Focus on ag: Difficult decisions for the 2021 farm program choice
Many producers have had some difficulty finalizing their 2021 farm program choice between Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC), especially for corn.
The deadline to sign-up for the 2021 farm program is Mar. 15 at local USDA Farm Service Agency (FSA) offices throughout the United States. Eligible producers are able to choose between the price-only PLC and revenue-based 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. In most instances, producers opt for ARC-CO over ARC-IC because ARC-CO is paid on 85% of crop base acres, compared to 65% of base acres for ARC-IC.
Probably the most difficult part of analyzing the 2021 farm program decision is understanding how the market year average (MYA) price is determined for various crops and how that impacts the calculation of potential PLC and ARC-CO payments. The MYA price for corn and soybeans is the monthly average U.S. price of corn or soybeans from Sept. 1 in the year of harvest until Aug. 31 the following year, with the MYA price finalized on Sept. 30.
The MYA price for wheat and small grains is from June 1 in the year of harvest until May 31 the following year, with the MYA price finalized on June 30. The MYA price for a given crop is the average U.S. farm-level price for that crop, based on monthly average prices from across the U.S., which are then weighted by the percentage of bushels sold in each month. The price projections in the monthly USDA World Supply and Demand (WASDE) reports are USDA’s updated MYA estimates for the current marketing year, which will be used for PLC and ARC-CO calculations for a given year.
The hardest part to remember with the 2021 farm program choice is that the marketing year to determine 2021 farm program payments does not begin until Sept. 1, 2021. The 12-month marketing year for 2020-21 continues until Aug. 31, 2022, with the MYA price for 2021 farm program payments finalized on Sept. 30, 2022. Any eligible 2021 PLC or ARC-CO payments are not paid until October of 2022, approximately one year after the corn and soybeans were harvested.
The current 2020-21 MYA price estimates of $4.30 per bushel for corn and $11.15 per bushel for soybeans will not be finalized until Sept. 30, 2021. The final 2020-21 MYA prices will be used to calculate potential 2020 PLC, ARC-CO and ARC-IC payments.
Based on the current 2020-21 MYA price estimates, there would not be any 2020 PLC payments for corn or soybeans. At current MYA price estimates, a 2020 county corn yield decline of 26% or more below the 2020 county benchmark yield would be required in order to earn a 2020 corn ARC-CO payment. A 2020 soybean yield decline of 30% or more below the county benchmark yield would be required in order to earn a 2020 soybean ARC-CO payment.
Some analysts are recommending that, due to the current rise in corn prices, we should automatically go with ARC-CO for the 2021 farm program choice for corn. Before jumping to follow that advice, here are some things to consider regarding the 2021 farm program choice for corn:
- The 2021-22 MYA price is based on the monthly average U.S. corn price from Sept. 1, 2021 to Aug. 31, 2022, which means that the MYA price is really an average post-harvest price for the 2021 corn crop. We should be looking at cash corn bids for 6-18 months from now to more accurately use corn prices as an analysis tool for the 2021 farm program choice.
- PLC payments for corn begin when the final national 12-month MYA price is lower than $3.70 per bushel, which is the established PLC reference price for corn. The final MYA corn price from 2014-2019 was $3.70 per bushel or lower, which resulted in PLC payments being earned from 2015 through 2019. Based on current trends, the final 2020 MYA price on Sept. 30, 2021 will most likely exceed $3.70 per bushel.
- ARC-CO payments for corn are made when the final county revenue (final county yield x final MYA price) falls below the benchmark (BM) revenue guarantee (county BM yield x BM price x .86) for the year. In other words, there needs to be at least a 14% decline below the county BM revenue (BM yield x BM price) in order to earn an ARC-CO payment.
- The 2021 ARC-CO benchmark (BM) price for corn is $3.70 per bushel, which is the same as the PLC reference price. This means that if the 2021 final county average yield is the same as the 2021 county BM yield, the final corn MYA price on Sept. 30, 2022 needs to drop below $3.20 per bushel in order to get a 2021 corn ARC-CO payment. At a $3.20 per bushel MYA price there would be a $0.50 per bushel PLC payment for corn.
- Another way to look at this, is that the 2021 final county average corn yield needs to decline by 14% or more below the 2021 county BM yield in order to potentially earn a 2021 corn ARC-CO payment at a final 2021-22 MYA price of $3.70 per bushel. For example, if a county had a 2021 BM yield of 200 bushels per acre, the final 2021 county yield would have to drop below 172 bushels per acre in order to collect 2021 corn ARC-CO payment. In the previous example, the final 2021 county corn yield would have to drop below 159 bushels per acre if the MYA price increases to $4.00 per bushel.
- Bottom-line for 2021 farm program choice for corn: Do you think the odds are better for the 2021-22 final MYA corn price to drop below $3.70 per bushel, or for the 2021 final county average corn yield in your county to be 15-20% or more below the 2021 county BM yield? Your answer to that question will likely guide your 2021 farm program choice for corn.
The 2021 PLC and ARC-CO choice for soybeans may be a bit easier than for corn. The 2021 soybean ARC-CO BM price is $8.95 per bushel and the 2021 PLC price is $8.40 per bushel. If the final 2021-22 soybean MYA price is $9.95 per bushel, the final 2021 county soybean yield will need to decline by 14% or more below the 2021 county BM yield in order to initiate a 2021 soybean ARC-CO payment. For example, if the county BM yield is 60 bushels per acre, the final county soybean yield would need to drop below 52 bushels per acre to earn a 2021 soybean ARC-CO payment. In that same example, the final county yield would only need to drop below 55 bushels per acre at a final MYA price of $8.40 per bushel; however, the final 2021 county soybean yield would need to drop to near 46 bushels per acre at a final 2021-22 MYA price of $10 per bushel.
The final 2021-22 soybean MYA price needs to drop below $8.40 per bushel to initiate 2021 PLC payments. The MYA price did not drop below $8.40 per bushel from 2014-2019 and will likely not drop below that level for the 2020 marketing year that ends on Aug. 31, 2021. There has never been a soybean PLC payment paid since the current farm program format was initiated in 2014. Given the current soybean price levels and projections for 2021-22, the 2021 farm program analysis probably leans toward ARC-CO for soybeans in most instances.
If corn and soybean prices stay high, there is probably not much chance for either 2021 PLC or ARC-CO payments for either crop. The drought potential that lingers in some areas heading into the 2021 growing season may impact the farm program choice for some producers. Farm operators are encouraged to do their own analysis for the 2021 farm program choice on their FSA farm units, utilizing available information sheets and farm program calculators.
Kent Thiesse, Farm Management Analyst, has prepared two farm program information sheets titled: “Evaluating 2021 Farm Program Decisions” and “2021 Farm Program Decision Cheat Sheet”. To request a free copy of both information sheets, send an e-mail to kent.thiesse@minnstarnak,com. The official farm program details, county BM yields, and other information is available on the FSA farm program website at: https://www.fsa.usda.gov/programs-and-services/arcplc_program/index.