Farm program sign-up

Farm Forum

01/20/15 — Some important decisions are coming up for farmers in the next few months, namely the three decisions involved in signing up for the new farm program: 1) Updating yields, 2) Updating bases, and 3) Signing up for the safety net of your choice, either PLC (price protection only) or ARC (revenue protection).

The first choice is a fairly easy one – everyone should attempt to update their yields as after all, they can only go up from the previous yields. In the farms we’ve analyzed so far, nearly everyone should benefit from updating their yields as yields the past few years are more than 10% higher than the previous farm program yields. Crop insurance APH’s should be used to update these yields, and they are audit proof by the FSA office (once they know you used crop insurance records, you will not be audited beyond these records).

The second choice is also fairly simple if you run one of these decision aids to help make these decisions. I have found the North Dakota State University spreadsheet to be very helpful in making these decisions, but Texas and Illinois as well should provide nearly the same answers. In many cases, updating the bases not only is improving the bottom line projected payments, but it also gets closer to a ‘safety net’ covering crops raised in recent years (2009 to 2012) rather than on the crops raised in the 80’s (which is where the old base came from). There are a few cases where the old bases, however, will net a higher projected payment than updating to new bases so this one is best dealt with using a decision aid spreadsheet. Once you run the numbers, the decision usually becomes easier to make (especially when you see the projected payments over the 5 years by crop).

The first 2 choices must be made by the end of February, and the third choice by the end of March. Of particular importance is the final decision made in this matrix, and that is the PLC vs. the ARC decision for your safety net – perhaps the most important decision you will be making. ARC County is the choice most likely to be made for producers, as ARC Individual will only fit a select few farms because it is only paid on 65% of base acres vs. 85% for the county. Giving up 20% of base acres payment just is too costly to go to individual yields.

The third choice, the safety net, is highly dependent upon your projections for prices for 2014 to 2018. Specifically, you’ll need to make a projection for the national average farm price for each of these years, and the final result can sometimes be dependent upon the prices you use for these years. There are some good estimates out there, but perhaps the most researched ones will be done by USDA in their February Ag Outlook 10 year projections which are out about mid-February. Another source for these projections is FAPRI out of Iowa State/Missouri Universities – who make these projections for Congress/Farm Bill estimates for many years. No matter whose estimates you use, they will be wrong in some way. So far, using FAPRI estimates shows wheat, soybeans, and corn favors ARC county for the 5 years of the farm bill. Mostly that is because there are projected payments in 2014 and 2015 due to high prices for the ARC base period – and prices have recently dropped.

Progressive Ag recommends using USDA or FAPRI projections, but also recommends varying the prices (lowering them) in the spreadsheet to see how sensitive your decision is to these projections. In other words, find out at what price the decision changes to PLC from ARC (the lower prices are projected to be, the more it favors PLC over ARC on crops like wheat, soybeans, and corn because there’s a 10% limit in ARC, and with PLC there is no limit). So the lower prices go below the PLC reference price (which is $5.50 for wheat, $3.70 corn, and $8.40 soybeans) you can actually exceed the 10% limit on ARC. In my opinion, the prices are unlikely to go so low to make PLC the better choice on the big 3 crops (wheat, corn, soybeans), although I am concerned about low prices in 2017 and 2018.

For sunflowers, barley, and canola it appears PLC is better at nearly all the projected prices I have looked at so far. So based on what I’ve seen, it appears that ARC for wheat, corn, and soybeans will be the best choice, and PLC for sunflowers, barley, and canola will be the best choice. In the end, though, an educated guess using one of these decision aids is better than just making a wild guess, and I’d strongly recommend using one of them in this important decision. Reviewing your results with someone with some experience with these decision aids and with price projections is also a good idea.