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Sequestration likely to affect farm program payments

Many farm operators in the Upper Midwest are anticipating significant county-based Ag Risk Coverage (ARC-CO) farm program payments on corn for the 2014 crop year. Some producers are also likely to receive a fairly substantial ARC-CO payment for soybeans for the 2014 marketing year. It was recently revealed that the likely 2014 ARC-CO farm program payments, and any other farm program payments, are likely be subject to Federal government sequestration provisions.

Sequestration, or reduction, of annual spending for most federal programs, including USDA farm programs, was part of 2011 legislation passed by Congress, and is intended to reduce the Federal budget deficit. The Federal Office of Management of Budget (OMB) is responsible for determining when sequestration is administered, and what the level of sequestration is. Provisions in the 2014 Farm Bill allow for farm program payments to be reduced by sequestration. Conservation Reserve Program (CRP) payments and Federal crop insurance payments are exempt from sequestration.

The OMB is expected to require USDA to reduce 2014 farm program payments between 6.8 and 7.3%. Most experts expect a sequestration reduction of 7.2 or 7.3% for ARC-CO, PLC, and other farm program payments for both the 2014 and 2015 crop years. That level of payment reductions would amount to approximately $3,600 of sequestration reductions on a total of $50,000 of farm program payments, and about $7,200 in reductions on $100,000 in total payments. It would require action by Congress to override the application of the sequestration provisions on farm program payments for the 2014 and 2015 fiscal years, which seems unlikely to occur at this point.

2014 ARC-CO payments are based on 2014 county average corn and soybean yields, and the 2014 national market year average (MYA) price for corn and soybeans, compared to the 5-year average county yield and MYA price. The 2014 MYA prices are the national average farm-level prices from Sept. 1, 2014 through Aug. 31, 2015, which will be finalized on Sept. 30, 2015. Payments for the 2014 Price Loss Coverage (PLC) farm program option are also based on the MYA prices through Aug. 31, 2015. All 2014 farm program payments will be paid in October 2015.

The current USDA estimate for the 2014 market year average (MYA) price for corn is $3.68 per bushel. The estimated 2014 ARC-CO payment for corn in most southern Minnesota and northern Iowa counties will be at the maximum level, which ranges from $70 to $80 per corn base acre, with slightly lower payment rates in central and Northern Minnesota. Approximately 99% of the corn base acres in Minnesota, and 97% in Iowa, are enrolled in the ARC-CO program.

The current USDA estimate for the 2014 MYA price for soybeans is $10.06 per bushel. At that MYA price, the resulting estimated 2014 ARC-CO payment for soybeans in southern Minnesota and northern Iowa would range from 0 to just over $50 per soybean base acre. About half of the counties in that region would get either a partial or maximum payment, depending on the 2014 average county soybean yield, compared to the 5-year county average benchmark yield. Over 98% of the soybean base acres in Minnesota and Iowa are enrolled in the ARC-CO program.

If the final corn MYA price for the 2014 marketing year is $3.68 per bushel, there would be a small PLC payment of 2¢ per bushel for corn in 2014, for farm operators that enrolled in the PLC program for 2014-2018. There will be no 2014 PLC payments for soybeans. PLC payments are subject to sequestration reductions, similar to the ARC-CO payments referenced earlier.

Farm operators must enroll in the ARC/PLC farm program for 2014 and 2015 at their local Farm Service Agency (FSA) office by Sept. 30, 2015, in order to be eligible for farm program payments for those two years. As of early September, there were reports that nearly 50% of the farm operators in some counties had not yet enrolled in the farm program for 2014 and 2015. Failure to enroll in the farm program by Sept. 30 could cost producers thousands of dollars in lost farm program payments for the 2014 and 2015 crop years.

As of this writing, USDA has not made an official announcement regarding sequestration of 2014 farm program payments; however, those reductions appear likely to occur. Most 2014 farm program payment calculators and spreadsheets do not include the likely sequestration payment reductions in the estimated payment calculations. Farm operators should contact their local FSA Office for more information on farm program enrollment for the 2014 and 2015 crop years, or regarding the likely sequestration of farm program payments for 2014 and 2015. 

TAGS: Soybeans Corn
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