Hot topics & tips on the ever changing business of farming


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2016 ARC-CO Estimated Payments

It’s time to estimate 2016 ARC-CO Payments. 2016 Iowa crop yields were released in February of 2017 and we have accumulated 2/3 of the Marketing Year Average (MYA) price. Where do we stand on payouts?

County Crop Yield Payment 
Butler Corn 207.3  $         13
Soybeans 60.4  $         33
Franklin Corn 204.8  $         29
Soybeans 61.0  $         33
Grundy Corn 198.5  $         76
Soybeans 65.4  $         36
Hardin Corn 208.0  $          0
Soybeans 60.4  $         33

Estimated MYA Price used in this calculation is $3.50 for corn and $9.49 for soybeans, as provided on ISU Extension Website. The MYA Price will be released October of 2017. Final payments will be established at that time. As a reminder, payment is on 85% of your base acres.

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2015 Estimated ARC-CO Payments

Now that the 2014 Yields and Marketing Year Average price is established, better estimates can be made for the 2015 ARC-CO payments. At this point, our area is anticipating maximum payouts for both corn and soybeans, but let’s do the math.

Corn Olympic Average  Yields and Price 

The new 5 year Olympic Averages for corn yields are as follows: 

Butler: 175.6

Franklin: 170.9

Grundy: 178.8

Hardin: 171.8

The new 5 year Olympic Marketing Year Average, MYA, will be exactly the same as last year, $5.29. The low last year was the 2009 MYA price of $3.55. This year 2009 is no longer used in the calculation and the 2014 MYA price of $3.70 was the low price eliminated from the Olympic Average.

Corn Benchmark & Trigger Revenues

Now that we have figured the 5 year Olympic Averages for county yields and MYA price, lets figure the Benchmark and Trigger Revenue for 2015. Hardin County has a yield of 171.8 x $5.29 = $908 Benchmark Revenue. To figure the Trigger Revenue multiply the Benchmark Revenue by 86%, $782.

Here are the Benchmark and Trigger Revenues for each county: 

Butler: $929 Benchmark Revenue, $799 Trigger Revenue

Franklin: $904 Benchmark Revenue, $778 Trigger Revenue

Grundy: $946 Benchmark Revenue, $813 Trigger Revenue

Hardin: $909 Benchmark Revenue, $781 Trigger Revenue

Corn Projected Payments

The estimate for the 2015 Marketing Year Average is $3.64 for corn. If we project 2015 yields be be the same as the 5 Year Olympic Average, here are the following ARC-CO 2015 Estimate Payments: 

Butler: $79

Franklin: $77

Grundy: $80

Hardin: $77

All of these payouts are maximum payouts available, 10% of Benchmark Revenue.

If we estimate 10% increase in 2015 yield from the 5 year Olympic Average, all counties would still receive the maximum payout as indicated above.  Continue reading


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2014 ARC-CO Payments

2014 County Yields were published in February. The Marketing Year Average Price was completed in September: Corn $3.70 and Soybeans $10.10. Farm Bill Payments will be made in November. How much will your payment be?

Corn ARC-CO Payments were maxed out in our area $74-80 per acre. Soybean ACR-CO Payments range from $20-48 per acre. See details below for Hardin, Grundy, Butler, and Franklin counties.  Continue reading


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Margin Protection

Margin Protection is a new crop insurance product to protect against unexpected decreases in operating margin. Producers are making decisions late in the preceding calendar year and early in the crop season year. Changes in price during this period can affect profitability. Margin Protection is designed to provide a guaranteed margin based on current expectations of commodity and input prices.

As you can see on the table below, Hardin County has an Expected Margin of $407.25 per acre in 2016. Based on Expected Margin, you can select a coverage level between 70-90% in 5% increments. If a producer selected an 80% coverage level, the Margin Guarantee would be $325.80 per acre.

Margin Protection

Margin Protection Data for Hardin County , IA

A Harvest Margin will be calculated at the end of the season. Payments will be made the Actual Margin falls below the Trigger Coverage Level.

Continue reading


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APH Yield Exclusion

Another component to the 2014 Farm Bill is APH (Actual Production History) Yield Exclusion. The government is allowing Actual Production Yields to be excluded from crop insurance databases. This provides an opportunity to increase crop insurance guarantees.

There are certain parameters that need to be met in order to exclude an APH from the database.

#1 – The county yield must be at least 50% below the 10 year, simple average yield for that county. This is a “Primary County” for APH Yield Exclusion.

#2 – All counties surrounding the “Primary County” are eligible for APH Yield Exclusion. This is a “Contiguous County” for APH Yield Exclusion.

The Risk Management Agency, RMA, has a map of the counties that are eligible for APH Yield Exclusion, RMA Maps and Text Files.

This endorsement option is significant across the United States. Nearly 80% of all the acres covered by federal crop insurance are eligible. Although in Central Iowa, Butler County is the only county affected. Butler County is a Contiguous County for 2003 Soybeans.

How do 2003 Butler County Soybean Farmers take advantage of APH Yield Exclusion?

– Select APH Yield Exclusion, YE, on their crop insurance coverage for 2015. The deadline is March 15.

– With the YE, all 2003 Soybean Yields will be automatically excluded with the YE election. Actual yields can be retained if specifically identified.

– YE is a continuous coverage from year to year. Cancellation of the endorsement will need to be requested.

How much does APH Yield Exclusion cost?  

– There is no specific fee for this endorsement. Although, a higher APH will create a higher insurance premium.

 

Example of how APH Yield Exclusion will work. 

Here is the Actual Production History (APH) for a Butler County Soybean Farmer. He has a 50/50 rotation, planting soybeans every other year.  APH is based on 4 to 10 years of data. This farmer has the full 10 years of production history. You can see the actual yield in 2003 was 30 bushel per acre and his APH is 53 bushels per acre for 2015. If he excludes 2003 from his APH, his new APH would be 55.5 bushels per acre. Therefore, this farmer would benefit 2.5 bushels per acre on his APH. The premium increase associated with the increase in APH is minimal, approximately 16 cents for 85% Optional Units.

 

APH Database without APH Yield Exclusion

1995 – 50 bu. / 1997 – 52 bu. / 1999 – 49 bu. / 2001 – 55 bu. / 2003 – 30 bu. / 2005 – 57 bu. / 2007 – 60 bu. / 2009 – 61 bu. / 2011 – 66 bu. / 2013 – 50 bu.

APH (Simple Average of yields)= 53 bu.

 

APH Database with APH Yield Exclusion for 2003

1995 – 50 bu. / 1997 – 52 bu. / 1999 – 49 bu. / 2001 – 55 bu. / 2003 – YE / 2005 – 57 bu. / 2007 – 60 bu. / 2009 – 61 bu. / 2011 – 66 bu. / 2013 – 50 bu.

APH (Simple Average of Yields, excluding 2003) = 55.5 bu.

 

Please review each individual database for Butler County Soybeans when electing APH Yield Exclusion. In most cases, this election will be beneficial. Although, there is a chance that excluding a yield could decrease the APH in the database.


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What about SCO?

The 2014 Farm Bill has many new components. I have discussed ARC-CO and PLC in my previous blog posts. But what about SCO? What is it and how does it fit into Farm Bill Program decisions?

SCO, Supplemental Coverage Option, is a new crop insurance product for 2015. This means SCO is purchased from a crop insurance agent and a premium is charged for coverage. 65% of the premium cost is subsidized by the federal government. The coverage provided is county level revenue protection. Payment triggers below 86% of county revenue down to the federal crop insurance level carried on the policy.

SCO sounds attractive; although, SCO has a few limitations to consider. Here are top reasons why SCO will not be popular in Central Iowa:

#1 – SCO is only available for farms that have elected PLC, Price Loss Coverage, for their Farm Bill Program. Many farmers in Central Iowa are planning to select ARC-CO to enhance revenue in 2014 and 2015.

#2 – SCO provides coverage from 86% of county revenue down to your crop insurance level. For example: If you carry 75% Revenue Protection Coverage, SCO will cover from 75% to 86% of county revenue. In Central Iowa, most farmers carry 80-85% Revenue Protection. Therefore, SCO coverage would be minimal, 1-6% coverage.

#3 – SCO is county level protection, therefore there is not protection for individual losses. Prevent Plant and Replant Coverage is not provided.

#4 – Since SCO provides a 65% premium subsidy, you might wonder if scaling back your individual coverage would cheapen your crop insurance cost. For Optional Unit coverage, you will see a slight premium decrease per acre.  But is the rate savings attractive enough to take action? Probably not enough when considering giving up individual coverage. For the higher subsidized Enterprise Unit coverage, the scenario is less likely.

These are the top limitations for SCO in Central Iowa. In other parts of the state and country, SCO could be attractive. SCO has nice advantages for farmers who elect PLC for their farm program, can’t afford a high level of individual crop insurance, or don’t qualify for Farm Bill Program payments.

If you want more information regarding SCO and your operation, please contact me at betsy@ibelinginsurance.com or 641-847-3555.


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Estimated Farm Bill Program Payouts for Hardin County

To make a program election, you may want to know the estimated payouts for ARC-CO and PLC programs for the next 5 years. There are a handful of online tools available to help you estimate payouts. I decided to use Farm Doc’s System APAS Sample Farm. You can also go to Texas A&M’s Decision Aid to estimate payouts.

According to the APAS Sample Farm, the ARC-CO program looks attractive for farmers in Hardin County due to a good yield base and the Marketing Year Average Prices over the past 5 years. For Hardin County, the 5 year Olympic Average yield is 168 bushels per acre for corn and the Marketing Year Average Price is $5.29. This gives Hardin County a Benchmark Revenue of $888 and a payment trigger of $764 for 2014. Every year this Benchmark Revenue will be re-calculated using data from the previous 5 years. Therefore, if prices and/or yields moving forward are less attractive than the past 5 years, the Benchmark Revenue will become lower.  This adversely affects the maximum payout on an annual basis.

The PLC program will pay if the Marketing Year Average Price is below $3.70 for corn. There is a chance of a PLC payment in 2014/15, but we will not know until after August 31st, when the marketing year is complete. In the early years (2014 & 2015), ARC-CO looks to have a higher estimated payout than PLC. Although, if the price stays around $3.50 or below, PLC becomes more attractive in the later years (2017 & 2018).

(To learn more about how ARC-CO and PLC works, visit my blog post Compare ARC-CO and PLC.)

In the graphs below, you can see the estimated program payouts for corn and soybeans in Hardin County based on the estimated yields and prices. The payout estimations are sensitive to price.

The first two graphs use the CBO projected prices which are on the higher end of price estimations. The model takes into account the likelihood of a higher or lower price than the prices listed below. That is why you see a payout for PLC in 2014.

Corn: 2014 – $3.90, 2015 – $4.00, 2016 – $4.19, 2017 – $4.35, 2018 – $4.45

Soybeans:  2014 – $11.06, 2015 – $10.02, 2016 – $10.06, 2017 – $10.87, 2018 – $11.11

The last two graphs use the USDA projected prices, which are on the lower end of price estimations.

Corn: 2014 – $3.50, 2015 – $3.68, 2016 – $3.38, 2017 – $3.47, 2018 – $3.53

Soybeans:  2014 – $10.00, 2015 – $8.66, 2016 – $9.00, 2017 – $8.97, 2018 – $9.19

You can see that the lower USDA price estimates triggers higher payout estimates and PLC becomes more comparable to ARC-CO on the 5 year horizon.

 

Estimated payout for 2014 – CBO Price Estimation

You can see that the estimated 2014 payout per acre on corn is $47 for ARC-CO and $24 for PLC, when using the higher CBO Prices.

Hardin County 1 year Payout

Average Annual Payout for the next 5 years – CBO Price Estimation

Now let’s look at the estimated average annual payout on the 5 year horizon. The ARC-CO payment decreased to $29 per acre due to the likelihood of a smaller payment in years 2017 and 2018. The PLC payment also decreased due to the likelihood of prices being higher than $3.70. 
Hardin County 5 year average Payout

 

Estimated payout for 2014 – USDA Price Estimation

We will now consider the lower estimated prices for payout estimations. For 2014, ACR-CO estimated payout is $62 per acre and PLC is $47 per acre. These payouts are higher than the payouts using the CBO prices.

Hardin County 1 year Payout USDA

Average Annual Payout for the next 5 years – USDA Price Estimation

If we look on a 5 year average, you can see that low prices make PLC become very comparable to ARC-CO. Remember, PLC pays if the Marketing Year Average is below $3.70. The USDA’s price estimates are all below $3.70 in 2014 to 2018.

Hardin county 5 year average USDA