2019 farm program payments likely for many farmers
Corn and soybean prices declined significantly earlier this year, due to the coronavirus outbreak and greatly reduced ethanol and biodiesel production. The lower corn and soybean prices have had a negative financial impact for farm operators that had remaining 2019 grain inventory to market this past Summer, as well for farmers as they begin to set prices for their 2020 crop production. However, the continued lower grain prices will likely result in higher levels of 2019 farm program payments for many producers.
All farm program payments are based on the national market year average (MYA) price for a given crop commodity. The 2019 MYA price for corn and soybeans is the 12-month average price from Sept. 1, 2019, to Aug. 31, 2020, with the MYA price finalized on Sept. 30, 2019. The 2019 MYA price for wheat and other small grains is the average price from June 1, 2019 to May 31, 2020, with MYA price being finalized on June 30, 2020. Any 2019 farm program payments that are earned will be paid after Oct. 1, 2020.
The MYA price is based on the monthly average farm-level market price received by producers across the United States, which is then “weighted” at the end of the marketing year, based on the volume of bushels sold in each month. MYA price estimates are updated on a monthly basis in the USDA WASDE Report, which is usually released around the middle of each month.
As of August 1, 2020, USDA was estimating the 2019 MYA prices at $3.60 per bushel for corn, $8.55 per bushel for soybeans, and $4.60 per bushel for wheat. With only one month remaining, the final corn and soybean price is not likely to vary by more than $.05 per bushel by the end of the marketing year from current MYA price estimates. At the current MYA price estimates, there would be PLC payments for corn and wheat, as well as increased likelihood of 2019 ARC-CO payments for corn and soybeans in many counties that had below average crop yields in 2019.
The biggest change causing the shift in the PLC and ARC-CO farm program choice for corn was the decline in the benchmark (BM) price from $5.29 per bushel in both 2014 and 2015 to $3.70 per bushel for 2019 and 2020. The BM price of $3.70 per bushel is the same as the reference price for corn that is used to calculate PLC payments. PLC payments are initiated when the MYA corn price drops below $3.70 per bushel, while 2019 ARC-CO payments require more than a 14 percent decline below the MYA price to generate an ARC-CO payment, if the final county average RMA yield is equal to the BM yield.
The 2019 BM price for soybeans is $9.63 per bushel, which is well below the BM price of $12.27 per bushel in both 2014 and 2015; however, it is still well above the soybean PLC reference price of $8.40 per bushel. The 2019 BM price for wheat is $5.66 per bushel for 2019, but will decline to $5.50 per bushel for 2020, which is the same as the reference price for wheat.
As a result, the higher BM price together with reduced 2019 soybean yields in many areas was favorable for farm program enrollment in the ARC-CO program for soybeans, while the low projected 2019 MYA price for wheat was more favorable for enrollment in the PLC program. For 2019 and 2020, 80 percent of the soybean base acres are enrolled in ARC-CO and 93 percent of wheat acres in PLC.
For ARC-CO calculations, the benchmark (BM) revenue for a given crop is the county BM yield times the BM price, which is multiplied by 86 percent (.86) to calculate the “county revenue guarantee”. The county BM yield for 2019 is the average county yield for the five years from 2013-2017, dropping the high and low yield, and the averaging the other three yields. County BM yields for corn and soybeans have increased in recent years, due to very good yield averages from 2015-2017. ARC-CO payments for a given crop are paid when the actual county revenue for the crop falls below the county BM revenue guarantee. The actual county revenue is the final Risk Management Agency (RMA) county average yield times the final MYA price for the year.
USDA has not yet released the final county RMA average yields for 2019, which will be used to calculate final 2019 ARC-CO payments. However, USDA has released the National Agricultural Statistics Service (NASS) estimated 2019 average county average yields for corn, soybeans, and other crops, which can offer a good estimate of potential 2019 ARC-CO payments. The 2019 NASS county yields are available on the NASS web site at: http://www.nass.usda.gov/.
Approximately, 6 percent of the corn and soybean base acres were enrolled in the farm yield-based Ag Risk Coverage (ARC-IC) program choice for 2019 and 2020. ARC-IC utilizes the same MYA price as PLC and ARC-CO; however, ARC-IC calculates all crops on a farm together and utilizes farm-level historic and 2019 crop yields for calculations. The high level of prevent plant acres and very low yields on some farms in 2019 made near maximum 2019 ARC-IC payments likely for many producers in some areas.
Summary of potential payments
Based on the current MYA price estimates and the NASS county yield estimates, following is an overview of potential 2019 PLC and ARC-CO payments:
Corn: A PLC payment of approximately $.10 per bushel is likely ($3.60/Bu. MYA price). ARC-CO payments are likely if the final RMA county yield is 10 percent or more below the BM yield Maximum ARC-CO payment will likely occur with a 22 percent or more yield decline.
Soybeans: No PLC payments are likely at a MYA price of $8.55/Bu. (reference price is $8.40/Bu.). ARC-CO payments are likely with a final 2019 RMA county yield decline of 2-3 Bu./A. below the BM yield. Maximum ARC-CO payment will likely occur with a 15 percent yield decline.
Wheat: A PLC payment of $.90 per bushel is likely ($4.60/Bu. MYA price). Near-maximum ARC-CO payments are also likely in many areas.
A payment calculator for Iowa and other states can be found at https://bit.ly/2EuGnht.
All PLC payments are paid on FSA farm unit yields, which are usually lower than normal yields. Final PLC and ARC-CO payment estimates may change by September 30, depending on the final MYA prices. ARC-CO payment estimates may also change, once the final county RMA yields are known and are used for calculations. Also be aware that there may be a federal sequestration reduction (approx. 6.8 percent) in the final amount of farm program payments.
2019 benchmark (BM) yields and revenues, previous county yields for corn, soybeans, and other crops, 2014-2018 farm program payment levels, and other farm program information are available on the FSA ARC-PLC web site, which is at https://bit.ly/34wlwFE.
Kent Thiesse is a Farm Management Analyst and Vice President, MinnStar Bank