One visit to the Farm Service Agency (FSA) office to select a commodity program will no longer be enough. Patience is required to understand the complexities surrounding the 2014 farm bill commodity programs, stresses Steve Johnson, Iowa State University farm management specialist.
The process of enrolling in either the Agriculture Risk Coverage (ARC) program or Price Loss Coverage (PLC) program, which began in October and runs through spring, requires farmers to update their base acres and yields, then make a one-time decision for the program they will use for the next five years.
“It likely means at least three trips to the FSA office just to sign appropriate documentation,” Johnson says.
Updating and reallocating
Updating begins with the decision to retain or reallocate base acres by FSA farm number. Some growers have noticed that the FSA numbers on the report – received in early August – may not match their old base acres listed as 2014 base acres, planted acres on the farm in 2008 through 2012 and the counter-cyclical yield (CC yield) created from the 2002 farm bill, Johnson says.
“That data needs to be corrected, so contact FSA immediately,” he says. “Also, the landowner will be signing FSA forms that allow for these updates during the five-year life of the farm program. So growers should have worked with their landowner to determine by FSA farm number, whether to update base acres and/or farm’s yields.”
Because most Corn Belt farms were in a corn-soybean rotation from 2009 to 2012, decisions to retain or reallocate base acres will depend on whether the farm can create a larger corn base than their reported 2014 base.
“Potential ARC or PLC payments for corn base tend to be larger than soybeans, wheat or oats,” Johnson says. “Reallocate if you can create a larger corn base. For updating a farm’s yields, determine if you can create a larger yield than the old CC yield listed on the report. If you have access to actual yields by crop for 2008-2012, then update and create a new PLC yield.”
ARC or PLC: Which one is for you?
Johnson says electing either ARC or PLC will depend on national average cash price expectations over the next five years, which will become clearer this fall and winter.
“We can better determine farm and county yields and the 2014–2015 marketing year average (MYA) price featured in monthly World Agricultural Supply and Demand Estimates (WASDE) reports,” he says. “ARC and PLC programs will reflect on whether operators on that farm prefer to maximize their potential payments, likely with ARC, or minimize the risk of extremely low national cash price averages, likely with PLC.”
ARC resembles the Average Crop Revenue Election (ACRE) program in the 2008 Farm Bill. Growers may select either an ARC-County (ARC-C) or ARC-Individual (ARC-I) program. ARC-C payments are issued when the county crop revenue of a covered commodity is less than the ARC-C benchmark revenue multiplied by 86%.
The benchmark is determined by multiplying the five-year Olympic average (OA) county yields by the five-year MYA OA national cash price. OA is determined by tossing out the highest and lowest yields and prices for the most recent five-year period.
The ARC-I benchmark is the sum of average revenues for each covered commodity on the farm. “You must combine all individual ARC farms in the state to determine the benchmark revenue,” Johnson says.
In PLC, payments are triggered when the MYA price falls below the designated crop reference price of $3.70 per bushel for corn and $8.40 per bushel for soybeans. The marketing year to determine potential 2014 or PLC payments began Sept. 1 and ends Aug. 31, 2015. The PLC payment rate equals the reference price minus the MYA price, multiplied by the farm’s CC yield or PLC yield and multiplied by 85% of the crop’s base acres.
Growers who select PLC may opt for the new Supplemental Coverage Option (SCO) program, a county-based policy for yield or revenue that pays on all acres covered.
“However, Extension economists caution that the rider doesn’t offer much if you are in an area where you can already buy 85% revenue protection coverage, as it only brings coverage up to 86%, and that SCO premiums will not be as cheap as increasing your farm-level coverage,” Johnson says.
He notes that ARC payments will be triggered at much higher prices than PLC, at least in the first few years, as growers are coming off several high-price years.
“ARC-County provides payment on 85% of base acres; ARC-Individual on only 65%,” Johnson says. “The effective OA price trigger in 2014 is estimated at $5.28 for corn, compared to PLC’s $3.70. For soybeans, the effective OA price trigger in 2014 is estimated at $12.27, while PLC’s is $8.40.”
Because most Corn Belt farmers already buy revenue protection crop insurance at the 80–85% level, “the fact that ARC doesn’t allow use of SCO may not be that big of an issue,” he says. “Extension economists believe the ARC-County will make sense for most growers in the Corn Belt.”
Don’t confuse ARC or PLC with crop insurance. “ARC and PLC are replacing Direct Payments, Counter-Cyclical Payments, ACRE and Supplemental Revenue Assistance Programs (SURE) programs,” Johnson says.
Enrollment in ARC or PLC occurs annually. Signup for 2014 and 2015 crops will run concurrently, Johnson says.
“Farmers and/or landowners will be locked into their ARC or PLC decisions for five years, so fully understanding the programs is essential. If growers don’t make a program choice for 2014, they will default into the PLC program beginning in 2015.”
Running the spreadsheets requires the input of base acreage data and farm and county yields for 2008 or 2009 through 2013. A grower’s 2014 yields will be included in determining potential ARC payments and should also be submitted to the crop insurance agent.
Johnson says most farms will complete updates this fall, then election and enrollment processes this winter. “While some growers are planting corn next spring, others will still be standing in line at the FSA office,” he says. “This is a long, detailed process for those who delay in getting started.”
Marketing is still king
New farm programs won’t replace good marketing plans, warns Darrel Good, University of Illinois agricultural marketing specialist and professor emeritus.
“Payments under either the ARC or PLC program are not dependent on the price the individual farmer receives,” he says. “Your marketing goal is to still get the best price you can for your crops.”
For additional information, see the FSA website.