What farm commodity program should you choose? Farmers, analysts and extension experts alike say it comes down to your own farm and your personal approach to the markets—and their movements.
In Illinois, Garry Niemeyer has just returned from his fourth trip to the local Farm Service Agency office. Like farmers all over the Midwest, he is currently surrounded by the rules, regulations, questions and paperwork required to participate in USDA’s newest farm commodity programs under the 2014 farm bill.
“After you go through the consternation of gathering all the information, it’s almost automatic,” Neimeyer says of the process of updating yields, base acres and choosing either ARC (Agriculture Risk Protection) or PLC (Price Loss Coverage). “It sounds overwhelming and hard to understand, but you just go to your FSA office and put your numbers in.”
Is it really that simple? Yes and no, according to farmers and others interviewed for this story. (Mercifully, not all of Niemeyer’s FSA visits have been for his own farm; he says he’s also been helping out friends and neighbors with their paperwork.)
But as the deadlines for enrolling in these programs approach, it’s clearly time for farmers to sort things out so they can make the best decision for their farm operations now and in the years to come.
Escape from the 1980s: Update Those Yields
The first order of business: Grab your documentation (elevator settlement sheets, crop insurance payments) and update your yields at your local Farm Service Agency, regardless of what farm commodity program (or combination of programs) you think you’ll choose this time around. The deadline is Feb. 27, and must be completed by the landowner.
(Cash rent farmers, you’ll need to get your landlord to complete this paperwork or have a power of attorney so you can submit it for him or her.)
Depending on the crop, it’s been a decade or more since farmers were able to update yields and reallocate base acres, and many farmers’ crop mix has changed dramatically. “Guys are way out of whack with what they grow,” says Jamie Wasemiller of the Chicago-based Gulke Group.
So have their production numbers. As tax accountant Paul Neiffer of CliftonLarsonAllen in Yakima, Wash., has worked with farmers on their farm bill decisions, he has noted the big differences between the yield numbers on file at the FSA office and their current figures. The differences range from 82 bu. per acre nearly doubling to 148 bu. per acre, or even a strong 136 bu. per acre rising to 168 bu. per acre.
“You need to update your yields, even if you don’t do PLC, because you never know what will be in the next farm bill,” Neiffer says. “Some of these base acres and yields are 20 years older or more.”
When it comes to the question of how a farmer should allocate base acres, one answer seems to overshadow the others: Allocate as many to corn as you can. “Corn, over the five years, has the greatest chance to pay off and has the chance for the greatest payment,” says Neiffer, whose recommendations are echoed by many.
According to analysis done by agricultural economists at the University of Illinois’ farmdoc Daily, corn is the most likely crop to pay off during the life of this farm bill, followed by wheat and then soybeans.
If you allocate as many acres as you can to corn, are you required to plant all that ground with corn? No. “Base acres is basically what you grow over time,” explains Wasemiller.
The deadline to update base acres is also Feb. 27. (Editor's Note: The deadline is extended to March 31.)
ARC vs. PLC: Are You a Bear or a Bull?
After farmers make any adjustments to their base acres and yields, they have just more than a month before they must decide between ARC and PLC, the new commodity programs introduced in the 2014 farm bill. How do you choose? Farmers, analysts and extension experts alike say it comes down to your own farm and your personal approach to the markets—and their movements.
“What do you expect the average price to be in the next five years?” says Niemeyer, who adds, chuckling: “I haven’t been doing such a great job in the last month, so I'm not sure I'm qualified to answer.”
The volatility of the markets does add some complexity to the PLC/ARC question, making one or the other more appealing depending on grain prices. “Two months ago, this was a harder decision,” says Wasemiller. “But prices have rallied,” making ARC more attractive. “ARC is basically a shallow-loss program,” he says. “It pays at a higher level, but only at 10% of the guarantee.”
Many do like the idea of ARC. This county-based program will pay farmers if the county’s crop revenue drops below the guaranteed level. “We’re virtually guaranteed two years of payments with ARC-county,” explains veteran farmer Dick Overby of Kenyon, Minn., who’s farmed for nearly 40 years and handled crop insurance for 26 years. “A lot of people don’t want to give up a sure thing for the unknown.”
Others prefer to prepare for the worst, in case record crop production outstrips global demand in the coming years. “If you are a very bearish individual, then you may want to take your chances with PLC,” Wasemiller says. “With PLC, the prices have to get a lot lower, but it has the ability to pay out a lot more.”
Overall, though, farmers should not plan on a big payoff from these programs, which replace the direct payments of the past. “If anyone thinks they are going to get rich off these programs, they need to rethink the process,” says Niemeyer, who is also a past president of the National Corn Growers Association. “These should be considered a supplement to your income, not something you’re banking on.”
John Anderson, deputy chief economist at the American Farm Bureau Federation in Washington, D.C., agrees. “I think the level of support in this farm bill will be historically low … but given the design of the programs, either (ARC or PLC) should provide some level of stability.”
If you’re still undecided, don’t rush—even if you are worried about long lines at the FSA office. “If they are letting us wait until March 31, there is no need to sign up now,” says Wasemiller, who believes there are simply too many variables—grain prices, upcoming USDA data and crop insurance prices, just to name a few—for farmers to finalize their ARC/PLC election right now. “It might not make a difference down the road, but you still want to wait as long as you can.”
Want more information? Click here for AgWeb's ongoing coverage of the farm bill implementation.
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