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Finalize farm program decisions

The deadline to sign-up for the 2019 and 2020 farm program is March 15 at local USDA Farm Service Agency offices throughout the U.S.

The initial farm program choice (PLC, ARC-CO or ARC-IC) will remain the same for the 2019 and 2020 crop years. Starting with the 2021 crop year and continuing for the 2022 and 2023 crop years, producers can switch their farm program choices on FSA farm units on an annual basis. Eligible producers will be able to choose between the price-only Price Loss Coverage (PLC) and revenue-based Ag Risk Coverage (ARC) program choices. The ARC program choice includes both the county-yield-based ARC-CO program choice and the ARC-IC program, which is based on farm-level yields.

The farm program choice between the PLC and ARC-CO is specific to each eligible crop and may vary on the same FSA farm unit. For example, a producer could choose PLC for corn and wheat and ARC-CO for soybeans on the same farm unit. The farm program choice can vary from farm unit to farm unit for the same crop. For example, a producer could choose PLC for corn in one county and ARC-CO in another county, if the farms are separate FSA farm units. The program choice for a crop on the same FSA farm unit must be the same, even if the farm unit includes land in multiple counties.

The ARC-IC program must be applied to all covered commodities on a given FSA farm unit, and all farm units in a state that are enrolled in ARC-IC are considered together in one ARC-IC calculation. This may limit situations where ARC-IC is a favorable farm program option. If producers do not make a farm program choice for the 2019 crop year by March 15, 2020, they are not eligible to receive any 2019 farm program payments. If they do not make a 2020 farm program choice, they will automatically be enrolled into the same farm program choice that existed for the 2018 farm program.

PLC and ARC-CO analysis

Following is brief analysis of the farm program choice between PLC and ARC-CO for the 2019 and 2020 year for wheat, soybeans and corn in most instances.

Wheat

In many situations, the two-year farm program decision may be easiest for wheat, with that decision being PLC. The 2019 wheat reference price is $5.50 per bushel, and the estimated the 2019-20 market year average (MYA) wheat price is near $4.55 per bushel, so it appears highly likely that there could be a significant wheat PLC payment for 2019. As of Jan. 31, the marketing year to determine the 2019 MYA price is two-thirds completed, ending on May 31, 2020. Many analysts also feel that there is a fairly high potential for a wheat PLC payment again for the 2020 crop year. There will likely be counties that will also qualify for wheat ARC-CO payments for 2019; however, it is important for producers to compare the potential level of PLC payments to possible ARC-CO payments.

Soybeans

In many areas of the Upper Midwest, the current farm program analysis probably leans toward ARC-CO for 2019 and 2020. The 2019 soybean ARC-CO benchmark (BM) price is $9.63 per bushel and it appears that the final 12-month 2019 MYA price will likely end up at $9 per bushel or lower. This means that any county that has a 2019 final county average yield that is 4-5 bushels below the 2019 county BM yield could likely result in a 2019 soybean ARC-CO payment. A yield decline of 10 bushels per acre or more below the county BM yield could result in close to the maximum 2019 ARC-CO payment in many counties. There are several counties in Minnesota, western Iowa, North and South Dakota that could fall into this range. In order to earn a soybean PLC payment, the soybean MYA price needs to drop below $8.40 per bushel, which did not occur from 2014 to 2018, and is not likely to occur when the 2019 marketing year ends on Aug. 31, 2020.

Corn

The most difficult decision between the PLC and ARC-CO program choice for 2019 and 2020 is probably for corn, especially in areas that had below-average corn yields in 2019. The 2019 and 2020 BM price for corn will be $3.70 per bushel, which is the same price as the PLC reference price. PLC payments begin at a final MYA price below $3.70 per bushel, while potential 2019 and 2020 ARC-CO payments will be dependent on final county average yields. The current estimate for the 2019 MYA price is near $3.80 per bushel. At that price level, a final county yield would need to be about 17 percent or more below the county BM yield to initiate a 2019 ARC-CO payment. Producers in counties that are likely to have a final 2019 county average yield that is 20 percent or more below the county BM yield may want to consider the corn ARC-CO program for 2019 and 2020.

At the current 2019 MYA price estimate of $3.80 per bushel, there would not be a 2019 corn PLC payment; however, the PLC program option may provide price protection for the 2020 MYA marketing year, which runs from September 1, 2020 through August 31, 2021. The prospects for large U.S. corn acreage in 2020 and a return to a more normal national average corn yield would increase total U.S. corn supply, and would likely put post-harvest pressure on 2020 corn prices. The PLC program provides corn MYA price protection from $3.70 down to $2.20 per bushel. The final corn MYA price from 2014-2018 was $3.70 per bushel or lower, resulting in corn PLC payments from 2015-2018.

Situations that could favor the ARC-IC program

FSA farm units with 100 percent prevent plant acres in 2019 are likely to receive the maximum ARC-IC payment for 2019. On FSA farm units with partial prevent plant acres and some planted crop acres in 2019, only the crops produced are considered in the ARC-IC calculation (prevent plant acres are not considered). If the final revenue on the planted acres is too high, there would not be an ARC-IC payment on any of the base acres; however, if there is ARC-IC eligibility it would be applied to all eligible base acres. Farm units with very low crop yields in 2019 may also qualify for partial or maximum 2019 ARC-IC payments, which could be a factor on individual FSA farm units with low yields in a county that may not qualify for 2019 ARC-CO payments. Following are some key points to keep in mind when considering the ARC-IC program option:

  • ARC-IC payments are paid on only 65% of crop base acres versus 85% with ARC-CO, so it is possible that ARC-CO payments in a county with very low 2019 corn and soybean yields may be higher than the maximum ARC-IC payments.
  • The ARC-IC program usually works best on smaller individual FSA farm units and in situations where several farm units have not been combined together into one large FSA farm unit.
  • A farm unit will need to remain in the ARC-IC program for both 2019 and 2020, and the program choice cannot be switched to PLC or ARC-CO until 2021.
  • Producers should make sure they understand the ARC-IC program and 2019 payment potential before enrolling in the ARC-IC program for 2019 and 2020, as ARC-IC is very complex.

Farm program decision resources

Kent Thiesse, farm management analyst, has prepared a series of information sheets to help analyze the 2019 and 2020 farm program decision. To receive a free copy of these information sheets, send an e-mail to kent.thiesse@minnstarbank.com. For more information on the PLC and ARC programs, and other details, go to the FSA farm program website.

Following are some good web-based farm program decision tools from universities to assist producers:

TAGS: Farm Bill
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