May 29, 2017

NO  CHANGES  IN  ESTIIMATED  2016  ARC-CO  PAYMENTS

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 2016 ARC-CO payments, which would be paid in October, 2017. 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 on their soybean base acres. For the 2016 crop year, ARC-CO payments for corn will occur in fewer counties and in lower amounts, compared to 2014 and 2015, and soybean ARC-CO payments are not likely in most counties.

The 2016 market year average (MYA) price is the national average corn or soybean price from September 1, 2016 to August 31, 2017, which will be finalized on September 30, 2017. 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, 2017, USDA is estimating the 2016 MYA prices at $3.40 per bushel for corn, and $9.55 per bushel for soybeans.

2016 ARC-CO payments for a given crop are paid when the actual 2016 County revenue for the crop falls below the 2016 County benchmark (BM) revenue guarantee. The actual County revenue is the final 2016 County FSA yield times the final MYA price for 2016. The benchmark (BM) prices for corn and soybeans for the 2016 crop year are $4.79 per bushel for corn and $11.87 per bushel for soybeans,  which is down from $5.29 per bushel for corn and $12.27 per bushel for soybeans 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 2016 were calculated by taking the average County yields for the previous five years (2011-2015), dropping the high and low yield, and the averaging the other three yields. The 2016 County benchmark (BM) revenue for a given crop is the County BM yield times the 2016 BM price, which is then multiplied by 86 percent (.86) to calculate the “County Revenue Guarantee”. The current 2016 ARC-CO payment estimates are based on the USDA National Agricultural Statistics Service (NASS) 2016 estimated County average yields for corn, soybeans, and other crops. The NASS yields may be adjusted slightly by USDA to arrive at the final 2016 County FSA yields, which are used to calculate the 2016 ARC-CO payments; however, any adjustments in the final 2016 county yields will likely be lower than the 2016 NASS yield estimates. This would increase the likelihood or payment level for 2016 ARC-CO payments, especially for corn. The 2016 NASS County yields are available on the NASS web site at:  http://www.nass.usda.gov/

The relationship between the final 2016 County yield and the 2016 County benchmark (BM) yields is extremely important in calculating potential 2016 ARC-CO payments for corn and soybeans. Expressing the 2016 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 corn “% of BM yield” of less than 107% will likely realize the maximum estimated 2016 corn ARC-CO payment for that county, and counties with a “% of BM yield” of 121% or higher will likely not receive a 2016 corn ARC-CO payment. For soybeans, counties with a “% of BM yield” of 107% or higher will likely not receive a 2016 ARC-CO payment.

There will likely be a large difference in the 2016 corn ARC-CO payments from county-to-county, depending on the final 2016 County yield, expressed as a “% of BM Yield”. It appears that most counties in South Central and Southeastern Minnesota, as well as many counties in Northern Iowa, will get a partial 2016 corn ARC-CO payment; however very few will get the maximum payment. Counties receiving higher payment levels had 2016 corn yields that were lower or very similar to 2015 corn yields. Except for a few isolated counties, most counties in Southwest and West Central Minnesota will not receive a 2016 corn ARC-CO payment, due to the very high 2016 corn yields compared to the BM yields in 2016. No counties in the Upper Midwest will likely receive a 2016 soybean ARC-CO payment, as a result of very strong 2016 soybean yields, and the increase in the estimated soybean 2016 MYA price, compared to 2015.

The current 2016 corn and soybean ARC-CO payment estimates are based on the 2016 NASS County yields and the current MYA prices (as of 5-01-17). As we get closer to the end of the 2016 MYA year on August 31, 2017, the likelihood for significant changes in the 2016 MYA prices diminish, so we are not likely to see major shifts in the current 2016 ARC-CO payment estimates. There will likely be a 6.8 percent Federal sequestration reduction on all 2016 ARC-CO payments that paid in October, 2017, similar to the 2014 and 2015 ARC-CO payments.

Previous county yields for corn, soybeans, and other crops, benchmark yields and revenues, FSA yields, 2014 and 2015 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 2016 Corn and Soybean ARC-CO Payments”, which contains several tables relating to 2016 ARC-CO payments. He has also prepared “2016 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: kent.thiesse@minnstarbank.com 

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and

Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone — (507) 381-7960);

E-mail — kent.thiesse@minnstarbank.com)