields. This decision had already been completed on most FSA farm units prior to the original deadline on Feb. 27. Failure to make a decision by March 31 will result in a FSA farm unit retaining the same crop base acres and FSA payments yields that existed in 2013, prior to the implementation of the new farm program.
There have been thousands of farm program information meetings, hundreds of articles and information sheets written, and many analysis spreadsheets developed in order to help producers analyze their farm program choices. Even with all that information and analysis, many farm operators are still a bit confused and unsure about their final decision between the PLC, ARC-CO or ARC-IC farm program choices. Part of the challenge is that the various program choices offer different results for various farm program crops. There are also geographical differences in potential farm program payment potential with ARC-CO and ARC-IC for the same crop.
Probably the hardest portion of the farm program choice to analyze is future price expectations for individual program crops. All potential farm program payments for the 2014-2018 crop years are based on the market year average (MYA) price for that crop in a given year. The MYA price for corn and soybeans is the national average corn or soybean price from Sept. 1 in the year of production to Aug. 31 the following year. The MYA prices are finalized on Sept. 30 of the following year
The estimated 2014 MYA prices range from $3.60 to $3.90 per bushel for corn and $9.85 to $10.25 per bushel for soybeans. As of mid-February, USDA was estimating the 2014 MYA prices at $3.65 for corn and $10.20 for soybeans. By comparison, Kansas State University is estimating the 2014 MYA prices at $3.81 per bushel for corn and $10.09 per bushel for soybeans as of March 1, 2015.
The final MYA price for a given crop is the sole factor in determining potential payment eligibility with the PLC program, and is a major factor for determining payment likelihood with the ARC-CO and ARC-IC programs. If the final MYA price for a given crop is equal to or above the pre-set reference price for that crop, there will be no PLC payment for that crop year. The PLC reference prices are $3.70 per bushel for corn and $8.40 per bushel for soybeans. These PLC reference prices will remain in place for the 2014-2018 crop years.
ARC-CO payments for a given crop will be paid when the actual county revenue for that crop in a given year falls below the county revenue guarantee for that crop in the same year. The revenue guarantee is based on the 5-year average of county average yield times the 5-year average MYA price. The actual county revenue is the NASS county yield for given year times the final market year average (MYA) price for that year. As the actual estimated MYA price for a given crop increases during a specific crop year, the likelihood of an ARC-CO payment in that year decreases, and vice versa. ARC-IC functions very similarly, except that potential payments are a function of all crops and all farm units that are enrolled in ARC-IC, rather than the crop specific payment calculations with the ARC-CO program. In addition, potential payments in the ARC-IC program are only paid on 65% of eligible crop base acres, as compared to 85 percent with the ARC-CO and PLC programs.
The ARC-CO payment potential in a given year is also dependent on the relationship between the final NASS County yield for a crop and the county benchmark yield for that year. The benchmark yields are the average county yields for a crop for the most recent 5 years, after dropping the high and low annual yield during that period. The USDA National Agricultural Statistics Service (NASS) recently released the 2014 estimated average county yields for corn, soybeans, and other crops, as well as the annual average yields that were used to calculate the 2014 benchmark yields for these crops. The 2014 NASS yields offer a pretty good estimate of where final Ag Risk Coverage-County (ARC-CO) farm program payments are likely to end up for the 2014 crop year. ARC-CO payments for 2014 will not be finalized until after September 30, 2015, and payments will occur in October 2015.
The 2014 NASS County yields for corn, soybeans, and other crops are available on the NASS website. Once on the website, click on the desired state, find the appropriate crop and county, and look for the 2014 yield.
Based on current MYA price estimates, there will likely be no 2014 PLC payment for soybeans and wheat, and a very small 2014 PLC payment for corn, if any at all. Most counties in Minnesota and Northern Iowa will likely receive the maximum, or close to the maximum, ARC-CO payments for corn for 2014. However, there is a wide variation in the likelihood of potential 2014 soybean ARC-CO payments from county-to-county, depending on the relationship between the final 2014 NASS yield and the 2014 benchmark (BM) yield (“% of BM Yield”). One county may receive the maximum 2014 ARC-CO payment for soybeans, while the neighboring county may receive no payment for 2014.
The worst choice a producer can make is not to make any decision by March 31 on the new farm program. A “no-decision” will result in no eligibility for farm program payments for the 2014 crop year, and being placed in the PLC farm program for 2015-2018. This could be a very costly mistake for many Upper Midwest corn and soybean producers who are looking at some pretty significant potential ARC-CO payments for the 2014 crop year, and potentially again for the 2015 crop year.