Crop Insurance, Marketing Key in Minimizing Losses – DTN

    When asked whether they had been to the Farm Service Agency (FSA) office to update their program base and yield, only about 20% of the farmers attending a Farm Credit Services of America meeting in central Iowa last week raised their hands.

    “What are you waiting for?” shot back Steve Johnson, Farm and Ag Business Management Specialist for Iowa State University.

    “I know the deadline isn’t until Feb. 27, but that last week in February the line will be out the door and the FSA office will look like a homeless shelter — guys sitting on folding chairs, staring off into space, holding empty Styrofoam coffee cups, paper food wrappers lying around,” warned Johnson.

    NOT ALL BASE ACRES CREATED EQUAL

    Extension advisers across the Midwest are singing much the same tune this season: With some farm yields and bases dating to the 1980s, nearly everyone should examine whether those shifts would benefit them, Iowa State, University of Illinois and Ohio State University economists agree. But as some of those experts at DTN’s recent Ag Summit concluded, documenting your historic yields could be especially challenging if you have recently acquired land. Don’t procrastinate on your paperwork.

    If you can get more corn acres (for example, you haven’t planted your oats base for the past five years), allocate more corn base, Johnson said. “You cannot create new base, but you can reallocate base, using your actual planted commodities since 2009. Generally, corn payments are larger than soybean payments and occur more often,” said Johnson.

    By Ohio State University economist Carl Zulauf’s calculations, the order of projected highest 2014 farm program payments is: rice, corn, sorghum, soybeans and wheat. Based on average yields and USDA’s recent range of price forecasts, 2014 Agriculture Revenue Coverage (ARC)-county payments could run $36 to $79 per acre for corn while soybeans could pay $0 to $24 per acre. Wheat could run $0 to $18 per acre.

    “If you can re-allocate some of the lower payment base you haven’t planted since 2009 to the higher paying base, do it,” Johnson advised.

    Updated yields may not make a huge difference in your farm program payments in the next five years, but “we may never pass this way again,” said Johnson. “This may be the last time in your lifetime for you to update your yields. Congress does not allow this very often. The last time was 2002. Take advantage of it while you can.”

    NEXT, CHOOSE PLC OR ARC?

    Those are “no brainer” decisions, said Johnson. The next step, deciding between Production Loss Coverage (PLC) or ARC, may take more thought. Only about five people in the room of about 100 had “elected” ARC or PLC at the FSA office. That deadline is March 31.

    “I think over 80% of the acres in Iowa will elect to be in the ARC-county program,” predicted Johnson. In his example, an actual central Iowa (Boone County) farm, ARC-county could pay $20 more per acre in 2014 than PLC. His ARC-county potential payment for 2014 on the 50/50 corn-soybean farm would be $37 per acre for that farm, based on his county benchmark maximum payment of about $88 per acre of corn. (He gets paid on 85% of his corn base.)

    Who in Iowa would sign up for PLC and not ARC-county? “Young, beginning farmers who couldn’t risk extremely low prices, those who think corn prices will always be low, or those in southern Iowa with very low corn benchmark county yields,” explained Johnson.

    [In contrast, Texans will likely favor PLC by a wide margin, Texas A&M economists report. They have experienced repeated droughts which have decimated their historic yields and can’t afford — or aren’t offered — the 80% or 85% crop insurance coverage available in the Midwest. So in such cases, it could make sense to elect PLC in conjunction with a buy-up Supplemental Coverage Option (SCO) policy.]

    Otherwise, across the Midwest, Johnson said, “you’ll see most people collect the payment for 2014 and 2015 with ARC-county, and take their chances that the marketing year average the next three years will not fall below $3.70 corn, $8.40 soybeans and $5.50 per bushel wheat,” Johnson emphasized. “That doesn’t mean we won’t see prices drop below those levels. They’re just betting prices for the ‘marketing year average’ won’t average out below those levels.”

    Johnson dismissed the ARC-individual election because that payment is calculated on only 65% of your base acres versus 85% of your base with ARC-county. Zulauf believes it can work in special circumstances, such as yields that vary significantly from the county average.

    The PLC program tends to be more beneficial for peanut and rice growers, Johnson noted. “You might also see some wheat farmers who want the SCO on crop insurance that’s available only with the PLC program.”

    What happens if you miss the March 31 deadline to elect ARC or PLC? You lock yourself out of receiving a 2014 farm payment and you are automatically put into the PLC program for the length of the Farm Bill.

    Johnson worried that producers are going to spend more time agonizing over the ARC versus PLC decision than is necessary. “The payment is not that big. Yes, don’t miss the deadline, but you’ll get a much bigger return on your time by improving your marketing skills and figuring which crop insurance works best for you,” Johnson advised.

    “You should be delivering corn or locking in the basis now. Corn basis tends to widen in February and March because farmers need the money for their 2015 crop,” noted Johnson. “Those frigid days in January when no one wanted to be outside? That was probably a good time to move corn. If you’re holding corn into March, you may be holding it into August and it had better be on your farm, dry and cold.”

    Iowa State estimates corn storage costs will increase from 37 cents per bushel to 54 cents per bushel from January to April for commercial storage ($3.50 corn, 5% annual interest rate) and from 31 cents per bushel to 42 cents per bushel from January to April for on-farm storage. That shoots up to 71 cents per bushel if you hold it in commercial storage until July and 53 cents per bushel for on-farm storage into July.

    “Manage your basis risk now,” said Johnson. “Generally, fall and winter is a basis game and spring and summer is a futures game.”

    2015 will be a tough year, but the farm program is not going to bail out farmers, Johnson added. “This farm bill is all about crop insurance. Crop insurance and marketing will be key in minimizing losses for 2015.”

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