ARC Payments Vary Widely

USDA Releases Maps Showing ARC-County Program Payments

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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This map shows the range of income impacts of lower corn prices and counties that generated ARC-County payments for corn base acres. The counties in yellow, pink and red generated ARC payments. Farms in green and dark-green counties would not receive an ARC payment for corn base acres. (Graphic courtesy of USDA FSA)

OMAHA (DTN) -- USDA's Farm Service Agency released a series of maps Friday detailing the range of haves and have-nots when it comes to payments under the Agricultural Risk Coverage program.

While FSA announced more than $3.9 billion in commodity payments starts to go out this week to roughly 800,000 farmers, FSA staff are concerned at least some farmers don't understand the nuances of the ARC-County program. It isn't like the old Direct Payments program because not everyone is going to receive a check.

Even though corn prices fell from a national market average of $4.46 a bushel for 2013-14 crops to an average price of $3.70 for the 2014-15 crop, the lower prices didn't trigger ARC-County payments in counties where higher 2014-15 corn yields made up for the difference in the lower prices.

Effectively, a bumper crop could wash out the impact of low prices and not trigger a payment.

ARC-County was created as a risk-management tool to complement crop insurance and shift farmers away from Direct Payments paid regardless of market conditions.

Farmers throughout most of Missouri saw historically high corn yields in the 2014 harvest, so only a couple of counties triggered any kind of ARC payment. The same holds true for most of Mississippi, Alabama and Tennessee, as well as southern Illinois, southeast Kansas and northeast Oklahoma. Strong average county yields in those areas pushed farmers above the ARC revenue guarantee and out of the range for program payments.

The reverse is true for corn farmers in Minnesota, Wisconsin, Michigan, Ohio and larger parts of Iowa, Nebraska and the Dakotas. FSA maps show county yields weren't enough in those areas to overcome lower corn prices. Thus, farmers in those areas show average county revenue below the historic averages. They are going to collect ARC-County payments for that 2014-15 crop.

Fewer counties nationally generated payment for soybeans. The national market average price for the 2014-15 crop for soybeans was $10.10.

For wheat, ARC-County generated payments predominately in the Southern Plains -- Kansas, Oklahoma and Texas panhandle -- as well as the major growing counties in Washington state, Oregon and northern Illinois.

For a full look at ARC-County payments for corn, wheat and soybeans, go to http://www.dtn.com/…

ARC-County payments are going out for most major crops around the country such as corn, soybeans and wheat in counties where actual revenue fell below the calculated revenue guarantee. ARC's companion program, Price Loss Coverage, did not generate payments this year for crops other than peanuts and long-grain rice. Payments for long-grain rice are expected to start going out as early as next week.

For farmers in a state such as Missouri -- largely left out of any commodity payments this year -- next year would likely be a different scenario, said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. "There's a lot of envy out there right now," Westhoff said.

Missouri corn and soybean farmers would be more likely to generate an ARC-County payment next year because of the wet conditions this year that hampered planting season in the state. Westhoff said he thinks farmers understood the ARC scenarios given that Missouri had one of the larger enrollments in Price Loss Coverage for corn. A lot of economists during enrollment projected PLC could eventually become a better program over the five-year stretch of the farm bill, particularly if commodity prices remain lower.

HOW PAYMENTS ARE CALCULATED

Agricultural economists and other similar bean counters have been waiting for FSA to release the full set of county yield data used to generate the calculations. FSA officials said Friday they expect to put out that information next week.

For the vast majority of central cropping areas, FSA uses the county yields produced by its sister agency, the National Agricultural Statistics Service. For crops for which it was harder to get a solid yield from NASS, FSA officials used crop insurance data, as well as NASS district data. In the edges of growing regions and some crops or counties, FSA had to turn to its state committees to fill in yield data.

County yields are used two ways to calculate ARC payments. The county yields are multiplied by the national market-year average price for the commodity to generate a revenue calculation. For instance, a county with an FSA corn yield of 177 bushels an acre will be multiplied by the $3.70 national market-year price for actual revenue of $654.90 an acre.

That actual revenue -- $654.90 an acre in this example -- then is compared against the ARC benchmark and revenue guarantee. Those numbers -- the benchmark and revenue guarantee -- come from historical numbers for the county yields and national average.

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.

FSA provided an example of a county with a historic Olympic yield of 160 bushels an acre with the Olympic average national price for corn of $5.29 a bushel. 160 bushels x $5.29 generates an ARC benchmark revenue for that county of $846.40.

If the ARC benchmark calculation is $846.40 an acre, that figure is then multiplied by 86% to generate the ARC revenue guarantee. In this case, that's $727.90 ($846.40 x 0.86 = $727.90).

Since the county actual revenue for corn was $654.90 and the revenue guarantee in that county for the 2014-15 corn crop was $727.90, then everyone signed up corn base for ARC-County in that particular county is going get a payment of $73 an acre. ($727.90 - $654.90 = $73 an acre.)

If a county with that $846.40 per acre ARC benchmark had even lower yields, the payment could go as high as $84.64 an acre. But payments are capped at 10% of the ARC benchmark.

HIGH YIELDS NEGATE SOME PAYMENTS

How does a county get pushed out of an ARC payment? If that same example county had an FSA yield of 197 bushels an acre, then there would be no ARC payment for anyone in the county. 197 bushels per acre x $3.70 = $728.90 an acre, which tops the ARC revenue guarantee of $727.90.

Wait. We're not done. Once the per-acre payment calculation is done, two other steps must occur. ARC payments are made on 85% of base acres for that commodity. So, if a farm has 1,000 base acres of corn, the payment would be for 850 acres.

That payment then is subject to a 6.8% reduction because of the federal sequestration cuts.

This is the kind of calculation that has to be done for each commodity in every county.

The 2014-15 county yields and the national average price will now be rolled into the ARC-County five-year Olympic averages, replacing the numbers from the 2009 crop year. That will change the ARC benchmark and revenue guarantees for the 2015-16 crop.

Keep in mind that ARC and PLC payments are subject to payment caps of $125,000 for an individual and $250,000 for married couples.

Also, remember that the adjusted gross income cap for a person to collect farm program payments is now $900,000 -- averaged over three years.

ARC-County payments are based on the administrative county of the farm. If a farm is located in one county but administered in another county, the ARC-CO payment rate in the administrative county will determine the payment rate. FSA will be providing further information soon to address concerns where payments based on the administrative county may differ from payments based on geographic location of farms.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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Chris Clayton