Few counties will receive 2018 ARC-CO payments

By Kent Thiesse

Many producers in the region are wondering if there will be any 2018 ARC-CO payments for corn and soybeans in October, and they’re likely to be very disappointed based on current crop benchmark prices.

Most crop producers in the Upper Midwest were enrolled in the county yield-based Ag Risk Coverage farm program for their corn and soybean base acres for the 2014 to 2018 crop years. Producers earned a significant 2014 corn ARC-CO payment; there were some 2015 and 2016 payments while very few received payments in 2017. ARC-CO payments for soybeans have been quite widespread for 2014-2017 in most areas.

The corn benchmark price for the 2018 crop year is $3.70 per bushel, down from $3.95 per bushel in 2017, $4.79 per bushel in 2016, and $5.29 per bushel in both 2014 and 2015. The 2018 benchmark for soybeans is $9.63 per bushel, which is well below $10.86 per bushel in 2017, $11.87 per bushel in 2016, or $12.27 per bushel in both 2014 and 2015.

The lower benchmark prices reduce the potential for ARC-CO payments. Benchmark prices are adjusted each year, using the USDA market-year average price for the preceding five years, then dropping the high and low MYA price, and averaging the other three MYA prices.

The benchmark county yield for 2018 is calculated by taking the average county yields for the previous five years, excluding the highest and lowest yield, and averaging the other three yields. The 2018 county benchmark revenue for a given crop is the county benchmark yield times the 2017 benchmark price, which is then multiplied by 86 percent to calculate the “County Revenue Guarantee”.

Most county revenue guarantees for corn and soybeans have declined somewhat for 2018, due to the sharp drop in the benchmark prices for both crops.

The county benchmark corn and soybean yields for 2018 in many Upper Midwest counties has increased somewhat from 2017 yields. The increased county benchmark yields for 2018 increases the potential for ARC-CO payments; however, that gain is more than offset by the large reduction in the benchmark corn and soybean price. Because of highly variable yields in many areas of the Upper Midwest, there will be wide variation in potential 2018 ARC-CO payments.

2018 ARC-CO payments for a given crop are paid when the actual 2018 county revenue for the crop falls below the 2018 county benchmark revenue guarantee. The 2018 benchmark revenue guarantee is the 2018 county benchmark yield times the 2018 benchmark price times 86 percent. The actual county revenue is the final 2018 county FSA yield times the final market-year average price for 2018.

The 2018 MYA price is the national average corn or soybean price from September 1, 2018 to August 31, 2019, which will be finalized on September 30, 2019. The MYA price is the 12-month national average price for a commodity, based on the average market price received by farm operators across the United States, which is then “weighted” at the end of the year, based on the volume of bushels sold in each month.

The USDA price estimates are updated on a monthly basis in the USDA World Agricultural Supply and Demand Estimates report, which is usually released around the middle of each month. As of April 1, 2019, USDA is estimating the 2018 MYA prices at $3.55 per bushel for corn and $8.60 per bushel for soybeans.

The USDA National Agricultural Statistics Service recently released the 2018 estimated average county yields for corn, soybeans, and other crops. The 2018 NASS county yields offer a good estimate of where final 2018 ARC-CO farm program payments are likely to end up, depending on the final 2018 MYA price level.

The relationship between the final 2018 county yield and the 2018 county benchmark yields is extremely important in calculating potential 2018 ARC-CO payments for corn and soybeans. Expressing the 2018 county yield as a percentage of benchmark yield is actually more important than the final county yield in determining estimated ARC-CO payments. At current MYA price estimates, the threshold for a county to receive 2018 ARC-CO payments is 88% of the benchmark yield or lower for corn and 95% or lower for soybeans.

Overall, 2018 ARC-CO payments for corn and soybeans are not likely in many portions of the Upper Midwest, due to 2018 crop yields that were close to or slightly above benchmark yields in many areas. There are a few counties in southern Minnesota and northern Iowa, which had excessive rainfall, that are likely to receive a 2018 corn ARC-CO payment. Most other counties in the rest of Minnesota and northern Iowa, as well as the eastern Dakotas, are not likely to receive a 2018 corn payment. There are only a few counties in the four States that are likely to receive a 2018 soybean ARC-CO payment.

 

Summary on 2018 ARC-CO Payment Estimates:

The current 2018 corn and soybean ARC-CO payments are estimates, which are based on the 2018 NASS county yield data, and the current MYA prices (as of April 1). Final 2018 ARC-CO payments could vary, based on the following situations:

  • Corn and soybean MYA price levels could be adjusted between now and August 31. If MYA prices decline, the likelihood or the level of ARC-CO payments increases, and vice-versa if the MYA price increases. Based on recent history, any movements in the final MYA corn and soybean prices for the 2018-19 marketing year will likely be quite small following the April 1 estimates.
  • USDA could make adjustments to the announced NASS yields to arrive at the final 2018 FSA County yields, which are used to calculate 2018 ARC-CO payments. However, any adjustments in the final 2018 county yields will likely be quite small, and the yields likely lower than the 2018 NASS yield estimates. This could potentially increase the likelihood for 2018 ARC-CO payments.  
  • Any 2018 ARC-CO payments will be paid in October. Producers must be enrolled in the ARC-CO program for 2018 to be eligible for potential 2018 corn and soybean ARC-CO payments.
  • There will likely be a 6.8% Federal sequestration reduction on all 2018 ARC-CO payments, similar to previous years.

2018 benchmark yields and revenues, previous county yields for corn, soybeans, and other crops, 2014, 2015, 2016 and 2017 ARC-CO payment levels, and other farm program information are available on the FSA ARC-PLC website.

CLICK HERE for a table of counties in Minnesota, northern Iowa and the eastern Dakotas that are projected to receive 2018 corn and soybean ARC-CO payments at the current MYA price est.

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  
 
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