by Carl Zulauf, The Ohio State University & Gary Schnitkey, University of Illinois
NOTE: This article appeared in full on www.farmdocdaily.illinois.edu August 13, 2014
The 2014 farm bill gives Farm Service Agency (FSA) farm owners the option to choose their crop program for the 2014 through 2018 crop years. A factor, perhaps key factor that will influence this decision is the payment by the program choices for the 2014 crop year. This article uses the just released U.S. yield and price estimates in the August 2014 World Agricultural Supply and Demand Estimates (WASDE) to calculate an indicator of potential payments by the Agriculture Revenue Coverage - county program (ARC-CO) and the Price Loss Coverage (PLC) program. The indicator estimates are for the 2014 crop year for barley, corn, oats, long grain rice, medium (and short) grain rice, sorghum, soybeans, and wheat. These are indicator estimates because they use U.S. yield not county yield or farm payment yield, as ARC-CO and PLC use, respectively. AR-CO payments, for example, will vary across counties, with some counties having no payments due to high yields and some counties having large payments due to low yields. Thus, this article is not estimating payments that an individual FSA farm owner would receive. Nevertheless, the indicator estimates using U.S. yields should help frame questions and perspectives for FSA farm owners regarding program choices.
Calculation of Estimated Program Payments
ARC-CO makes payments when county revenue for the crop year is less than 86% of the county's benchmark revenue. ARC-CO pays when actual revenue is between 76% and 86% of benchmark revenue. PLC makes payments when the U.S. crop year average price is less than the crop's reference price. The reference price is specified by Congress in the 2014 farm bill. The various formulas used to determine the ARC-CO and PLC payments are presented at the end of the article. An initial comparative summary of these two programs is that ARC-CO is a market-oriented multiple year shallow loss assistance program and PLC is a low price assistance program where low price is defined by Congress, not the market.
Calculation of Yield per Planted Acre
Both programs use yield per planted, not harvested acre. Yield per planted acre is calculated as production divided by acres planted to the crop, expect for corn and sorghum. For these two crops, acres harvested for silage are subtracted from planted acres. No estimate is available for corn and sorghum silage acres for 2014. For simplicity, we assume that corn and silage acres will be the same in 2014 as in 2013. The one exception to the use of yield per planted acre is oats. For oats, yield is per harvested acre because a large share of acres planted to oats is for a cover crop to establish hay production.
Source of Data
U.S. crop year yield, price, planted acres, and harvested acres are from U.S. Department of Agriculture (USDA) August 11, 2014 WASDE (http://www.usda.gov/oce/index.htm), except for planted and harvested acres of long grain and medium/short grain rice. The acre data for both rice varieties are from USDA, National Agricultural Statistics Service June 2014 Acreage report.
A third program option exists --- the Agriculture Risk Coverage - Individual Farm option. The computations for this program are more difficult besides being farm specific. The ARC-CO estimates provide some indication of ARC-IC payments per acre but caution should be used since ARC-IC makes payments on the whole ARC-IC farm experience and thus is most akin to the average experience of all program crops on the farm. For an extension discussion of ARC-IC, including the conditions under which it is most likely to be an option to consider (farmdoc daily, June 6, 2014)
U.S. Per Acre Payment Indicator - August WASDE Mid Price (see Figure 1)
Using the midpoint of the WASDE range of prices for the 2014 crop year, ARC-CO payments are indicated for corn and sorghum. PLC payments are indicated for barley, long grain rice, and sorghum. The highest indicated payment is long grain rice from PLC at $90 per acre, with the second highest being corn from ARC-CO at $41 per acre. The only crop with indicated payments from both programs is sorghum at $3 from ARC-CO and $15 from PLC. Remember, actual payments depend upon county yield for ARC-CO and FSA farm payment yield for PLC, and payment is made on only 85% of base acres (65% for ARC-IC).
U.S. Per Acre Payment Indicator - August WASDE Low Price (see Figure 2)
When the low price in the range of crop year prices projected by WASDE is used, only medium/short grain rice and soybeans have no payment indicated. ARC has no payment indicated for long grain rice. PLC has no payment indicated for oats and wheat. Both programs have payments indicated for barley, corn and sorghum . ARC has the higher payment indicated for corn. PLC has the higher payment indicated for barley and sorghum. The highest per acre payment indicated is $120 for long grain rice by PLC, with the next highest being $79 for corn by ARC-CO.
A potentially important piece of information conveyed by comparing Figures 1 and 2 is how close ARC-CO is to making a payment if county yield is relatively poor compared to its benchmark yield and the 2014 U.S. crop year price is the WASDE midpoint price. This comparison suggests that ARC-CO might make payments if the midpoint-price is realized and if county yield is relatively poor for barley, oats, and wheat. This situation could be a particular consideration for wheat producers in the southern plains given their relatively poor 2014 wheat yields due to drought. A related point is that if the low projected price for soybeans emerges as the market price for 2014, ARC-CO could make payments for those counties with relatively poor yield. The reason for this observation is that actual U.S. revenue at the low WASDE price is only 1.3% higher than 86% of the U.S. benchmark revenue. Note, consideration of the role that yield plays in determining payment by ARC-CO does not apply to PLC. Whether PLC makes a payment depends solely on how U.S. crop year price compares to its reference price. In other words, PLC payment yield is fixed and thus not a determinant of whether payment is made.
U.S. Per Acre Payment Indicator - August WASDE high Price (see Figure 3)
Long grain rice and PLC is the only crop - program combination for which payment is indicated if the high price of the price range projected for 2014 in the August 2014 WASDE materializes.
• As of August 12, 2014, it appears that, among the crop examined in this article, long grain rice is the most likely to receive a payment from the 2014 farm program options, specifically from PLC.
• As of August 12, 2014, it appears that above average chances for payments exist for barley from PLC, corn from ARC-CO, and sorghum from both programs.
• Lower prices increase the likelihood of payments, especially from ARC-CO.
• County yields that are below average will be a factor in determining payments by ARC-CO in 2014, given currently expected prices.
• Payments are far from certain if prices strengthen due to lower production or strength in demand.
• Unlike past crop counter-cyclical programs, ARC and PLC have a greater likelihood of not making payments. There was a high probability that prices and revenue would end up below the relevant payment support level between 1933 and 1990 with a few exceptions, such as the 1970s. Such is not the case now. Farmers and farm land owners need to adjust their understanding of how farm programs work in the 21st Century as opposed to the 20th Century.
with Todd Gleason
by Todd E. Gleason
Friday the United States Department of Agriculture Farm Service Agency made a series of announcements related to the new farm programs' signup period. Farmers will make final irrevocable decisions between the ARC & PLC programs sometime after January 1, 2015.
|timeline posted to USDA FSA website August 1, 2014|
Online tools are under development at the University of Illinois to aid producers throughout the nation. Those tools may be ready by the official end of summer (September 22, 2014), but have not yet been released.
WASHINGTON, Aug. 1, 2014 — U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) Administrator Juan M. Garcia announced today that farmers should start receiving notices updating them on their current base acres, yields and 2009-2012 planting history. The written updates are an important part of preparing agricultural producers for the new safety net programs established by the 2014 Farm Bill.
“We’re sending these reports to make sure that farmers and ranchers have key information as they make critical decisions about programs that impact their livelihood,” said Garcia. “It’s important that producers take a few minutes to cross check the information they receive with their own farm records. If the information is correct, no further action is needed at this time. But if our letter is incomplete or incorrect, producers need to contact their local FSA county office as soon as possible.”
Verifying the accuracy of data on a farm’s acreage history is an important step for producers enrolling in the upcoming Agriculture Risk Coverage (ARC) program and the Price Loss Coverage (PLC) program. Later this summer, farmers and ranchers will have an opportunity to update their crop yield information and reallocate base acres.
“We’re working hard to prepare and educate farmers on the new programs created by the 2014 Farm Bill,” added Garcia. “I encourage producers to bring their USDA notice to any scheduled appointments with the local FSA county office. This will help ensure they have the information they need with them to discuss the available program options.”
By mid-winter all producers on a farm will be required to make a one-time, unanimous and irrevocable election between price protection and county revenue protection or individual revenue protection for 2014-2018 crop years. Producers can expect to sign contracts for ARC or PLC for the 2014 and 2015 crop years in early 2015.
Covered commodities include barley, canola, large and small chickpeas, corn, crambe, flaxseed, grain sorghum, lentils, mustard seed, oats, peanuts, dry peas, rapeseed, long grain rice, medium grain rice (includes short grain rice and temperate japonica rice), safflower seed, sesame, soybeans, sunflower seed, and wheat. Upland cotton is no longer a covered commodity.
by Todd E. Gleason
The 2012 Census of Agriculture hold many unique facts. Researchers at the University of Illinois have been digging through the numbers to find some plumbs. Todd Gleason reports it seems an old adage is borne out by the figures.
There were about 75 thousand farms in Illinois when the 2012 Census of Agriculture was taken by the United Stated Department of Agriculture. The census, by two different measures – acreage operated & value of production – suggests the majority of Illinois farms are small by either categorization. However, there are two interesting facts that flow with these categorizations. The smaller the farm the more likely it is to produce livestock of less total value, and the larger the farm the more likely it is to produce crops – mostly grains and oilseeds - of much greater value.
The Census of Agriculture defines a farm as any place from which $1,000 or more of agricultural products were produced and sold, or normally would
URBANA, IL. – The majority of annually produced crops such as corn obviously have to be stored. According to a University of Illinois agricultural economist, for corn producers, the question at harvest time will be who will store the portion of the crop which has not yet been sold.
“The portion of the crop that has not been sold can be sold at harvest for someone else to store, or the producer can store the crop on the farm or in commercial facilities,” said Darrel Good. “For the portion of the crop stored by the producer, the second question is whether the stored crop should be priced for later delivery or held unpriced. That decision is influenced by the magnitude of the carry in the corn market, the cost of storage, and expectations about the change in corn prices after harvest.”
Good explained that for corn that is stored and priced for later delivery, the price for later delivery needs to
by Gary Schnitkey, Ag Economist - Univeristy of Illinois
In Illinois, crop insurance payments on corn likely will be lower in 2014 than in 2012 and 2013. Crop insurance payments in 2014 likely will not be large for soybeans. For both corn and soybeans, harvest prices will be lower than projected prices. However, above average yields likely will counter price decreases, leading to low crop insurance payments. Somewhat ironically, crop insurance payments likely will be lower in 2014 than in 2012 and 2013. At the same time, revenue and returns will be much lower in 2014 than in 2012 and 2013.
Product Choices of Farmers
In this article, focus is placed on revenue insurance products at high coverage levels, as most farmers purchase these products. The four revenue products available in 2013 were
by Todd E. Gleason
The National 4-H Foundation and Monsanto have put together an educational series for kids at summer camp. Learn how the Fish Farm Challenge is helping boys and girls understand world hunger, world population, science, and engineering.
by Todd E. Gleason
This week University of Illinois ag economist Scott Irwin and Darrel Good have posted an article to the farmdocdaily website. It poises the question of just how big a really big United States corn yield could become. The answer, based on past history, is 173.6 bushels to the acre.
That's the average bpa deviation of the previous 6 largest deviations from trend yield since 1960. Those are shown in the included graph. The largest percentage deviation in the trend came in 1972 at 15.2 percent.
While the crop conditions reported by USDA each Monday support the potential for such a record setting national average yield for corn, the two caution this year does not following the normal pattern of the other six. The normal pattern is for near or just above normal rainfall and lower than average temperatures in the three I states; Iowa, Illinois, and Indiana. However, the number one corn producing state of those three (and the nation), Iowa, had nearly twice the June rain.
"There is no historical precedent in the last five decades for an extremely high corn yield relative to trend (1972, 1979, 1982, 1985, 1986, 1987, 1994, 2004, and 2009) when Illinois, Indiana, or Iowa had such an extreme amount of precipitation during June" write the two ILLINOIS agricultural number crunchers. They add, "the same conclusion also holds when other major corn-producing states are included in the analysis".
It doesn't mean such an exception won't occur, but rather that it has not happened before. History points to record yields with cooler, wetter weather runs through August.