Ag Policy Blog

Tweaking the ARC-County Formula

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Kansas State University ag economics professor Art Barnaby questions how giving the state Farm Service Agency offices greater voice in tweaking ARC-County yields will improve the program.

Barnaby also questioned the logic of the congressional fix proposed included in the Senate's version of USDA's funding with a pilot program created by Sen. John Hoeven, R-N.D. Hoeven's amendment would give the Farm Service Agency offices authority to change yields in the 2016-17 crop (the one being planted this spring). State FSA offices would be allowed to do so if wide disparities in yield are seen.

"I don't understand why turning this office to FSA state office makes any sense from a math standpoint," Barnaby said.

Hoeven's provision was included in the appropriations bill last week after USDA and members of Congress had received complaints from farmers and different state commodity organizations over the wide disparity in ARC payments. Complaints have largely hinged on how USDA came to conclude the 2014 yield rather than questioning if there were issues with yields used in crafting the ARC payment formula.

Barnaby argues the flaws in ARC-County payments come from the program's reliance using "70% of the county transitional yield," or "t-yield" as the plug-in yield for counties that had disaster years between 2009 and 2013.

The 70% of t-yield is a real problem for counties that had two or more years of disaster yields that just happened to fall that 2009-2013 timeframe. That's because ARC-County uses an Olympic average of those crop years 2009-13. The Olympic average throws out the high and low years, then calculates an average county yield based on the three mid-range yield years.

That's great for a county that had two or three boom yield years, but hurts payment possibilities for farmers in any county that had multiple bad years before rallying in yields in 2014 and 2015 crop years. Any time a county has two years of bad yields in the original Olympic calculation it is going to put a drag on the revenue guarantee for farmers in that county.

"When you have two bad yields in a five-year Olympic average, you've got crap for a guarantee," Barnaby said. He added, "Then it doesn't take much of a yield above normal, or just normal, and you are going to be out of a claim."

Barnaby noted some Great Plains counties can have three bad yield years showing up in ARC-County formula.

Those historical yields translate into lower benchmark revenue levels for farmers then lower revenue guarantees for that next crop year. It's also the reason why payments can range widely from county-to-county. Farmers in counties that did not have multiple years of low county yields are going to have higher revenue benchmarks and guarantees.

Barnaby suggests getting rid of the 70% piece of the formula and replace those historically low yields in particular years with the actual t-yield instead. That would raise historical average yields, as well as the county benchmark and revenue guarantee.

"The easiest way to fix this is to strike the 70% and make the t-yield the floor," Barnaby said.

Such a change would end up raising the overall costs of the program because it would raise every poor-yielding year in every crop up to the level of the t-yield. Still, payments would be subject to the same payment caps that are in the farm bill.

"I don't think people understand the yield part of this equation," he said.

Barnaby took a look at some contiguous Iowa counties in which payments for the 2014 corn crop ranged from $80 an acre to zero. Using 100% of the t-yield would have increased payment significantly in some counties -- from $23 an acre to $85 in one county -- while several others would have gone from zero payments to receiving an ARC-County payment.

For other counties, raising those t-yields to the full 100% would greatly increase the likelihood other counties would get payments for the 2015 and '16 crops.

Barnaby has been looking at estimated ARC payments for the 2015 crop. Information can be found at…

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5/26/2016 | 12:24 AM CDT
In some Iowa counties no producers returned their surveys thus the county didn't receive an ARC payment (according to the Fremont Co. FSA ). How will this ever be rectified? Are surveys sent to every producer? It would seem they aren't since none were returned.