FOCUS ON AG: 2017 ARC-CO PAYMENT POTENTIAL LOW
By Kent Thiesse, Farm Management Analyst and Vice President, MinnStar Bank
As farm operators are doing their mid-year cash flow planning, they are wondering if there have been any changes in the estimates for the 2017 ARC-CO payments, which would be paid in October, 2018. Most crop producers in the Upper Midwest are enrolled in the county yield-based Ag Risk Coverage (ARC-CO) farm program choice on their corn and soybean base acres for the 2014 to 2018 crop years. Many producers in the region earned a significant 2014 and 2015 corn ARC-CO payments, while farm operators in some counties also earned some ARC-CO payments in 2016 on their corn base acres. For the 2017 crop year, the ARC-CO payment potential for both for corn and soybeans is likely to occur in only a few counties, in fairy low amounts, and that payment potential has been declining in recent months due to stronger projected MYA prices for corn and soybeans.
The 2017 market year average (MYA) price is the national average corn or soybean price from September 1, 2017 to August 31, 2018, which will be finalized on September 30, 2018. The MYA price is the 12-month national average price for a commodity, based on the average market price received by farm operators across the United States, which is then “weighted” at the end of the year based on the volume of bushels sold in each month. As of May 1, 2018, USDA is estimating the 2017 MYA prices at $3.40 per bushel for corn, and $9.35 per bushel for soybeans.
2017 ARC-CO payments for a given crop will be paid when the actual 2017 county revenue for the crop falls below the 2017 county benchmark (BM) revenue guarantee. The actual county revenue is the final 2017 county FSA yield times the final MYA price for 2017. The corn benchmark (BM) price for the 2017 crop year is $3.95 per bushel, which is down from $4.79 per bushel in 2016, and $5.29 per bushel in both 2014 and 2015. The 2017 BM price for soybeans is $10.86 per bushel, which is well below $11.87 per bushel in 2016, or $12.27 per bushel in both 2014 and 2015.The BM prices are adjusted each year, using the USDA market-year average (MYA) price for the preceding five years, then dropping the high and low MYA price, and averaging the other three MYA prices.
The benchmark (BM) county yields for 2017 were calculated by taking the average county yields for the previous five years (2012-2016), dropping the high and low yield, and the averaging the other three yields. The 2017 county benchmark (BM) revenue for a given crop is the county BM yield times the 2017 BM price, which is then multiplied by 86 percent (.86) to calculate the “County Revenue Guarantee”. The county BM corn yields in most Minnesota counties for 2017 increased significantly from 2016 BM yields, due to fairly strong average county yields in both 2015 and 2016. Most 2017 county soybean BM yields also increased slightly, compared to 2015 to 2016 BM yields. 2017 was another fairly solid yield year in many areas of the Upper Midwest, which should allow for further increases in 2018 county corn and soybean BM yields.
The current 2017 ARC-CO payment estimates are based on the USDA National Agricultural Statistics Service (NASS) 2017 estimated county average yields for corn, soybeans, and other crops. The NASS yields may be adjusted slightly by USDA to arrive at the final 2017 county FSA yields, which are used to calculate the 2017 ARC-CO payments; however, any adjustments in the final 2017 county yields will likely be lower than the 2017 NASS yield estimates. This is not likely to result in much change in 2017 ARC-CO payment potential in most counties. The 2017 NASS county yields are available on the NASS web site at: http://www.nass.usda.gov/
The relationship between the final 2017 county yield and the 2017 county benchmark (BM) yields is extremely important in calculating potential 2017 ARC-CO payments for corn and soybeans. Expressing the 2017 county yield as a “% of BM Yield” is actually more important than the final county yield in determining estimated ARC-CO payments. Any county that has a “% of BM yield” of less than 88% for corn, or 87% for soybeans, would likely realize the maximum estimated 2017 ARC-CO payment for that county. Counties with a “% of BM yield” of 100% or higher for either corn or soybeans will likely not receive a 2017 ARC-CO payment.
By comparison, in 2016 the “threshold level” for counties to begin receiving ARC-CO payments was a “% of BM yield” of 120% or lower for corn, and 107% or lower for soybeans. Counties received the maximum level of 2017 ARC-CO payments at a “% of BM yield” level of 107% or lower for corn and 94% or lower for soybeans. This shows the impact of the significantly lower corn and soybean BM prices for 2017. The current estimates for BM prices for the 2018 crop year are $3.70 per bushel for corn and $9.64 per bushel for soybeans. The $3.70 per bushel level is the same as the corn reference price for the Price Loss Coverage (PLC) program, which is also the minimum BM corn price for the ARC-CO program.
Overall, 2017 ARC-CO payments for corn and soybeans are not likely in most portions of the Upper Midwest, due to above average yields in many areas, together with the much lower 2017 BM prices. There are a few counties in Northwest Minnesota, as well as some counties in both North and South Dakota, which were impacted by drought conditions, that are likely to receive 2017 ARC-CO payments. There are also a few counties in Southeast Minnesota that could receive a small 2017 soybean ARC-CO payment; however, if the soybean MYA price continues to rise these payments may not exist by 9-30-18. Most counties in the rest of Minnesota, Northern Iowa, and the Eastern Dakota’s will not receive a 2017 corn or soybean ARC-CO payment.
The current 2017 corn and soybean ARC-CO payment estimates are based on the 2017 NASS county yields and the current MYA prices (as of 5-01-18). As we get closer to the end of the 2017 MYA year on August 31, 2018, the likelihood for significant changes in the 2017 MYA prices diminish, so we are not likely to see major shifts in the current 2017 ARC-CO payment estimates. Any 2017 ARC-CO payments will be paid in October, 2018, and will be subject to a 6.8 percent Federal sequestration reduction, similar to previous years. Previous county yields for corn, soybeans, and other crops, benchmark yields and revenues, FSA yields, 2014, 2015 and 2016 ARC-CO payment levels, and other farm program information are available on the FSA ARC-PLC web site, which is at: www.fsa.usda.gov/arc-plc.
Kent Thiesse has prepared an Information Sheet titled: “Estimating 2017 Corn and Soybean ARC-CO Payments”, which contains several tables relating to 2017 ARC-CO payments. He has also prepared “2017 ARC-CO Payment Estimate Tables” for most counties in Minnesota and Northern Iowa, as well as Eastern North and South Dakota. To receive a free copy of the Information Sheet and the Payment Tables, send an e-mail to: firstname.lastname@example.org
Focus on AG is a weekly Column which features timely information on crop and livestock production, farm management and marketing ag policy, renewable energy, and other timely ag Topics. For additional information contact Kent Thiesse, Farm Management Analyst and Vice President, MinnStar Bank, Lake Crystal, MN. Phone 507-381-960; E-Mail email@example.com Web Site www.minnstarbank.com