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What are your chances of receiving ARC-CO payment for 2016 crop year?

What are your chances of receiving ARC-CO payment for 2016 crop year?

Farm Business: Here is a closer look at what you can expect from USDA for the 2016 crop.

Many crop producers in Indiana received Agricultural Risk Coverage-County payments in the fall of 2016. These payments were tied to the 2015 crop year. For planning purposes, it’s important to estimate what these payments may be for the 2016 crop year. They will be paid in the fall of 2017. Let’s look at a case farm in west-central Indiana.

LOW PAYOUT NEXT YEAR? If county average corn yields were high in 2016 and prices hold steady, expect only a small ARC-CO payment for corn acres and no payment for soybean acres in 2017.

ARC-CO payments occur when actual crop revenue is below the ARC-CO revenue guarantee for a given crop year. The ARC-CO guarantee is 86% of the county ARC-CO benchmark revenue. ARC-CO revenue is computed using the Olympic averages of county yields and U.S. crop marketing-year average prices for the preceding five crop years. It’s important to note that payments are capped at 10% of the benchmark revenue, and payments are made on 85% of base acres.

Lower payments

The ARC-CO payments for the 2015 crop year for the case farm were at the capped levels for both corn and soybeans. Payments per base acre were $73 for corn and $54 for soybeans. The ARC-CO guarantees for 2016, particularly for corn, will be substantially lower than the 2015 ARC-CO guarantees. 

First, the benchmark corn yield for 2016 is lower due to the relatively low corn yields in 2012 and 2015. Only one of these years is eliminated when calculating the Olympic average yield. Second, the benchmark corn price for 2016 is 50 cents per bushel lower than the benchmark price in 2015. 

This combination results in a decline in the revenue guarantee for corn for 2016 of $128 per acre. The decline in the revenue guarantee for soybeans is $28 per acre.

Whether corn and soybean producers receive an ARC-CO payment depends on the revenue guarantees, county yields and marketing-year average prices. Using a 2016 county corn yield of 196 bushels per acre and a marketing-year average price of $3.30 per bushel generates an ARC-CO payment of $10 per base acre. Payments would be lower if yield or price is relatively higher. Conversely, the ARC-CO payment would be higher if the county yield or marketing-year price is relatively lower.

Soybean math

For soybeans, a 2016 county yield of 62 bushels per acre and a marketing-year average price of $9.20 per bushel would result in no ARC-CO payment. County yield or the marketing-year average price would have to be approximately 9% lower to trigger an ARC-CO payment for soybeans.         

This article examined the sensitivity of ARC-CO payments for the 2016 crop year to county yields and marketing-year average prices. Using a west-central case farm and current yield and marketing-year average price projections, a small ARC-CO payment for corn and no ARC-CO payment for soybeans are anticipated. These payments would be made in the fall of 2017. Note that if county yields or marketing- year average prices are lower than projected, the ARC-CO payments would be relatively higher.

Langemeier is director of cropping systems for Purdue University’s Center for Commercial Agriculture. He writes from West Lafayette.

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