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Potential recalculation of ARC-CO payments

Potential recalculation of ARC-CO payments

Most farm operators have received their checks from the USDA Farm Service Agency (FSA) for the 2014 County-based Agricultural Risk Coverage (ARC-CO) farm program. Farm operators who have land in multiple counties, but handle all of their FSA work administratively through one county, may have an additional decision to make by Feb. 1, 2016. This decision will likely only affect a small percentage of producers; however, it could be a very important decision for those that are affected.

A few years ago, FSA allowed farm operators who had farm units with FSA crop bases in multiple counties to do all of their FSA administrative work in one county, rather than in two or more counties. Additionally, some County FSA offices have been closed in recent years, requiring a shift in the designation of FSA administrative counties for some producers. When the 2014 and 2015 farm programs were rolled out, the decision was made that all potential farm program payments would be made on the basis of the FSA administrative county, rather than on the basis of the county where the FSA farm unit and crop base acres are located.

The decision to administer farm program payments on the basis of an FSA administrative county has created some issues for affected farm operators, due to the fact that 2014 ARC-CO payments are based on county-level 2014 corn and soybean yields, compared to county benchmark yields. Every county has an independent calculation for determining potential ARC-CO payments. This same scenario will exist for the 2015-2018 crop years, as well. In the U.S., 93% of the corn base acres and 97% of the soybean base acres are enrolled in the ARC-CO program option.

Farm operators who have had their 2014 ARC-CO payments negatively affected by the choice of their FSA administrative county have until Feb. 1, 2016, to request FSA to re-calculate their 2014 FSA payments on the basis of the physical location of each FSA farm unit. These requests will be made through local FSA offices. Producers can also request a change in calculation for the 2015 crop year, and any potential 2015 ARC-CO payments, which will be paid in October 2016.

Which farmers are affected?

The only producers who are affected by this change in FSA policy for 2014 are those who have FSA farm units in multiple counties under a single FSA administrative county, where there was a difference in the 2014 ARC-CO payment among the affected counties. Producers with all of their FSA farm units in one county, or producers with farm units in multiple counties and separate FSA administrative offices, are not affected. In addition, there would be no advantage to farm operators with FSA farm units in multiple counties to re-calculate the 2014 ARC-CO payments, if the chosen FSA administrative county already had the highest payment rate, which was applied to all the acres of a specific crop.

The most common situation where a re-calculation of ARC-CO payments would be requested is where one county is receiving a fairly large 2014 ARC-CO payment for a given crop, while the neighboring county is receiving little or no 2014 ARC-CO payment. The county level ARC-CO payments are determined by price and yield variation. The price variation is calculated on a national basis, based on the 2014 market year average (MYA) price, which is compared to 5-year benchmark (BM) price, and is the same in all counties in the U.S. The yield variation is calculated on a county-specific basis, based on how the actual 2014 county yield, compared to the 5-year county benchmark(BM) yield, which leads to the variation in ARC-CO payments from county-to-county.

The previous situation will occur fairly frequently with 2014 soybean ARC-CO payments in Minnesota and other Upper Midwest states, but not as likely on corn base acres; however, it is more likely to affect corn and wheat base acres in some other states. Another situation that could be beneficial to farm operators in Minnesota and other Upper Midwest states is where neighboring counties received the maximum level of ARC-CO payments on their corn base acres for 2014, and the producer had the county with the lower payment level as the FSA administrative county. The producer could request to receive the higher ARC-CO payment on the corn base acres located in the county with the higher payment rate. This could result in several thousand dollars difference in the final ARC-CO payment in some instances.

Farm operators cannot select certain crops or certain FSA farm units for re-calculation of 2014 ARC-CO payments. If a producer has corn, soybean and wheat base acres, all crops will be affected. It is important to keep that in mind when calculating the potential benefits from the re-calculation of farm program payments. There could be a gain of payments for one crop and a loss of payments for another crop. The only choice a farm operator can make is to have the 2014 or 2015 ARC-CO payments re-calculated based on the physical location of the individual farm units. They cannot switch Administrative counties, and they cannot reconstitute (split apart) their farm units. These choices can be made for the 2016-2018 crop years at designated times that are specified by FSA offices.

The bottom-line is that the decision to re-calculate 2014 and 2015 ARC-CO payments will not affect a large percentage of farm operators, and the decision for the 2014 and 2015 crop years are made independently. However, for those producers who are affected, it is a very important decision that could have a significant financial impact, especially on 2014 ARC-CO payments. Farm operators are encouraged to contact their local FSA office for more details.

To receive a free copy of “Potential Re-Calculation of ARC-CO Payments,” email Kent Thiesse.

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