Pick Contingency Plans - 1

ARC Could be Antidote for Price Crash

A 2014 bin-buster corn crop could trigger ARC payments worth up to $90 per acre in some counties. Wheat and soybeans could also stand to collect ARC checks under certain conditions and yields, land grant economists say. (DTN/The Progressive Farmer photo by Jim Patrico)

HADDONFIELD, N.J. (DTN) -- Cash corn prices have collapsed 30% in the last 90 days, but don't hit the panic button yet. This kind of abrupt market fallout is exactly what the 2014 Farm Act's safety net was designed to address. In fact, many land grant economists now forecast a potential for maximum corn payments under the 2014 county-based Agriculture Risk Coverage (ARC-CO) program -- with odds increasing that soybeans and even some hard-hit parts of the Wheat Belt also could receive 2014 farm program payments.

Farmers can't rule out the potential for $30- to $90-per-acre 2014 ARC corn payments in counties with average yields, said Ohio State University economist Carl Zulauf. That's given his latest estimate that 2014-15 season-average prices will run only $3.60 per bushel, not the $4.00 USDA forecast in the July crop report and nowhere close to the $6 or better prices in play when Congress wrote the bill. Good Corn Belt rains during the next few weeks could tip payments to the high end.

If 2014 corn prices materialize close to $3.60, Zulauf believes it could spawn the largest commodity program payouts since at least 2004 and the prospect of some growers quickly hitting the new law's $125,000 payment limit. That should motivate farmers to familiarize themselves with new farm program rules and begin educating their landowners for one-time, irrevocable decisions that will affect 2014-2018 crops.

In this occasional series, DTN will outline risk management strategies under the new farm bill, and which economic conditions are likely to offer the best protection for growers given their crops or personal situations.

"Farmers are going to rediscover the value of commodity programs when they go through their new farm bill decision process," said Zulauf, a speaker for DTN's Aug. 21 farm bill choices webinar, another feature of the series. "History clearly tells us that multiple years of low prices and revenues are possible, even though you never know when. This is the risk that commodity programs handle."

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Zulauf says that choices to reallocate base or update yields may have a smaller impact on total farm program payments than many producers think, given how such calculations are made. But he encourages operators and owners to take such initial paperwork seriously, since it sets the framework for the choice between farm program options. USDA's Farm Service Agency announced this week that landowners and operators have 60 days to correct or file missing base and yield data on FSA farms, but formal farm program enrollment and base/yield commitment won't happen until sometime this winter.

If owner and operator can't agree on which farm program to choose for each FSA farm at signup, the default choice is Production Loss Coverage (PLC) for the 2015 through 2018 crop years and the farm is not eligible for payments for the 2014-crop year. "That penalty could be a significant amount of money to pass up," Zulauf said. Program payments for 2014 crops have the potential to help with farm expenses, so that may soften the edge on negotiations for next year's cash rents, he added.

"It's hard to get really precise estimates for corn this early in the marketing year, but odds are increasing that payments will occur," he said. Growers will have much better intelligence of prices and yields by signup. However, Zulauf's initial calculations also indicate 2014 soybeans aren't that far off from ARC 2014 payments, particularly if there are production problems in the county.

CROP INSURANCE COMPLICATIONS

The big complexity of the new farm programs was adding a hybrid insurance program to the PLC choice, said University of Illinois economist Gary Schnitkey. Supplemental Coverage Option (SCO) insurance is supposed to cover a portion of a grower's deductible and is only available when combined with PLC. However, he finds that SCO "only works" in Texas and other parts of the country where maximum coverage for revenue-based crop insurance stops at the 75% level. If a grower has the option to purchase revenue crop insurance up to 85% levels, it's the equivalent of an 86% SCO policy. Both of those premium policies are likely to be expensive in high-risk areas, he added.

Kansas State University economist Art Barnaby agreed that big ARC-CO payments are in the offing. By his calculations, Barnaby thinks that counties with average yields will trigger ARC payments when 2014 season-average prices for corn hit $4.55 or less.

Peanuts, long-grain rice and barley stand to fare better under PLC than ARC. But it would take a season-average corn price of $3.22 for PLC payments to outdistance ARC, at least in 2014, Barnaby noted.

Barnaby estimated that 2014 ARC will trigger when season-average prices hit $10.56 or less for soybeans, $4.36 or less for sorghum and $5.68 or less for wheat. However, in counties where wheat yield losses are running 50% or more this season, growers who enroll in ARC are likely to collect payments. Like the GRIP insurance program, ARC activates when revenue from county yields and national prices falls below pre-set benchmarks.

"The farm bill is like a free insurance program," Barnaby said. That risk coverage should be a comfort to growers, as prices have plunged far faster than Congress or land grant economists forecasted. "The question is, are we at bottom yet?" Barnaby asked. "There's more downside with big crops than upside. I thought we'd be in the $4 corn range now. My guess was certainly wrong."


EDITOR'S NOTE: Join DTN for a free webinar, "ARC or PLC Choices: Which Farm Bill Contingency Plan is Right for You?" Aug. 21 with economists Carl Zulauf of Ohio State University and Gary Schnitkey of the University of Illinois. They will help you analyze your farm bill options and prepare landowners for critical one-time decisions. Learn which conditions favor ARC or PLC and how each option will influence your crop insurance purchases in the years ahead. The webinar is sponsored by the National Corn Growers Association.

To register for Thursday, Aug. 21, 9:00-10:00 a.m. Central Daylight Time, go to https://dtn.webex.com/….

The event will be recorded for later viewing in case you find that time inconvenient.

Marcia Zarley Taylor can be reached at marcia.taylor@dtn.com

(ES/AG)

P[] D[728x170] M[320x75] OOP[F] ADUNIT[] T[]
P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[article-box] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]