Farm Program Payment Estimates - June 2016

Farm Program Payment Estimates - June 2016

Farm program payments under the 2014 Farm Bill have become substantial as prices have declined over the past few years. Farm program payments on the 2014 crop that were paid in late 2015 contributed more than $600 million to Nebraska producers' cash flow and bottom lines, helping to cushion some of the challenges of lower commodity prices. Payments on the 2015 crop due this fall are also expected to be substantial given current yield and price estimates. And, looking forward, payments could be large again on the 2016 crop to be paid in 2017 before shrinking substantially on the 2017 and 2018 crops.

Detailed analysis of both Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) payments are included in a recent Cornhusker Economics article. The PLC program provided virtually no payments to Nebraska producers on the 2014 crop except for canola as most commodity prices stayed at or above reference price levels. However, as prices have fallen further for the 2015 crop and the outlook through 2018 generally forecasts continued lower prices, PLC will begin to make substantial payments on Nebraska crops. In contrast, the ARC program, particularly ARC-CO (the county level ARC program) provided substantial support against falling prices and falling revenues for the 2014 crop and is expected to do so again for the 2015 crop. Even with lower 5-year Olympic average prices for the ARC benchmark going into 2016, the lower marketing year price projections from USDA at present would still translate into large ARC payments if yields only hit benchmark (5-year Olympic average) levels. But, as the 5-year Olympic average price continues to drop, the relative protection ahead for the 2017 and 2018 crop looks much smaller, particularly for corn. Details are in the Cornhusker Economics article.

Several tables and graphs help explain the ARC-CO payments and mechanics. For reference, three separate documents include detailed information on ARC-CO payments for every county-crop-practice combination in Nebraska:
These tables include relevant yield and price benchmark data as well as actual or estimated yields and prices to calculate crop revenue, losses below ARC-CO guarantees (if any), and resulting ARC-CO payment rates and payments per base acre (after adjustment for the 85% paid acre factor). As a note, the tables are not adjusted for budget sequestration, which reduced final payments to producers (after any additional payment limitations) by 6.8% on the 2014 crop and is expected to affect 2015 and 2016 crop payments by a similar amount near 7%.

A final column in the tables provides an important perspective and reminder that ARC-CO payments help cover revenue losses below guarantees, but do not cover the full amount of any loss. While the tables and graphs may show large discrepancies in ARC-CO payments across crops, counties, and practices, the formula ensures that ARC-CO payments are larger only where county revenue losses are larger and that any payment only covers a portion of the loss. Two maps for projected 2015 ARC_CO payments for all corn in blended (irrigated and nonirrigated yields combined) counties illustrate the issue.

Figure 1. Estimated 2015 ARC-CO Payments per Base Acre for Counties with All Corn Yields
Estimated 2015 ARC-CO Payments for All Corn Counties in Nebraska

Figure 2. Estimated Gross Revenue (Crop Revenue Plus ARC-CO Payments) as a Percent of the ARC-CO Guarantee for Counties with All Corn Yields
Estimated 2015 Gross Revenue Per Acre with Crop Revenue and ARC-CO Payments for All Corn Counties in Nebraska

Figure 1 shows the tremendous range in expected ARC-CO payments across the state in blended corn yield counties, with payment rates ranging from $0 to nearly $90 per base acre (after accounting for the 85% paid acre factor, but not for budget sequestration). But, the counties with larger ARC-CO payments in Figure 1 are also the counties achieving less gross revenue (combining crop revenue and ARC-CO payments) as a percent of the ARC-CO guarantee as shown in Figure 2. Similar graphs and data would illustrate the same variability and range of payments for other crops and practices across counties in the state, but also the same realization that larger ARC-CO payments help but do not completely cover revenue losses below ARC-CO guarantee levels.

Posted by Brad Lubben, Friday, June 24, 2016