Minding Ag's Business

The Trouble with ARC Yields

USDA wasn't kidding a decade ago when it first told farm groups it didn't have sufficient national data for a county-based farm program. The 2014 Farm Act overruled those warnings, instead giving the Secretary broad authority to determine Agricultural Risk Coverage (ARC) county yields.

The program works fine in places like Iowa, where nearly all counties have National Agricultural Statistics Service (NASS) county yields, says Kansas State Economist Art Barnaby. It's outside the Corn Belt where he and other farm program forecasters run into problems. At least 30 producers in a county must respond to NASS yield surveys for the agency to issue an official county yield.. At least 25% of acres in a county must be irrigated to split yields between those acres and dryland. That means many counties have no NASS yields or the yields are not split into irrigated or non-irrigated yields by practices, he notes.

For the record, getting payments right matters because many farmers counted them in their cash flows when applying for operating credit this year. (University of Illinois latest corn budgets project 2016 losses of $43 to $194 per acre, a deep chasm without an ARC payment). Some 90% of the corn and soybean farmers and two-thirds of the wheat producers are enrolled in ARC-county coverage.

Barnaby and his K State colleagues have attempted to model what 2015-crop payments will be when checks are mailed this fall. In many parts of Iowa, that's $40 to $90 per acre (before reductions for base or sequester). In many Kansas counties, it's $30 per acre for wheat. But when NASS yield data is missing, both USDA and the K State economists substitute Risk Management Agency yields to make calculations.

"That's not as simple as it sounds," Barnaby says. "RMA only has a county yield by practices, but does not publish the number of acres by practice. If ARC used a combined yield [a blend of irrigated and non-irrigated], then we need to know the percent of the acres that are irrigated and non-irrigated so that we can calculate a weighted average yield. Because RMA doesn't publish the acres, we used acres by practice that were published by the Farm Service Agency."

So far, so good. NASS, RMA, FSA data. But wait.

Take Washington, Idaho and Oregon wheat. RMA reported the same county yield for irrigated, non-irrigated spring wheat, winter wheat, soft white wheat, etc., Barnaby says. In one county, the five-year Olympic average irrigated wheat yield was 90 bu. and non-irrigated was 18 bu. When RMA reported a single, blended yield of 39 bu. per acre for all classes of wheat, K State's calculator forecasted large payments for the irrigated land and none for the non-irrigated, clearly something that wasn't right.

John Gordley, director of the American Soybean Association's Washington office, also sees another fluke with the formula. RMA data isn't equivalent to NASS, he noted in a recent essay on the farm bill's performance. In fact, RMA yields are frequently higher than NASS, Gordley says, something that could make it harder to trigger ARC. This resulted in some neighboring counties with disparate payments for 2014. He says farm groups are laboring for a solution before the current law expires.

The truth is area-based farm programs can be flukey if your county is missing yield data, if it has experienced at least two yield disasters in the last five years (a bigger problem for the Great Plains than the Corn Belt), or if your farm's yields don't track the county average. On the plus side, ARC-county payments kicked in for most growers when prices collapsed for key commodities. Most corn growers stand to collect sizable payments for 2015 as well. In effect it bought time for growers to get their costs in alignment. To date, ARC has far outpaid the alternative Price Loss Coverage, so it's hard to complain too loudly.

"The good news is there are a lot of farmers receiving a real education on county yield-based risk protection before the next farm bill debate," Barnaby says. "Farmers will get their report card measured in dollars and everyone learns then. It's no longer a theory being debated."

Follow Marcia Taylor on Twitter @MarciaZTaylor

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