For the past two years farm operators have been receiving government payments under new programs implemented in the most recent farm bill. In Iowa, about 98% of farms are enrolled under the Agriculture Risk Coverage-County program. You have probably heard the ARC-CO program mentioned across a number of ag publications. Yet, there are landlords who are not familiar with this program or how much money is involved.
Payment amounts are determined by a combination of county average yield and the Olympic average price. Farmers receive their annual payment each October.
This is a farm financial safety net program. The ARC-CO program provides revenue loss coverage at the county level. Payments are issued by USDA to program participants when the actual county crop revenue of a covered commodity is less than the ARC-CO guarantee for the covered commodity.
Profit or loss varies
In 2016, for the second year in a row, many southern Iowa counties are receiving little to no payment, but northern Iowa is in line for near maximum payments in many counties, which can be over $70 per acre. Similar to 2015, not all counties in Iowa will receive payments this year. In fact, 15 southern Iowa counties did not receive a payment for corn acres, and 33 counties did not get a payment on soybean acres.
With so much discrepancy from county to county, it is important to know what your tenant’s payment is, if anything. For some farmers, this payment could be the difference between net profit and loss in 2016. There is little doubt that cash rental rates remaining stable have been supported in part by these ARC-CO payments, specifically in central and northern Iowa.
Many landowners ask, “Why do these payments matter to me?” The short answer is rental rates have traditionally been established as a percentage of the gross income of the farm. A good rule of thumb is cash rent on corn acres has traditionally been 35% of gross income and 40% on soybean acres. ARC-CO payments are part of this gross income and therefore should be taken into account when analyzing your farm in order to get a true picture of how the tenant fared in 2016.
ARC-CO is in place for a minimum of three more years under the current farm bill, but it may be in place for much longer. Now is the time to get familiar with this and other government programs in order for you to make informed decisions concerning your land.
When negotiating lease terms for 2017, these government payments should be taken into consideration by the landowner.
Mullan is a farm leasing specialist with Farmland Stewardship Solutions, a farm management and advisory service based in Des Moines. Visit farmlandstewards.com.