Ag Policy Blog

A look at Potential ARC-County Payments for the 2015-16 Crop

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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After the Aug. 12 World Agricultural Supply and Demand Estimates (WASDE) came out on Aug. 12, I checked with a few of the university economist guys about estimated ARC-County payments for the 2015 corn and soybean crop. The basis of the question centered on the projected market year price decline for the 2016-17 crops.

On Friday, the University of Illinois Farmdoc economists delivered some analysis on that. The economists provided projections on ARC-County payments for corn and soybeans from the 2015 crop. Those payments would likely arrive in October. They will also range widely from place to place and likely aren't going to make up for the projected decline in prices farmers are expected to see from the crops harvested this fall.

ARC is the principle commodity program for corn and soybeans. USDA reported last year that ARC was selected by farmers for corn base acres on 1.24 million farms totaling more than 90 million acres, or about 91% of all corn farms. For soybeans, ARC was chosen on 52.6 million acres by more than 1 million farms, or 96% of the eligible farms.

Farmdoc's commentary noted, "ARC-CO payments for 2015 will be a significant positive cash flow on many grain farms as net farm incomes are projected to be low in 2016 ... However, these payments will not completely offset the lower prices and the remaining, stubbornly high costs that contribute to negative cash flows. An urgent need to cut cash flows now and through 2017 will exist."

The Farmdoc economists used the WASDE mid-point prices for the potential market year average prices for corn and soybeans on the 2015-16 crop, which is $3.60 per bushel for corn and $8.95 for soybeans to make their analysis.

The ARC revenue benchmark is a compilation of the last five years of yields for that county and the last five years of national prices for corn. Those are Olympic averages, so the high and low yields and prices are struck out and the three years of prices and yields that are left are used to calculate the benchmark.

The $3.60 corn price is significantly lower than the 2015-16 ARC guarantee of $5.29 a bushel. So effectively, the big deal for determining whether farmers in a county get an ARC payment will be the 2015 NASS yields -- or the cascading use of crop-insurance yields, district yields or other yield estimates in areas where good county yield is not known.

ARC payments for both corn and soybeans are going to again range widely from county to county. Ohio, Indiana, Illinois and Nebraska are more likely to receive higher ARC payments than Iowa, based on the color-coded map from Farmdoc. There is a swath of counties in states such as Iowa, Kansas, Minnesota, Missouri and Wisconsin where payments could average below $15 an acre and could be $0.

"There will be cases in which a $0 ARC-CO payment occurs in one county while another county has an over $50 payment per base acre," the Farmdoc commentary stated. "Less extreme examples will also occur. These variations occur because of differences in county yields compared to county benchmark yields."

Additionally, the Farmdoc guys also noted that ARC and PLC payments could also be subject to a 6.8% reduction due to the federal sequester.

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