March 15, 2016
The U.S. Department of Agriculture National Agricultural Statistics Service released county yields last week, which will serve as the primary data point the USDA Farm Service Agency will use to calculate Agriculture Risk Coverage-Counts payments this fall. The final yields and how they are calculated are gaining increasingly negative attention, especially with regard to the difficulties of administering the ARC-CO program using data collected by an agency with an ever-shrinking budget.
Many producers in the Sorghum Belt experience these difficulties firsthand as production challenges and small county acreage figures have prevented NASS from releasing yield data for individual counties. The lack of NASS county yield data makes calculating a potential ARC-CO payment very difficult. Furthermore, today’s tight margin environment means this uncertainty also makes bankers nervous. Fortunately, county yield could be estimated through other means.
First, the historical relationship between NASS district and county yields is pretty steady. For background, NASS also releases a yield for a crop reporting district for almost every growing area in the U.S., which encompasses several counties. Additionally, the agency released county yields much more reliably before the recent trend of budget cuts. In order to determine how closely county and district yields correspond, about 10 years of data is needed. Most counties will have at least this many published county yields.
This method of estimating county yields is by no means infallible. After all, individual counties can have exceptional yields and outperform their neighbors. Additionally, market or environmental factors can force FSA to make significant adjustments to the NASS yields, something producers in counties with published yields and ample data must also keep in mind. For example, an inordinate number of corn acres cut for silage could artificially depress a county’s NASS grain corn yield. In this case, FSA might adjust the yield upward, lowering or even eliminating the ARC-CO payment. Most importantly, remember nothing is final until checks are cut this fall.
On the Price Loss Coverage of the farm bill, Dr. Art Barnaby, professor and risk management extension specialist at Kansas State University, currently projects marketing year average prices for sorghum, corn, soybeans and wheat of $3.35, $3.62, $8.77 and $4.92, respectively. This translates to price losses of $0.60 for sorghum, $0.08 for corn and $0.58 for wheat. Soybeans are not projected to trigger a PLC payment at this time.
To calculate your total PLC payment, multiple the price loss coverage amount ($0.60) by your PLC yield, and then multiply this amount by 85 percent of the base acres on which you elected PLC. For example, sorghum base acres in the U.S. total 8.9 million. Producers elected PLC on 66.4 percent of these acres and have an average yield of 67.6 bushels. With a price loss of $0.60, total PLC payments to U.S. sorghum producers this fall will total almost $206 million.
A strong reference price is the key to this additional protection for producers. National Sorghum Producers worked tirelessly to ensure sorghum producers had a reliable safety net for times exactly like those we face today. This work paid off when the proposed reference price of $3.70 was raised to the final $3.95.
This seemingly small $0.25 difference will put an extra $85.7 million in sorghum producer pockets this year. In margin environments like today, that is a big win for a small crop.
Cogburn writes from Abernathy, Texas. Find him on Twitter @nspchris
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