Minding Ag's Business

Don't let your future farm program payments suffer from obsolescence.

For the first time since 2002, the new farm bill authorizes landowners to file updates on Farm Service Agency (FSA) yields on their properties, using 90% of their 2008-2012 averages. They also have the chance to reallocate--but not increase--historic base acres to be more reflective of recent planting and production.

"The two choices are separate decisions, but this is a one-time option—so don’t miss this important chance to impact your bottom line," advises Todd Jennison, an agribusiness consultant with Kennedy and Coe in Garden City, Kan. Whatever farm program choices you make will remain in effect through at least the 2014 to 2018 crops, so renters would be wise to help educate their landowners to the process.

On July 30, FSA issued new information and examples of the base reallocation decision in Notice ARCPLC-7. It also contained a sample letter to owners and producers that will be delivered in early August, giving 60 calendar days to notify the local FSA office of any changes that need to be made in their base records.

STUDY CONTINGENCY PLANS

The recent collapse in commodity prices should prod growers and owners to do their farm bill homework, farm lenders and advisers say. At current cash prices, high-yield Illinois farms could collect $45 to $77/acre in county Agriculture Risk Coverage (ARC) payments for the 2014 crop, according to the University of Illinois. At the moment, economists don't expect corn to trigger a Price Loss Coverage (PLC) payment in 2014.

That's only a rough estimate, since above-average yields and higher-than-expected prices could reduce ARC payments somewhat. But Jennison says "the potential is a big one--and I'm using that word 'potential' more than I ever have" when trying to estimate farm program payments.

Jennison encourages clients to start early to gather planting information, since it could be time consuming and many landowners may not be aware of the farm program details. "You can get your actual yields and planted acres from your crop insurance company. Your current base and yield can be obtained from your local FSA office via the 156 EZ form," he says. "If you had yields that fell below 75% of the average of the 2008-2012 county yield, you can substitute a plug yield obtained from the FSA national webpage or from USDA's National Agricultural Statistics Service. They are based on the county yield averages estimated each year by USDA."

Signup for benefits under the Agriculture Act of 2014 won't start until at least late this year. You'll be asked to make a one-time choice to elect either PLC --a price-only program very similar to past Counter-Cyclical programs--or ARC that benchmarks revenue and pays when there is a shortfall. If landowners and renters can't agree on a program, the default choice will be PLC.

Payments for both programs are based on historical data--not current plantings--so the chance to update will give you a chance to capitalize on your operation's improved performance, Jennison emphasized.

FIX FOR YIELD LAGS

Chances are both your farm program base and yields need to play catch up, he added.

Only 39% of those with farm program base updated their yields as part of the 2002 Farm Act, the last time owners had that opportunity. That means many farm operators will be calculating their next government farm payments on even older technologies and farm practices dating back to 1981-1985. In that time frame, corn and soybean production moved west and north, replacing wheat in much of the Dakotas and Minnesota. Meanwhile, irrigated individuals in the Delta fine-tuned corn and soybean production.

If you want to use the farm program as a risk management plan, you'd want it to reflect what you're actually planting, Jennison says. That's likely to mean more growers replacing wheat base with corn and soybean base. For example, by 2012, base acres were 18 million higher than planted acres for wheat, but 12 and 27 million less for corn and soybean plantings respectively.

However, Jennison says it's hard to generalize without running the numbers on each farm and commodity. Someone with a rice base "might find it hard to give up" if payments are being made, he says. Others say barley growers also benefit from a high reference price, so are likely to keep their historic base, although that won't preclude them from planting corn or other crops.

Jerry Lehnertz, vice president of lending for AgriBank, works with Farm Credit associations in 15 states. Like Jennison, he's urging farmers within that region to spend time studying the farm bill's nuances. "Large parts of North and South Dakota and even Arkansas were rarely growing corn until recently so they don't have a yield history and really need to focus on what that means," Lehnertz says. " If the mindset is to run the same play on your farm bill and crop insurance coverage as you did from 2011 to 2013, the future will be extremely disappointing."

FOR MORE INFORMATION:

Kennedy and Coe will be holding a half-day conference on your risk management choices under the new farm bill in Omaha on Aug. 5. Speakers include Kennedy and Coe farm program specialist Wayne Myers and DTN Senior Analyst Darin Newsom. For details, go to https://agactomaha.eventbrite.com/…

For AgriBank's analysis of the PLC or ARC choice, go to http://info.agribank.com/…. This might be the clearest summary of your options I've read to date.

For a link to FSA's ARC/PLC website go to http://www.fsa.usda.gov/…

For FSA's July 30 notice at http://www.fsa.usda.gov/…

For farmdoc's analysis of farm program base reallocations under the new farm act, go to http://farmdocdaily.illinois.edu/…

For farmdoc's analysis of farm program yield updates under the new farm act, go to http://farmdocdaily.illinois.edu/…

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