The tight economics of row crop production in 2017 will have many producers looking for some cash flow from farm bill programs when those payments are released this fall.
Higher yields in 2017, however, will likely mean smaller payments in October of 2018 compared to last fall.
“We saw yields that were pretty high for corn above trend line for some counties for the fourth year in a row in 2017. So looking forward to October of 2018, I am expecting smaller to no payments for most counties for corn. A couple of counties in western Ohio may trigger a soybean payment but the payments are expected to be a lot less,” said Ben Brown, Ohio State University Farm Management Program manager. “If you are counting on the money in October for cash flow, I don’t know that we will see as much. Both farmers and ag lenders need to prepare for that.
“In 2017 we saw roughly $50 an acre for corn across the state. The only Ohio county that didn’t receive a corn payment was in Ashtabula County because they had higher yields in 2016. Some counties soybeans triggered substantial payments for 2017. Last October saw a pretty nice return from programs in Ohio. I don’t know that we’re going to see that in 2018.”
Most of Ohio’s row-crop acres are enrolled in the Agricultural Risk Coverage (ARC-CO) Program, with far fewer acres enrolled in the Price Loss Coverage (PLC) Program.
“At the start of the farm bill in 2014 there was a one-time choice over the life of the farm bill. In Ohio we saw 97% of soybean acres go into ARC-CO. The program has never returned a PLC payment for soybeans. The PLC payment was set lower than we’d expect market prices to be and it wasn’t attractive for soybean growers in the state,” Brown said. “And 98% of corn acres are in ARC-CO in Ohio. For wheat it was 82% in ARC-CO and 18% in PLC. That was different than the national average for wheat that was 60% PLC and 40% ARC-CO. Looking forward to this next farm bill, farmers will probably get to choose and forward thinking about that is going to be important for their cash flow.”
It is also important to note, Brown said, that these farm bill programs only offer a safety net, not a path to profitability.
“I do want to make the distinction that ARC-CO and PLC programs don’t make you whole,” he said. “They are only on 85% of the acres so the returns you get back are smaller than you would get if the market was high.”
While farmers should prepare for lower farm bill payments this fall, that does not mean there will be none. The final payment numbers still have an opportunity to change from Brown’s estimates. ARC-CO and PLC payments are calculated from a formula using Farm Service Agency (FSA) yields and marketing year average prices. The estimations from Brown use National Agricultural Statistic Service yields for 2017, but the adjusted final FSA numbers will be used for the final farm bill payment calculation. Also, the corn and soybean marketing year is Sept. 1 to Aug. 31, so final prices will not be known for several more months. Brown’s estimates were made using World Agricultural Supply and Demand Estimates (WASDE) average prices from February. Marketing year average prices of $3.30 for corn, $9.30 for soybeans, and $4.60 for wheat were used for the estimates.
As the marketing year progresses, it is likely that these estimates will fluctuate with price. Higher prices moving forward will result in smaller 2018 payments than estimated and lower prices will result in larger payments based upon the 2017 program year, Brown said.
“More counties are expected to trigger soybean payments this fall. We have also reached a point where the PLC program is returning larger payments than ARC-CO for corn and wheat. Soybeans are not expected to trigger a PLC payment for 2018,” Brown said. “Expectations for program year 2017 corn ARC-CO payments will be smaller and rare across much of Ohio. This is largely because of the formula benchmark lowering each year as a result of lower prices. In previous years the historical five-year revenue included high prices from marketing year average 2011/12 and 2012/13. Those have been worked out of the formula and the probability of triggering a payment has lowered. The 5-year olympic average price in 2016 was $4.79 compared to a price of $3.95 in 2017. Payment variations across counties happen due to variations in yields. Highland County triggers the largest estimated payment at $37 per acre as a result of a 2017 yield of 167 bushels per acre compared to a 2016 yield of 176. The average payment in 2016 was $57 whereas in 2017 it is estimated at $12. Fewer counties are expected to receive a payment with a smaller average payment in comparison from 2016.”