Understanding the difference in 2015 ARC-CO payments

Many farm operators across the United States will receive a significant 2015 farm program payment in October 2016, from the USDA Farm Service Agency (FSA), due to reduced commodity prices in the past couple of years. Most crop producers in Minnesota, Iowa and other Upper Midwest States are enrolled in the county yield-based Ag Risk Coverage (ARC-CO) farm program choice on their corn base acres, and producers in many counties will earn a farm program payment for the 2015 crop year; however, the 2015 corn ARC-CO payments will vary widely from county-to-county. In addition, farm operators in a few Upper Midwest counties will also earn an ARC-CO payment on soybean base acres for the 2015 crop year.

Many producers are having difficulty understanding why there is such a wide variation in the estimated 2015 ARC-CO payments from county to county, even though the counties may have had similar corn yields in 2015, based on yield estimates from the USDA National Agriculture Statistics Service (NASS). The direct payments that existed under the last Farm Bill were in place for nearly two decades were guaranteed, and were paid to producers on the basis of crop base acres, regardless of crop prices or yields. By contrast, the ARC-CO payments in the current Farm Bill vary from year to year, and from county to county in a given year.

The ARC-CO payments are based on the actual national market year average (MYA) crop price, and the actual county-level yield for a given crop year, compared to 5-year average benchmark (BM) MYA prices, along with the 5-year average county yields. This rather complex calculation formula has resulted in a wide variation in the estimated 2015 corn ARC-CO payments. 

The first thing that happened relative to estimated 2015 corn ARC-CO payments was a decline in the county benchmark (BM) yields in most counties in Minnesota and adjoining states, as compared to 2014 BM yields. This was partly due to the very low average county yields in much of the region in 2014, as well as the fact that the 2009 crop year, which was a very strong yield year in most areas, was used in the 2014 BM yield calculation, but was dropped in the 2015 calculation. The 5-year county BM yield is re-calculated every year, using the crop yields of the five most recent years, dropping the high yield year and low yield year, and averaging the yields from the three remaining years.

Many counties in south-central, southwest and central Minnesota had the county benchmark corn yields decline by 6-12 bushels per acre from 2014 to 2015. The declining county BM yield lowers the potential maximum ARC-CO payment per crop base acre, as well as lowering the potential for ARC-CO payments at similar actual corn yield levels in a given year. County soybean BM yields did not vary greatly from 2014 to 2015, except in a few counties in central Minnesota that had extremely low 2014 soybean yields.

The difference in 2015 ARC-CO payments from county to county is dependent on the 2015 county NASS yield, compared to the 2015 county 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 2015 NASS county corn yield, expressed as a % of BM yield, is 126% or less, there will likely be a 2015 corn ARC-CO payment for corn, based on the current corn MYA price of $3.60 per bushel. If the county % of BM yield drops to 111% or lower, the county would likely receive the maximum 2015 corn ARC-CO payment. If the county corn % of BM yield is 127% or higher, there will likely be no 2015 corn ARC-CO payment, unless the corn MYA price declines from the current level by August 31, 2016.

For example, take Dodge County in southeast Minnesota. The 2015 BM corn yield is 186 bushels per acre, compared to 187 bushels per acre in 2014, and the 2015 estimated NASS corn yield is 204 bushels per acre, resulting in a 2015 % of BM yield at 110%. This results in an estimated maximum 2015 corn ARC-CO payment of $84 per corn base acre in Dodge County. By contrast, Nicollet County in south-central Minnesota had a 2015 BM corn yield of only 162 bushels per acre, compared to 168 bushels per acre in 2014, and a 2015 estimated NASS corn yield is 207 bushels per acre, resulting in a 2015 % of BM yield at 128%, which results in a zero estimated 2015 ARC-CO payment. These are extreme examples, but point out how much variation can exist in estimated 2015 corn ARC-CO payments in a relatively small geographical area.

The very high estimated 2015 NASS soybean yields across the Upper Midwest will result in producers in only a few counties that are likely to receive 2015 soybean ARC-CO payments in Minnesota and surrounding states. If the 2015 county soybean % of BM yield is 121% or higher, there will likely be no 2015 soybean ARC-CO payment, and if the % of BM yield drops to 106% or lower, the county would likely receive the maximum 2015 payment, with partial payments at levels of 107% to 120%. These estimates are based on a current soybean MYA price estimate of $8.75 per bushel, which will be finalized on August 31, 2016.

The fact that potential 2015 ARC-CO payments are not paid until October 2016, can also be very confusing. By that time of the year, producers will likely be harvesting the 2016 corn and soybean crop, and focusing on 2016 yields and grain prices, making it difficult to reflect back to the 2015 yields and 2015 MYA price changes. The 2015 ARC-CO payments will not be finalized as of September 30, 2016, once the 2015 MYA prices for corn and soybeans became final. If crop prices stay relatively low, this same scenario will likely play out again for potential 2016 corn and soybean ARC-CO payments, which would be paid in October, 2017.

Kent Thiesse has developed an information sheet, Estimating 2015 Corn and Soybean ARC-CO Payments, that helps explain the calculation of potential ARC-CO payments. He has also developed estimated 2015 ARC-CO payment tables for most counties in Minnesota and northern Iowa. To receive a copy of this information sheet and the county payment tables, send an e-mail to  kent.thiesse@minnstarbank.com.

The NASS county yields are available online. USDA Farm Service Agency (FSA) farm program information is also available online.

TAGS: Soybeans Corn
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