Update: USDA on March 27 announced an extended deadline to sign up for ARC-PLC farm safety net programs. Farmers will now have until April 7 to make a decision.
By Steve Johnson
Editor's note: Steve Johnson is an Iowa State University Extension farm management specialist and a regular contributor to Farm Management Friday.
The new final county corn yields released by USDA's National Agricultural Statistics Service (NASS) on February 19 can now be used to estimate 2014 Agriculture Risk Coverage-County Option (ARC-CO) payments. Note that NASS yields used harvested acres, while the Farm Service Agency (FSA) yields used to calculate final 2014 ARC-CO payments to be made in October 2015 uses planted acres. Don't expect those FSA yields to be released until the summer months. Those yields will be slightly lower than the NASS yields, thus the ARC-CO payment estimates could actually be slightly larger depending on the final 2014-15 Marketing Year Average (MYA) national cash price.
This cash price used for the ARC and Price Loss Coverage (PLC) programs will not be finalized until after the marketing year ends on August 31. The final MYA national cash price will be known on September 29, just a few weeks before the final ARC or PLC payments will be made.
ARC-CO payment estimates for corn
Assuming this 2014-15 MYA national cash price comes in at $3.75 per bushel for corn and using the NASS final county yields, you can expect 72 out of Iowa's 99 counties would likely trigger a 2014 ARC-CO payment on corn base acres. Those payments would average about $70 per acre for those counties receiving a payment. Note that most of the counties in south central and southeastern Iowa counties would not likely trigger an ARC-CO payment at all.
2014 ARC-CO Payments using NASS County Yields & $3.75 per bushel national average cash price.
Source: iowafarmbureau.com/public March 2015
In these southern Iowa counties where the 2014 yield was substantially higher than the five-year Olympic Average yield, the ARC-CO payments for the 2014 crops year are likely zero. Note there were 19 Iowa counties, mostly in southern Iowa, which posted 2014 average yields that were far above Olympic average yields, so the ARC-CO payments are not likely in those counties for the 2014 crop year.
This Olympic average reflects the three-year simple average yield and price over the most recent five-year period. Thus for calculating the 2014 potential ARC-CO payment; the crop years 2009 through 2013 are used, with both the high and low county yields and national average cash prices eliminated. The Olympic average will roll over each year of the farm program, adding a new year and dropping out the oldest.
ARC-CO payment estimates for soybeans
NASS also released final 2014 county soybean yields for Iowa in February. However, soybean yields didn't fluctuate as much as those for corn from the prior five-year average. Thus, the ARC-CO program will not have a big impact on farm program decisions for the soybean program. Most Iowa farms are expected to elect ARC-CO on soybean base acres.
2014 ARC-CO Payments using NASS County Yields & $10.25 per bushel national average cash price.
Source: iowafarmbureau.com/public March 2015
From the graphic above, 29 out of Iowa's 99 counties would likely trigger a 2014 ARC-CO payment on the soybean base acres. Those payments would average about $20 per acre for those counties.
Farm program election deadline is approaching
Farmers have until March 31 to elect by farm and commodity crop either ARC or PLC as their FSA farm safety net program through 2018. Both decisions must be made by farm and commodity crop at the county FSA office by this deadline.
The ARC program is designed as a revenue protection program and will provide payments when crop revenue below predetermined levels. The ARC decision is further broken down into either individual (ARC-IC) or county option. However, the county option (ARC-CO) appears to be the most favorable to all but a few Iowa farms. That's because ARC-IC pays on only 65% of a farm's base acres while ARC-CO pays on 85%. ARC-IC also requires that all commodity crops on the farm be combined annually for calculating potential payments.
There's no one "right" farm program election answer
The farm program election is locked in for five years, through the 2018 crop year. Thus the potential 2014 payments are just one part of the overall calculations. Farmers have had several months to study their election options. There won't be just one program that fits every farmer, and there will be differences across Iowa's counties and farms.
Those farmers can also decide to opt for the Price Loss Coverage (PLC) program as opposed to the ARC program. PLC works much like the traditional target price program to set a floor using national average market cash prices. This option, however, only triggers payments if annually the national cash price for the entire marketing year falls below the established reference prices of $3.70 per bushel corn and $8.40 per bushel soybeans, respectively.
Farmers can choose by FSA farm number, PLC for one crop and ARC-CO for another. Farmers are encouraged to use online calculators developed by Iowa State University, the University of Illinois and Texas A&M University to see how their farm or farms would perform under various yield and price scenarios. These sites allow farmers to run their individual data through computer models to develop payments over the five-year life of the farm program. Doing research on the farm programs choices is essential, but it won't likely answer all farmers' questions. The final program election decision will vary with changes in yields and market prices during the 2014 thru 2018 crop years.
For farm management information and analysis visit ISU's Ag Decision Maker site at extension.iastate.edu/agdm; ISU farm management specialist Steve Johnson's site is at extension.iastate.edu/polk/farm-management.