Updated yields and prices affect ARC-CO payments

Updated yields and prices affect ARC-CO payments

USDA program makes a payment if county revenue is below 86% of the county's benchmark revenue.

The Agriculture Risk Coverage-County (ARC-CO) program is based on county yields and national prices reported by USDA’s Farm Service Agency (FSA). USDA recently released updated price projections and production estimates that affect projected ARC-CO payments for the 2015-16 crop marketing year. Iowa State University economists

have updated the tool box to help you evaluate the impact of those changes in your projected cash flow for 2016 and 2017.

HOW IT WORKS: The Agricultural Risk Coverage "county" program option (ARC-CO) is based on county revenues and acts like a type of additional revenue insurance product for crop producers. When county revenues fall below a certain level, farmers who have selected this coverage are paid the difference. Payments, if made, aren't received until approximately one year after the crop is harvested.

On March 9, USDA reduced the projected 2015-16 average price for soybeans by 5 cents, to $8.75 per bushel, increasing both the likelihood and the potential amount of ARC-CO payments on soybean base acres. The projected corn price remained at $3.60 per bushel for the 2015-2016 crop marketing year.

On February 22, the National Agricultural Statistical Service (NASS) released the final county crop production estimates for 2015. The report shows 73 Iowa counties had higher corn yields in 2015 than in 2014, 22 had lower yields, and 2015 corn yields were not reported for Mills, Monroe, Taylor and Union county; 86 counties had higher soybean yields, 11 had lower yields, and 2015 soybean yields were not reported for Taylor and Mills county. Higher yields reduce the likelihood and the potential amount of ARC-CO payments.

Projected payments vary widely by county in Iowa
The state-average ARC-CO payments for 2015-16 are projected at $42.81 for corn base acres and $21.54 for soybean base acres (after 6.8% sequestration). Payments vary widely by county in Iowa: from no payments to $75.85 in corn base acres, and from no payments to $54.43 in soybean base acres. The updated ARC/PLC Calculators can be downloaded as spreadsheets from the Ag Decision Maker website.

It must be noted that these tools do not use NASS yields in their calculations. NASS yields are calculated as production (in bushels) divided by harvested acres. Instead, ARC/PLC Calculators use “corrected” yields, based on NASS data and obtained by dividing production (in bushels) by planted acres. The difference between NASS yields and “corrected” yields is mostly, but not fully, explained by failed acres.

Why are “corrected” yields used instead of NASS yields?
The reason why “corrected” yields are used instead of NASS yields in these decision tools is that for 63 Iowa counties the “corrected” yields are closer to the official FSA yields than NASS yields are. For example, the corn yield used by FSA to calculate ARC-CO payments for Lyon County in 2014-15 is 149 bushels, while the NASS yield is 172.9 bushels, and the “corrected” yield is 155 bushels. The average difference between FSA and NASS county yields amounts to 4.75 bushels of corn per acre, while the average difference between FSA and “corrected” corn yields amounts to 0.42 bushels per acre.

The new tools developed by ISU economists will help farmers enrolled in either the ARC or PLC program to calculate the amount of government payments they can expect to receive if crop prices and/or county revenues decline to qualifying levels.

New ARC/PLC tools are available for 2016-17
ISU Extension and Outreach, in collaboration with the ISU Climate Science Program developed an ARC-CO Calculator for 2016-17 crop marketing year.

Yield forecasts—Dr. Christopher Anderson, assistant director of the Climate Science Program, provided yield forecasts by county for corn and soybeans based on the strength of El Niño as of January 2016. Using price projections derived from the USDA Agricultural Projections to 2025 ($3.60 per bushel of corn, and $8.65 per bushel of soybeans), the average ARC-CO payments in 2016-17 are projected at $46.58 per corn base acre and $42.01 per soybean base acre in Iowa.

Projected payments by county—In an effort to make the analysis of farm bill payments more user-friendly, the Center for Agriculture and Rural Development (CARD) developed a new visual tool with the most updated information from the ARC-CO and PLC Calculators. The new online tool helps users visualize in three charts how projected payments for a selected county stack against payments in all other counties, against the state average, and against payments for the same county across different marketing years. A map of Iowa illustrates the intensity of payments across counties and clearly shows spatial patterns reflecting the relationship between yields and farm bill payments. This tool will be posted on the CARD website soon; check the website at card.iastate.edu.

Calculate your projected payment—To complement the visual tool, a downloadable spreadsheet with detailed data on farm bill payments by crop and county is posted to the Ag Decision Maker website. The decision tool includes information on ARC-CO Olympic average prices, guarantee revenue, county crop revenue, and projected payments, as well as on PLC payment yields and projected payments for 2014-15 through 2016-17 crop marketing years.

All ISU farm bill decision tools are available online at extension.iastate.edu/agdm/info/farmbill.html

Farmers can select the location county for ARC payments
On March 16 the Farm Service Agency sent a postcard to all farmers who have cropland in more than one county and are enrolled in the Agriculture Risk Coverage-County (ARC-CO) option of the farm program. Prior to April 15, 2016 farmers will have a one-time opportunity to change the payment county from the administrative county to the county where the base acres are located. You must contact your county FSA office before April 15 to do this. Contact them now if you have questions.

FSA has a calculator that will recalculate whether the producer will get a higher payment by choosing the location county or not making any changes and continuing to use the administrative county for recalculation of ARC payments. Farmers may make a different decision on the county in 2015 than was selected in 2014, i.e. the ARC payment county is an independent decision between 2014 and 2015.

For farm management information, visit ISU's Ag Decision Maker site extension.iastate.edu/agdm.

Editor’s Note: Alejandro Plastina is an Iowa State University Extension economist and assistant professor of economics at ISU. Contact him at [email protected].

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