January 25, 2015
This past week has been interesting. Commodity Week was hesitant if not full own bearish the price of new crop soybeans. The charge lower was led by Dan Basse of Ag Resource Company. He dropped out a $6.50 figure given a normal 2015 U.S. growing season. We’ll try to report back more from Basse after listening to him make a presentation in DeKalb, Illinois Thursday. WILLAg will highlight the same Castle Bank event. If you are in the area please do drop by the Center for Agriculture on Peace Road in Sycamore at 1pm.
The evening before our WILLAg crew, courtesy Strategic Farm Marketing, will be in LaSalle at Senica’s Oak Ridge Golf Club - that’s just off I–39 north of the Illinois River. We’ll start at 6:30pm and cover the markets with Bill Mayer, Wayne Nelson, and Jacquie Voeks. The SFM group will follow up with information on the new Farm Bill.
It’s pretty clear will be touching on harvest in South America, the record size of the soybean crop there, its delay coming to the marketplace, and how U.S. farmers’ 2015 planting intentions factor into domestic and global stocks-to-usage figures. Take a listen to Commodity Week and you’ll get a preview of the larger discussion the market is, and will continue to have on these items through March 31st.
The market has already absorbed some very large, very bearish stocks figures domestically and globally. Carryover in the United States remains at 410 million bushels. This is about three times what the market has seen over the last several seasons. The global figures aren’t much better, but, those too, are already released into the wild. USDA’s WASDE figures from January 12th certainly do not reflect a disintegrating soybean price through the end of the marketing year with the season’s average cash price still ranging from $9.45-$10.95 a bushel. It is important to note, however, farmer marketing of U.S. soybeans is generally more than 60% complete by the end of January.
USDA released four reports on the 12th and now that University of Illinois Ag Economist Darrel Good has had some time to explore them, he’s found three unresolved issues in them. Two are related to the number of stocks on hand in the United States - more importantly the disappearance of corn and soybeans - and the third is the remaining FSA to NASS acreage discrepancy.
You may read more from Good in his January 20, 2015 Weekly Outlook posting on the FarmDocDaily website.
When you visit FarmDocDaily be sure to hit the link to the Farm Bill Toolbox. Landowners and farmers should find the decision process items in the toolbox very valuable as an aid to making the new farm program choices. The deadline for making two of the three farm program choices is the end of February. University of Illinois Ag Economists Gary Schnitkey, Jonathan Coppess, & Nick Paulson along with The Ohio State’s Carl Zulauf penned an article this past week about the acreage allocation and yield update decisions. It follows;
Base Acre and Yield Updating Decisions: Push to the Finish
The deadline for completing base acre and yield updating decisions is February 27th (see steps 2 and 3 of “7 Steps” on Farm Bill Toolbox). Choosing between alternatives for each of these decisions is relatively straight forward:
1) For yield updating, select the highest yield for each program crop.
2) For base acre reallocation, choose the allocation that maximizes acres in program crops with the highest payments, given that the desire is to maximize program payments.
While the decisions usually are straightforward, collecting the information and completing the process will take some time. For this reason, beginning the process now seems prudent.
Landowners Officially Make the Decisions
Decisions will be made for each Farm Service Agency (FSA) farm. For each farm, there will be a landowner who owns the farm. Under rental arrangement, there also will be a producer who farms the land.
Landowners are responsible for making the base acre reallocation and yield updating decisions. While the landowner officially makes the decisions, in many rental situations producers have the proper power of attorneys to complete paperwork for these decisions. FSA has a record of whether proper power of attorneys exists for each farm. If an appropriate power of attorney does not exist and the landowner wishes the producer to complete the process, a power of attorney will need to be signed for farmers or farm managers to complete the decisions. If a power of attorney does not exist, the landowner will need to complete the process for base acre and yield updating decisions.
Collect Yield Data
If program yields are to be updated, yields are required for each year the crop was planted from 2008 through 2012. Documentation is not required at signup. However, documentation will be required if the FSA farm is audited during the life of the Farm Bill. The method of documentation will need to be indicated at signup. In many cases, crop insurance records will be used to provide documentation. These records are the actual yearly yields used to calculate Actual Production History (APH) yields. An explanation of using crop insurance records for documentation is available here (farmdocdaily December 23, 2014).
It will not be uncommon that documentation for a yield will not exist for a year. For example, a producer may have only farmed the land in 2010 through 2012 and cannot obtain documentation for 2008 and 2009.
If a yield is provided without documentation under an audit, farm program payments may have to be repaid and a fine could result. When yield documentation does not exist, a plug yield will need to be used. The plug yield equals 75% of the county average. When documentation cannot be provided, the plug yield should be used for 2008 and 2009
Plug yields for each county and crop are publicly available. FSA has this information. They can be obtained from the Payment Yield Update tool on the APAS website. The plug yields also are contained in the Base Acre and Yield Updating tool, a Microsoft FAST spreadsheet available for download at the FAST website.
Yields can be reported to FSA using CCC–859. This form is available here.
Make an Appointment with FSA
An appointment should be made immediately with FSA. If possible, yields for updating should be completed before this meeting. Bringing completed CCC–859 forms will facility the signup process.
Yield Updating Decision
Two alternatives for the program yield will exist for each program crop (see farmdocdaily April 3, 2014 for more detail):
- The current program yield. These yields were reported for each FSA farm in a letter received from FSA in August 2014.
- The updated yield equal to 90% of the average of yields from 2008 through 2012. If a year’s actual yield is below the plug yield, the plug yield will be used instead of the actual yield. If an actual yield does not exist for a year in which the crop was planted, the plug yield will be used in the update yield calculation.
Base Acre Reallocation Decision
There are total base acres on each FSA farm. Landowner will be given two alternatives for dividing those total base acres into acres for each program crop (see farmdocdaily March 6, 2014 for more detail):
- Current allocation of base acres on the farm. These acres were sent to landowners and producers in a letter received in August 2014.
- Reallocated base acres. Total base acres are reallocated based on plantings from 2009 through 2012. Actual plantings were described in a letter received in August 2014. Total base acres under reallocation will equal base acres if current base acres are retained.
Many individuals will wish to make the allocation that maximizes commodity program payments, suggesting that the allocation be selected that places most acres in the crops with the highest expected payments. Estimating expected payments by crop requires forecast of prices and yields in 2014 through 2018. Obviously, forecasts can be wrong and crop rankings can vary from forecast rankings. With the knowledge of potential differences, estimated expected payments per program crop by county are available in the sample farms section of APAS. These same estimates also are available in the Base Acre and Yield Updating tool (available at the FAST website).
Users can see expected payment per program crop under different price forecasts for individual counties. In most counties, however, the following ranking exists:
- Corn will have higher expected payment
- Wheat will have lower expected payments than corn
- Soybean will have lower expected payments than corn and wheat.
As an example take a farm whose current allocation is 60 acres of corn and 40 acres of soybeans. The reallocation alternative based on 2009 through 2012 plantings is 75 acres of corn and 25 acres of soybeans. Note that both alternatives total 100 total base acres. The above ranking suggests that the reallocated alternative (75 acres of corn and 25 acres of soybeans) will have the highest expected payments.
Corn, soybeans, and wheat are the program crops: When these three program crops exist, the reallocation with the lowest acres in soybeans while maximizing corn acres usually will result in the highest expected payments. Use of the Base Acre and Yield Updating Tool is advisable in these cases.
In many cases, making choices for base acre reallocation and yield updating will be relatively straightforward. Collecting yields, getting the proper power of attorneys, and signing proper election forms will take time. Beginning the process now is important. The process needs to be completed by February 27, 2015