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Yields Below Which ARC-CO Will Make Payments

By Gary Schnitkey, Nick Paulson.et.al
 
This article shows break-even county yields below which Agricultural Risk Coverage at the County Level (ARC-CO) will make payments in 2019. Break-even yields are calculated at USDA’s January estimates of Market Year Average (MYA) prices: $3.85 per bushel for corn, $8.40 per bushel for soybeans, and $5.50 per bushel for wheat.  For corn, 2019 county yields likely will exceed break-even levels in most Illinois counties, meaning that most Illinois counties will not receive an ARC-CO payment in 2019. More counties could generate soybean ARC-CO payments. ARC-CO will generate 2019 payments for wheat, but PLC payments will exceed ARC-CO payments in most cases.
 
Break-Even Yield Calculations
 
ARC-CO will make payments when county revenue is below a county guarantee. The county guarantee equals:
 
.86 x benchmark yield x benchmark price.
 
For 2019, the benchmark yield equals the Olympic average of county yields that are trend-adjusted for the years from 2013 to 2017. Figure 1 shows the Olympic average yield for corn grown in McLean County, Illinois. Figure 1 comes from the 2018 Farm Bill What If Tool (https://farmdoc.illinois.edu/2018-farm-bill), a Microsoft Excel spreadsheet available for download from the farmdoc website. The Olympic average for McLean County is 224.8 bushels per acre. The benchmark price is $3.70 per bushel (details on benchmark price calculation are provided in the 2018 Farm Bill What If Tool). Given the benchmark yield and benchmark price, ARC-CO will make a payment for corn when McLean county revenue is below the guarantee of $862.05 per acre (.86 x 224.8 x 3.70).
 
 
County revenue equals the Market Year Average (MYA) price times county yield. At this point, neither the MYA price nor county yield for 2019 are known with certainty. However, USDA currently projects the 2019 MYA price at $3.85 per bushel (see farmdoc daily, January 14, 2020). The actual MYA price can vary from this estimate (see farmdoc daily, January 14, 2020 for more detail), but 2019 MYA prices are coming into clearer focus.
 
For a given MYA price, a break-even ARC-CO yield equals:
 
(.86 x benchmark yield x benchmark price) / Projected MYA price
 
For corn in McLean County, the break-even yield is 186 bushels per acre (186 = (.86 x 224.8 x 3.70) / 3.85).
 
Break-even yields were calculated for corn, soybeans, and wheat for all counties where Farm Service Agency (FSA) provided complete yield information for 2019. This information can be downloaded from the linked Break_Even_ARC-CO_Yields_Jan2020 spreadsheet. In developing these estimates, January 2019 MYA prices are used:
  • $3.85 per bushel for corn,
  • $9.00 per bushel for soybeans, and
  • $3.55 per bushel for wheat.
Remaining tables in this article report break-even yields for corn, soybeans, and wheat in Illinois counties.
 
Corn
 
For McLean County, the break-even yield is 186 bushels per acre (see Table 1). McLean County has an “all” yield series, not distinguishing between irrigated and non-irrigated production. Many Illinois counties have irrigated and non-irrigated production. For example, Tazewell county has a 188 bushel per acre break-even yield for irrigated production. For non-irrigated production, the break-even yield is 189 bushels per acre. In Table 1, non-irrigated break-even yields are listed in the “all” column.
 
 
For corn, the projected MYA price of $3.85 is well above the $3.70 effective reference price that triggers Price Loss Coverage (PLC) payments. As a result, there is very little chance of PLC payments. Given historical changes, there is an 11 percent chance of PLC payments in 2019 (see farmdoc daily, January 14, 2020).
 
While planted late, 2019 corn yields for planted corn were relatively good, and for most counties will likely exceed the break-even levels shown in Table 1. However, there will be a minority of counties that have county yields below the break-even levels, most likely in the northern and southern parts of Illinois where wet weather and late planting were more severe. County yields used by FSA in calculating ARC-CO payments will be based on planted acres.  Counties with a great deal of failed acres could have lower yields.
 
The Gardner ARC/PLC Payment Calculator (https://fd-tools.ncsa.illinois.edu) estimates the probabilities of payments for 2019 for most, major-producing counties. For McLean County, as well as all U.S. counties, the chance of a 2019 PLC payment for corn is 13% (see Figure 1). By happenstance, the chance of a 2019 ARC-CO payment for corn in McLean County also is 13%. Some combination of lower county yields than expected or lower MYA prices could result in an ARC-CO payment for corn in McClean County.
 
 
More complete information will become available on February 20th after NASS releases estimates of county yields. NASS county yield estimates will not be the same as the yields used by FSA in calculating ARC-CO payments. However, NASS yields likely will be very close to FSA county yields, allowing more accurate assessments of the probability of ARC-CO making payments.
 
Once the February NASS estimates are released, probabilities in the Gardner ARC/PLC Payment Calculator will be updated. If the NASS county yield estimates are well above the break-even estimates shown in Table 1, the likelihood of ARC-CO payments will decrease. If above the break-even level, the McLean County estimate for ARC-CO payment for corn would go from 13% to a likelihood near 0%. On the other hand, those probabilities will move closer to 100% if the 2019 NASS county yields are below the break-even yields shown in Table 1. Our expectations are that most counties will have NASS corn yields well above break-even levels.
 
Soybeans
 
Break-even yields for soybeans are shown in Table 2. The $9.00 estimate of 2019 MYA price is well above the $8.40 effective reference price, suggesting that there is a very low likelihood of a 2019 PLC payment. The Gardner ARC/PLC Payment Calculator estimates the chance of a 2019 payment at 4%.
 
 
Many counties could have 2019 soybean yields below the break-even levels shown in Table 2. For McLean County, the break-even yield for non-irrigated soybean production is per acre.  From 2013 to 2017, county yields in McLean County have been close to 62 bushels per acre.  Actual yields were 57.9 bushels per acre in 2013, 64.8 in 2014, 64.7 in 2015, 66.8 in 2016, 67.5 in 2017, and 70.2 in 2018.  From 2013 to 2018, yields have been below the 62 bushels per acre break-even in one year. Currently, the Gardner ARC/PLC Payment Calculator estimates the probability of payment at 30%. Like corn, more information will become available after the release of county yields. Estimates in the Gardner Payment Calculator will be revised at that point.
 
Wheat
 
 
Table 3 shows break-even wheat yields calculated at a $4.55 MYA price. This $4.55 price is well below the $5.50 effective reference price, suggesting a near certainty of PLC payments.
 
 
Many counties also will generate ARC-CO payments. NASS has already released county yields for wheat. Table 4 compares the 2019 NASS yield to the break-even yields. Break-even yields in Table 1 either are for “all” wheat production, representing all irrigated or non-irrigated wheat production, or “non-irrigated” wheat production. Note that many counties have 2019 NASS yields below break-even yields, suggesting that ARC-CO will make payments for wheat in those counties. Still, PLC likely will make higher payments than ARC-CO for wheat. The PLC wheat yield on a farm will matter in these cases. We suggest placing the farm’s PLC yield in the Gardner ARC/PLC payment calculator to estimate that payment.
 
Summary
 
At this point, we expect the following:
  • Corn: ARC-CO will not make 2019 payments for corn in most counties. However, there will be some counties in which ARC-CO will make payments, most likely in areas of late planting.
  • Soybeans:  ARC-CO could make payments in some counties.  We expect more counties to trigger soybean ARC-CO payments than corn ARC-CO payments.
  • Wheat:  ARC-CO will make payments in many counties.  However, PLC likely will make larger payments, particularly for those cases in which PLC yields are close to 50 bushels per acre for wheat.
NASS will release corn and soybean yields in February.  Those released yields can be compared to break-even levels reported here.  Results in the Gardner ARC/PLC Payment Calculator will be revised on release of NASS yields.
 
At this point, our advice remains the same as before (see farmdoc daily, January 22, 2020).  We suggest that farmers evaluate ARC-IC for their individual Farm Service Agency (FSA) farms.  This evaluation can be done using the 2018 Farm Bill What If Tool.  If ARC-IC is not expected to make payments, the following will likely hold:
  • Corn: We would not expect PLC ARC-CO to make payments in 2019 (see farmdoc daily, January 22, 2020). ARC-CO could make payments in a limited number of counties in 2019, but those counties likely will be limited to areas with very late planting. For 2020, PLC likely has a higher chance of payment and higher expected payments, given current price levels.
  • Soybeans: PLC is not expected to make payments in 2019. There is a chance that ARC-CO will make payments in 2019 for more counties. For 2020, the likelihood and expected level of payments are about the same between ARC-CO and PLC.
  • Wheat: There is a near certainty of PLC payments in 2019 and a very high chance of payments in 2020. ARC-CO will make payments in many counties in 2019, but those payments likely will be lower than PLC payments. The level of a PLC yield on a farm will matter in this determination.

 

Source : farmdocdaily