FOCUS ON AG

January 24, 2022

ANALYZING FARM PROGRAM DECISIONS FOR 2022

The deadline to sign-up for the 2022 farm program is March 15 at local USDA Farm Service Agency (FSA) offices throughout the United States. Beginning in 2021 and continuing through 2023, farm program choices (PLC, ARC-CO or ARC-IC) can be made on an annual basis for each crop in a given marketing year. This allows producers to choose or switch their farm program choices on each FSA farm unit for a given year. Eligible producers are able to choose between the price-only “Price Loss Coverage” (PLC) and revenue-based “Ag Risk Coverage” (ARC) program choices. The ARC program choice includes both the county-yield based ARC-CO program choice and the ARC-IC program, which is based on farm-level yields.

The farm program choice between the PLC and ARC-CO is specific to each eligible crop and may vary on the same FSA farm unit. For example, a producer could choose PLC for corn and wheat and ARC-CO for soybeans on the same farm unit. The farm program choice can vary from farm unit to farm unit for the same crop. For example, a producer could choose PLC for corn in one county and ARC-CO in another county, if the farms are separate FSA farm units. The program choice for a crop on the same FSA farm unit must be the same, even if the farm unit includes several land parcels in multiple counties.

The ARC-IC program must be applied to all covered commodities on a given FSA farm unit, and all farm units in a State that are enrolled in ARC-IC are considered together in one ARC-IC calculation. In addition, ARC-IC payments are paid on only 65 percent of crop base acres, compared to payments on 85 percent of base acres for PLC and ARC-CO payments. This may limit situations where ARC-IC is a favorable farm program option. If producers do not make a 2022 farm program choice, they will automatically be enrolled into the same farm program choice that was selected for the 2021 farm program.

Overview of the 2022 PLC and ARC-CO Decision

All 2022 PLC and ARC-CO payments for corn and soybeans will be based on the market year average (MYA) price from September 1, 2022, through August 31, 2023. The MYA price is a monthly average farm-level price from throughout the U.S. that is “weighted” for the volume of bushels sold each month. The current higher crop price levels on the Chicago Board of Trade (CBOT), as well as local cash grain prices, will likely have little impact the final 2022 MYA prices, unless the current prices are maintained into this Fall and the first half of 2023.

Following is brief overview of the farm program choice between PLC and ARC-CO for the 2022 crop and marketing year for corn, soybeans and wheat in most instances:

• Corn — The most difficult decision between the PLC and ARC-CO program choice for 2022 is probably for corn, especially given the current level of CBOT and cash corn prices. However, the prospects for large U.S. corn acreage in 2022 and a trendline national average corn yield in 2022 could increase total U.S. corn supply and potentially put post-harvest pressure on corn prices. The final corn MYA price from 2014-2019 was $3.70 per bushel or lower, resulting in corn PLC payments from 2015-2019. The final 2020 MYA price was $4.53 per bushel and the current 2021 MYA corn price estimate is $5.45 per bushel, which would be at the highest MYA price level since $6.89 per bushel in 2012. The 2022 benchmark (BM) price for corn is $3.70 per bushel, which is the same price as the 2022 PLC reference price. PLC payments begin at a final MYA price below $3.70 per bushel, while potential 2022 ARC-CO payments will be dependent on final 2022 county average yields. At a final 2022 MYA price of $3.70 per bushel, the final county yield would need to be 15 percent or more below the county BM yield to initiate a 2021 ARC-CO payment. For example, if the county BM yield is 200 bu./A., the final 2021 county yield would need to be 170 bushels per acre or lower to initiate a 2022 ARC-CO payment. Another way to look at the ARC-CO decision for corn is to consider that if the final 2022 county average yield is the same as the county BM yield, the final 2022 MYA price would need to decline below $3.20 per bushel in order to initiate an ARC-CO payment. At a $3.20 per bushel final MYA price, there would be a $.50 per bushel PLC payment. The PLC program provides corn MYA price protection from $3.70 down to $2.20 per bushel. Producers that are in counties that susceptible to drought or other potential yield challenges for 2022 may want to consider the corn ARC-CO program for 2022.
• Soybeans — Given the current CBOT prices and local soybean price levels and projections, the 2022 farm program analysis probably leans toward ARC-CO in most instances. The 2022 soybean ARC-CO BM price is $9.12 per bushel and the 2022 PLC price is $8.40 per bushel. The final county yield for 2022 will likely need to be 15 percent or more below the 2022 county BM yield in order to initiate a 2022 soybean ARC-CO payment. This equates to a county average yield decline of 7-10 bushels or more per acre in most counties at current price projections. The possibility of 2022 ARC-CO payments could be more likely in areas facing drought potential for the coming crop year. The final 2022 soybean MYA price needs to drop below $8.40 per bushel to initiate 2022 PLC payments. The MYA price did not drop below $8.40 per bushel from 2014-2020 and will not drop below that level for the 2021 marketing year that ends on August 31, 2022. The current 2021 MYA soybean price estimate is $12.60 per bushel. There has never been a soybean PLC payment paid since the current farm program format was initiated in 2014.
• Wheat — In the past, the farm program decision has been the easiest for wheat; however, that may be different for 2022. Both the 2022 PLC reference price and the ARC-CO BM price for wheat are $5.50 per bushel, so the ARC-CO scenario is somewhat similar to corn. The 2022 marketing year for wheat and other small grains runs from June 1, 2022 through May 31. 2023, so the current wheat price trends are probably more pertinent than with corn and soybeans. The final wheat MYA price was below $5.50 per bushel from 2015-2020, with substantial PLC payments earned in many of those years; however, the current projected MYA wheat price for 2021 is $7.10 per bushel. Generally, wheat producers have tended to favor the PLC program over the ARC-CO program from 2014 to 2021 and the PLC payments were more favorable in most instances during that period.

Another factor that could encourage producers to enroll corn and wheat base acres in the PLC program, and possibly soybean base acres, is the availability of the “Supplemental Crop Option” (SCO) crop insurance program. The SCO coverage is an “add-on” option to traditional Federal crop insurance that is only available with the PLC farm program option and not with the ARC-CO program choice. Check with a crop insurance agent for details.

Kent Thiesse, Farm Management Analyst, has prepared an information sheet titled “2022 Farm Program Decision Cheat Sheet”. To request a free copy, send an e-mail to: kent.thiesse@minnstarnak,com. The official farm program details and information is available on the FSA farm program website at: https://www.fsa.usda.gov/programs-and-services/arcplc_program/index

Other Farm Program Decision Resources:

➢ North Dakota State University — https://www.ag.ndsu.edu/farmmanagement/farm-bill

➢ Kansas State University — http://www.agmanager.info/ag-policy/2018-farm-bill

➢ University of Minnesota Extension — https://extension.umn.edu/business/farm-bill

➢ Iowa State University — https://www.extension.iastate.edu/agdm/info/farmbill.html

➢ U of Illinois FarmDoc website — https://farmdocdaily.illinois.edu/category/areas/agricultural-policy/farm-bill

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960) E-mail — kent.thiesse@minnstarbank.com) Web Site — http://www.minnstarbank.com/