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Estimated 2016 ARC-CO Payments

by Gary Schnitkey, Agricultural Economist - University of Illinois

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On February 23rd, the National Agricultural Statistical Service (NASS) released county yields for the 2016 crop year. With these yield estimates, fairly accurate estimates of 2016 Agricultural Risk Coverage at the county level (ARC-Co) can be obtained. We present maps showing estimated payments per base acre for corn, soybeans, and wheat. Also shown are maps giving 2016 county yields relative to benchmark yields. A table showing estimated payments per county in Illinois also is presented.



Procedures Payments for 2016 are still estimates and will vary from those presented here for the following reasons:

• Farm Service Agency (FSA) uses different yields than NASS when calculating ARC-CO payments. Where NASS data is available, the NASS yield generally will be higher than those used by FSA. As a result, estimated payments should be viewed as conservative.

• Market Year Average (MYA) prices are not known because the marketing year does not end until August for corn and soybeans and May for Wheat. MYA estimates used in these projections are $3.50 per bushel for corn, $9.60 per bushel for soybean, and $3.85 per bushel for wheat. Ending MYA prices are likely to vary from these estimates.

• Sequestration amounts may differ from those used here. The ARC-CO payments estimated here use the 6.8% sequestration reduction applied to the 2014 and 2015 payments. The sequestration amount may differ from the 6.8% estimate.





2015 ARC-CO Payment Estimates for Corn and Soybeans
Gary Schnitkey, Agricultural Economist - University of Illinois
Nick Paulson, Agricultural Economist - University of Illinois

On February 18th, the National Ag Statistics Service (NASS) released county yield data for the 2015 crop year. This post uses the NASS county yields and current MYA price projections from the USDA to estimate 2015 payments for the Ag Risk Coverage county level program (ARC-CO). Note that the final yields and prices used to determine actual payment levels will differ from the values these payment estimates are based upon. The final MYA price for corn and soybeans will not be known until the marketing year ends in August, and the final yields FSA will use to determine ARC-CO payments will likely not be released until September. See the farmdoc daily article from December 1, 2015 for a more detailed discussion and comparison of NASS county yields and FSA county yields used for the ARC-CO program.

Current MYA Price Projections

The midpoint of the February WASDE range for the 2015/16 MYA corn price is $3.60 (range of $3.35 to $3.85). This is 32% below the 2015 ARC program benchmark price of $5.29. Since the ARC-CO program provides a guarantee equal to 86% of the county’s benchmark revenue, the projected corn price implies that the actual corn yield in a county can be up to 26% higher than the ARC benchmark yield to trigger a payment. For soybeans, the midpoint of the WASDE range is $8.80 (range of $8.05 to $9.55). This implies that the actual soybean yield in a county can be up to 20% above the 2015 benchmark yield to trigger an ARC-CO payment on soybean base. Counties where actual corn (soybean) yields are up to 11.7% (6%) above the benchmark yield for 2015 will trigger the maximum ARC-CO payment, which equals 10% of the county benchmark revenue.

Estimated ARC-CO Payments for Corn and Soybeans

Figure 1 illustrates estimated 2015 ARC-CO payments on corn base acres. The county yield data from NASS covers only a portion of the counties in the US where ARC-CO is available for corn. More than 70% of the counties in the US where a NASS yield was published are estimated to trigger an ARC-CO payment for corn base in 2015, with over 40% of those counties triggering the maximum payment equal to 10% of the county revenue benchmark.

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Figure 2 shows estimated 2015 ARC-CO payments on soybean base acres. Again, NASS reported a county yield for only a portion of the counties with the ARC-CO program for soybeans. ARC-CO payments are estimated to be triggered on over 60% of counties with a NASS soybean yield reported, with more than 30% of counties triggering the maximum payment on soybean base acres.

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Estimated ARC-CO Payments in Illinois

In Illinois the average estimated ARC-CO payment on corn base is over $65 per base acre. County level payment estimates for Illinois are illustrated in Figure 3. Payments would be triggered in over 90% of Illinois counties, and the maximum payment would be triggered for corn in roughly 2/3 of Illinois counties. Only three counties with a corn yield reported by NASS in Illinois for 2015 would not receive a payment at the current price projection of $3.60. These counties, shown in white in Figure 3, are Monroe, Piatt, and Pope. NASS reported county yield averages well above the benchmark yield levels in all three of these counties.

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Adjusting the projected MYA price for corn to the high end of the WASDE range ($3.85) would still result in ARC-CO payments on corn base averaging over $45 per base acre across the state, with more than 75% of counties triggering payments and just over 25% of counties triggering the maximum payment.

The average estimated ARC-CO payment on soybean base in Illinois is just over $28 per base acre. Payments would be triggered in more than 70% of Illinois counties, with more than 15% of counties triggering the maximum payment. A handful of counties, located mainly in southern and east central Illinois, had reported NASS yields which were high enough to result in a zero ARC-CO payment estimate on soybean base.

Increasing the projected MYA price for soybeans to the higher end of the WASDE range ($9.55) lowers the average ARC-CO payment estimate to $6.60 per base acre with less than 40% of counties triggering a payment, and no counties triggering the maximum payment on soybean base acres.

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Summary

Despite corn and soybean yields which generally above average in most areas in 2015, low price levels projected for corn and soybeans for the 2015/16 marketing year make ARC-CO payments for both crops likely across much of the US. Using county yields released by NASS last week, payments for ARC-CO were estimated at the midpoint of the price range in the February WASDE report for corn and soybeans. Using these yields and price levels, a large proportion of counties are expected to trigger 2015 ARC-CO payments for corn and soybeans, with a significant number of counties hitting the maximum payment level of 10% of the county benchmark revenue.

In Illinois, the ARC-CO payment for corn is estimated to average over $65 per base acre with only three counties not expected to receive a payment. For soybeans, the average ARC-CO payment estimate is just over $28 per base acre in Illinois, again with the majority of counties expected to receive some payment.

2015 ARC-CO payments are only provided as estimates at this time. The final yields used in calculating payments can differ from the yields released by NASS, and will also cover additional counties in the US. The final MYA price levels for corn and soybeans will not be known with certainty until the marketing year ends in August. However, where NASS yields are available, estimates for the 2015 ARC-CO payment levels can be helpful for planning purposes.

An Early Jump on Computing ARC-CO Payments

Farmers and their bankers can get a jump on just how much income to expect from the ARC County program next fall. Todd Gleason has more on how NASS county yields can be used to anticipate the payments.



Farm income is down dramatically. It means farmers will be going to bankers for production loans this winter. Those loans will be used to plant next season’s crops. The bankers will be looking for every clue they can to help them make solid lending decisions. One source of income they’ll want to calculate comes from the farm programs. However, the ARC County payments won’t be figured until the fall.

It is possible to estimate these payments by substituting NASS county yields for the FSA computed yields says University of Illinois Agricultural Economist Gary Schnitkey, "So, there are likely to be 2015 ARC County payments, but this will depend upon county yield levels. FSA calculates those yields, but not until the autumn of 2016. However, we can use NASS yields to come up with a pretty good estimate of the FSA county yields. NASS will release its yields in February of this year. This will give us a pretty good feel for the 2015 ARC County payments because we’ll have a pretty good ideas of what the FSA county yields will look like."


NASS county yields do vary from the FSA numbers, but not by much. NASS calculates yields by dividing production by harvested acres. These are both numbers the agency collects via a statistical estimate. FSA uses a different calculation. FSA adds to acres the RMA failed acres. Therefore, FSA yields will most always be less than NASS yields. NASS county yields, then, will provide a conservative estimate of the ARC County payment.

ARC/PLC Enrollment Closes September 30th

Landowners and farmers may still have one more piece of paper to fill out for the new farm bill. Even if they’ve signed up, they may still need to enroll in the program to receive payments.



The enrollment period for ARC and PLC coverage ends September 30th. This is different from the signup for the program held earlier. Without the final enrollment contract signed University of Illinois Agricultural Policy Specialist Jonathan Coppess says payments won’t be made for last year’s harvest short falls.
Quote Summary - When you made the election decision back in the spring you still had to signup for the program in order to receive the payment. That signup period is closing September 30th. So, farmers if you have not signed up, then you need to get into the FSA (Farm Service Agency Office) right away to get that taken care of.
Payments, if any, from last year’s ARC and PLC program will be cleared to go out starting October 1st, 2015. The payments, as outlined in the contract language, are subject to sequester cuts. If congress fails to deliver a budget, payments for the 2014 crop will be reduced by more than 7%.

2015 Gross Revenues for Corn Using RP85% + ARC Co

A University of Illinois Ag Economist has back figured how the new farm program would have performed over the last 40 growing seasons when coupled to crop insurance. The calculations can be used as a guidepost to 2015 farm incomes.



The exercise coupled RP crop insurance at the 85% level to the ARC County farm program to see how it would have supplemented farm income on a highly productive central Illinois farm located in Logan County. The numbers were run for crop years starting in 1975 all the way through 2014 says Gary Schnitkey. He’s an ag economist at the University of Illinois and explains, to begin with, how this combination would have handled the years farmer are most likely to remember; 1980, 83, 88, and 2012.
Quote Summary - So those are the drought years, and while in 1988 we didn’t have the crop insurance products we do now, we can figure what income would have looked like if a producer had purchased RP at the 85% level and took ARC County. Those years would not be bad from a gross revenue stand point. Crop revenues would be low, but crop insurance and ARC County payments would bring those back so that if, for instance 2015 looked like 1988 or 2012, the gross income would be at the top end of our distribution over the 40 year period.
Yields and prices in each of the 40 years are calculated using 2015 projections, but the actual year offsets. 2012, then. would show a lower actual price (because this years crop insurance price is lower than 2012’s) but a higher actual yield. Essentially you pick a year, adjust for 2015, and calculate the gross income.


The middle point (where the distribution is not quite evenly split above and below but close) is $828 per acre. The low revenue year forecasts correlate mostly with trend yields and lower corn prices. So, with a somewhat normal growing season that has below average prices. That could be caused by large residual supplies, big carryouts, or by poor demand.
Quote Summary - Poorer demand or something along that lines. Those types of years will be the ones that cause low revenues in 2015.
The ten middle years of the set project 2015 gross revenues from $825 to $831 per acre for corn. They were each characterized by harvest prices and yields relatively close to expected levels - the February crop insurance price and trend yield. Those years include 1984, 1990, 1991, 1996, 2002, and 2009.

Link to original FarmDocDaily article

Estimated 2014 ARC County Payments

Farmers throughout the nation are deciding which of the new farm programs to take. Another piece of that puzzle was put into place when USDA released the county wide corn and soybean yields late last month. These can be used to estimate some of the 2014 farm program payments.



County wide yields as calculated by USDA's National Agricultural Statistics Service along with the estimated season's average cash price - the marketing year average - can be used to forward figure 2014 ARC County payments. It is possible therefore to know