January 28, 2019
2018 ARC-CO PAYMENTS WILL BE LIMITED
Crop producers are now in the process of doing their crop income and expense estimates for the 2019 crop year. One of the big questions for farm managers is whether to expect any ARC-CO payments from the 2018 crop year in October this year. For the 2017 crop year, very few counties received ARC-CO payments for corn or soybeans, except in counties that had significant crop yield reductions in 2017 due to weather issues. The lower 2018 benchmark (BM) prices for corn and soybeans will likely make 2018 ARC-CO payments for corn and soybeans quite limited again in most areas. Similar to 2017, counties that incurred reductions in average yields in 2018 are most likely to receive a 2018 ARC-CO payment for corn or soybeans.
The ARC-CO program utilizes national average grain prices and average county yields to determine ARC-CO payments. ARC-CO payments for corn, soybeans or any other crop are paid when the actual county revenue for a crop in a given crop year falls below the calculated county “revenue guarantee” for that crop. The actual county revenue is the final FSA county yield for a crop for that year times the final national market year average (MYA) price for the year for that crop. If that final county revenue amount is lower than the county “revenue guarantee” for that crop, producers in that county that are enrolled in the ARC-CO farm program would earn an ARC-CO payment for that year. Each county also has a maximum ARC-CO payment level for each crop.
The “revenue guarantee” for a given crop is the “benchmark” (BM) revenue times 86% (.86). The BM revenue for 2018 is the 5-year (2013-2017) county average yield, dropping the high and low yield, times the BM price, which is the 5-year (2013-2017) average MYA price, again dropping the high and low price. The national BM prices for 2018 are $3.70 per bushel for corn and $9.63 per bushel for soybeans, which have been declining each year from the highest BM prices of $5.29 per bushel for corn and $12.27 per bushel for soybeans in both 2014 and 2015. The significantly lower BM prices for 2018 lowers the potential maximum ARC-CO payments, as well as reducing the likelihood of receiving 2018 payments in most counties.
Many counties in Minnesota and Iowa will have increased county corn and soybean BM yields for 2018, compared to much lower levels in 2015 and 2016. This is due to the lower yield years of 2011 and 2012 being dropped from the 5-year BM yield calculation, and being replaced by 2016 and 2017, which were years with much higher county yields. The result will be higher final 2018 county yield levels to initiate potential 2018 corn and soybean ARC-CO payments. However, the improvements in the county BM yields for 2018 will be more than offset by the decline in 2018 BM prices.
The USDA National Agricultural Statistics Service (NASS) is scheduled to release the 2018 estimated average county yields for corn, soybeans, and other crops in late February, 2019. The NASS county yields will offer a good estimate of where final 2018 ARC-CO farm program payments are likely to end up, depending on the final 2018 MYA price level. The NASS county yield estimates may be adjusted slightly by USDA, based on 2018 planted acres, to arrive at the final FSA yields that are used to calculate the 2018 ARC-CO payments.
The 2018 MYA price for corn and soybeans is the national average price from September 1, 2018 to August 31, 2019, with prices being finalized on September 30, 2019. As of December 1, 2018, USDA is projecting a 2018 MYA prices at $3.60 per bushel for corn and $8.60 per bushel for soybeans. These MYA price estimates will continue to be adjusted by USDA in the monthly World Agricultural Supply and Demand Report (WASDE), which is usually released around the 10th of each month. Now that the federal government shutdown has ended, we should be getting another WASDE report very soon with some updated MYA price estimates.
The relationship between the final 2018 county yield and the 2018 County benchmark (BM) yields is extremely important in calculating potential 2018 ARC-CO payments for corn and soybeans. Expressing the 2018 county yield as a “% of BM Yield” is more important than the final county yield in determining estimated ARC-CO payments. Once the final 2018 NASS county yield estimates are released, it is possible to make some fairly accurate 2018 ARC-CO payment estimates at various final 2018 MYA price levels.
Following are the parameters for 2018 corn and soybean ARC-CO payments at the current MYA price estimates of $3.60 per bushel for corn and $8.60 per bushel for soybeans:
- Corn — ARC-CO payments will begin at a 2018 final county yield that 88 percent (.88) or less of the
county BM yield. The maximum ARC-CO payment for a given county will be earned if the
final county yield is 78 percent (.78) or less of the county BM yield.
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- Soybeans — ARC-CO payments will begin at a 2018 final county yield that 96 percent (.96) or less of
the county BM yield. The maximum ARC-CO payment for a given county will be earned
if the final county yield is 84 percent (.78) or less of the county BM yield.
Note — Any further decline in the 2018 national MYA price levels below the current estimates would enhance
the likelihood of potential 2018 ARC-CO corn and soybean payments. Conversely, any increases in the
final corn or soybean MYA price would reduce the ARC-CO payment potential even more. Any 2018
ARC-CO payments would occur in October, 2019. ARC-CO payments would be paid on 85 percent
(.85) of the base acres for a crop on a given FSA farm unit. Any ARC-CO payments would likely be
subjected to 6.8 percent (.068) Federal sequestration reduction.
Assuming a $3.60 per bushel 2018 corn MYA price level, a county with a BM yield of 190 bushels per acre would have 2018 corn ARC-CO payments initiated at a final 2018 county yield of approximately 165 bushels per acre or lower, and would receive the maximum payment at a final county yield below 148 bushels per acre. There could be some counties in South Central and Southwest Minnesota, as well as in adjoining counties in Northern Iowa, which had significantly reduced crop yields in 2018, that may qualify for 2018 ARC-CO payments. Given the fact that the 2018 statewide corn yields for Minnesota and Iowa, as well as other Upper Midwestern States, are projected to be above average, it is not likely that a high percentage of counties will qualify for 2018 ARC-CO payments for corn.
For soybeans, assuming an $8.60 per bushel MYA price level and a county with a BM yield of 50 bushels per acre, 2018 soybean ARC-CO payments would begin at approximately 48 bushels per acre or lower, and the maximum payment would occur at a final county yield below 42 bushels per acre. The 2018 statewide soybean yield for Minnesota is projected to be near 50 bushels per acre, so there is probably more potential for counties to qualify for a 2018 soybean ARC-CO payment than for a corn payment, especially for some counties in Southern Minnesota with higher BM yields.
The USDA FSA ARC/PLC web site contains 2014, 2015, 2016 and 2017 ARC-CO payment maps, as well as a spreadsheet with actual yields, benchmark yields, and payment rates for all crops for every county in the U.S., and other farm program information. The 2018 county benchmark (BM) yields are listed on this spreadsheet. It should be noted that the payment rates listed on this web site have not been factored by 85 percent to arrive at an ARC-CO payment per base acre, and the 6.8 percent federal sequestration reduction has not been applied to the listed payment rates. The FSA ARC/PLC web site is at: www.fsa.usda.gov/arc-plc.
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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Senior
Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960);
E-mail — kent.thiesse@minnstarbank.com)