Farm Program Countdown - 1

By Marcia Zarley Taylor
DTN Executive Editor

DETROIT (DTN) -- At 72, Tony Kriegel is old enough to remember what Congress giveth, it can also taketh away.

That's why the Brooklyn, Iowa, corn and soybean farmer will be electing county-based Agricultural Risk Coverage (ARC) for his 2014-2018 farm program option later this month.

ARC is likely to pay generously in many Corn Belt counties with average or below-trend yields in 2014 and 2015, since its trigger price for both years is $5.29/bu. Farm bill calculators show the Poweshiek County, Iowa, grower can conservatively expect $45/base acre for ARC-County in 2014 and a potential $38/acre for soybeans. With average or below average yields, 2015 corn payments could run even higher.

But forecasting payments beyond 2015 is fraught with a high margin of error. More worrisome to Kriegel is that anti-agriculture forces could persuade Congress to rewrite the farm bill midstream, rationing payments just like the Gramm-Rudman Act triggered across-the-board entitlement cuts when legislators were serious about deficit reduction in the 1990s.

"We had signed up for the farm program in the spring, and by fall they'd already prorated our checks," Kriegel recalled. "So my attitude is to take the money and run. Who knows what will happen to the farm bill in the future."

Kriegel would rather earn his revenue from the marketplace, but given a projected $3.65 per bushel 2014 marketing year price for corn -- and a USDA projection of $3.50 in 2015 -- growers can't afford to ignore the aid. At those prices, typical Midwesterners could be losing $150 to $300 per acre, depending on whether they rent land and/or grow soybeans instead of corn, land grant universities have warned.

"We need a baseline of support, if for no other reason than the bankers need security," Kriegel said. "It's not just farmers who will benefit from this."

DEADLINE LOOMS

U.S. crop farmers have just weeks left to make their five-year farm program decision. For most, the March 31 choice will be narrowed between ARC-County and Production Loss Coverage (PLC). Many corn-soybean growers in the northern Corn Belt see good reason to go with what they call the "surer thing" of ARC payments, DTN interviews have found.

Even in counties that experienced bumper yields in 2014, growers may face little or no ARC payments in 2014 but still are banking that ARC will outpay PLC for 2015 and beyond. For example, McLean County, Illinois, averaged an amazing 217 bpa corn yield in 2014, so stands to collect no ARC payments, the University of Illinois estimates. However, with a return to average or below average yields in 2015, ARC-County payments could jump to $78/base acre in 2015.

Unlike Kriegel, Matt Danner is too young to remember how across-the-board budget cuts under the Gramm-Rudman Act prorated farm programs, Medicare and other sacred cows in the 1990s.

"I wasn't even legal age to sign up at a Farm Service Agency office back then," the Templeton, Iowa, crop and pork producer joked. But like Kriegel, he has already signed up for ARC-County "for all commodities and in all three counties I farm," he said.

"There's maybe a 95% to 99% chance corn will trigger an ARC payment in 2014 and 2015 in my county," Danner said, noting how yields in his area have suffered setbacks the past three years. He doesn't count on much help from farm programs for 2016-2018 though.

"Whatever happens after that is a roll of the dice, if it's even there," he said.

Danner's county could receive an estimated $45/base acre for corn ARC-County payments in 2014, versus only $27/base acre for PLC, according to the University of Illinois's farm bill calculator using NASS's recently released 2014 county yields. Over the five-year life of the farm bill, Illinois estimates ARC will pay an average of $25/base acre/year in Carroll County, Iowa, versus a PLC payment of $16/base acre, not counting extra crop insurance indemnities.

NORTH-SOUTH DIVIDE

Illinois Economist Gary Schnitkey, a guest speaker in DTN's free March 12 webinar on ARC-PLC choices, found a north-south divide in where ARC is likely to make corn payments in 2014, based on NASS county production data. Many major corn counties are expected to generate ARC-County payment above $40/base acre, except in a band from eastern Kansas to southern Indiana where growers experienced bumper 2014 corn yields, Schnitkey found (see county maps http://farmdocdaily.illinois.edu/…). Some Illinois counties averaged 220 bpa corn yields in 2014, so their revenue per acre effectively disqualified them for government payments that year. On the other hand, Minnesotans are likely to win the ARC lottery with 2014 payments close to $80/base acre.

Art Barnaby, a Kansas State University economist, found similar ARC-PLC patterns in his analysis of potential farm program payments nationwide. Among his conclusions:

-- ARC-County will pay more on corn than PLC in the first year of the new farm program, but the amount will depend on the size of a grower's county yield.

-- Soybeans are highly unlikely to trigger a PLC payment in 2014, but ARC-County may generate modest payments in counties with below-average soybean yields.

-- Wheat will not have a PLC payment in 2014 and ARC-County will require a county wheat yield below average to trigger any payment. That means ARC-County likely will make payments for counties in Texas, Oklahoma, Kansas, Washington and Oregon.

Grower Dave Ryan of Viola, Ill., believes Midwest corn-soybean farmers don't need to over-analyze their choices. With the most current yield and price estimates, his county stands to trigger $54/base acre payments in 2014, versus $25 for PLC. Because of lower-than-normal countywide yields, Mercer County growers also could earn $6/acre in ARC-County soybean payments. In the big scheme of things, that won't make or break revenues this year.

"Crop insurance is my main risk mitigation, and I'm buying that at 85% protection levels. But I will sign up everything in ARC-County rather than PLC," Ryan said. "A bird in hand is worth two in the bush."

(BAS)

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