WASHINGTON, Oct. 15, 2015 – American Farm Bureau Federation’s Deputy Chief Economist John Anderson comes across as one of the most easy-going agricultural economists you’d ever want to know. But when it comes to advising producers on new farm program choices, he starts wringing his hands, wondering out loud about the steep challenges ahead and the potential for “disparate” outcomes.
“Potentially, we could see a farmer on the left side of the road and a farmer on the right side of the road – both growing the same crops in the same environment – and receiving much different government payments,” he told fellow economists and crop insurance agents attending the Agricultural & Applied Economics Association meeting last week in Louisville, Kentucky.
Six months ago, Anderson said he thought the choices between Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) were pretty clear cut. But now, with commodity prices falling and the need for producers to make one-time irrevocable decisions based on each crop and each farm, he says that making recommendations will be “kind of dicey. It puts extra pressure on us to get it right.”
Indeed, a new FarmDoc analysis, by economists Gary Schnitkey and Carl Zulauf, looks at the difficulty of projecting government payments – just for 2014. They analyzed payment level indicators for ARC-CO (county level) and PLC payments based on yield and price projections from the Oct. 10, 2014, World Agricultural Supply and Demand Estimates (WASDE).
“The current range on U.S. crop year price projections is such that both high payments and no payments may occur,” Schnitkey and Zulauf wrote. To emphasize this point, they calculated the largest difference between the October WASDE mid-price forecast and final crop year prices for corn, soybeans, and wheat over the 1979 through 2012 crop years. The largest difference is $1.00 for corn, $1.75 for soybeans, and 38 cents for wheat. Wheat is smallest because its crop year begins June 1, which is earlier than the Sept. 1 start for the corn and soybean crop year.
“Simply put, it is too early in the 2014 crop year to talk with much certainty about the size of payments. It is reasonable to say that 2014 crop year payments may occur, that they may be large if the right combination of price and yield materialize, that they will likely vary by crop, and that they will likely vary by program for a given crop,” they wrote.
The good news is that a covey of agricultural economists have been developing on-line decision-making tools, designed to allow producers to plug in their individual base acreage and yield numbers and make their own personalized decisions – largely based on what they expect prices to be over the life of the five-year Farm Bill.
And the other piece of good news is that there is still plenty of time, with a decision on base and yield allocations not due until Feb. 27 and the election for either ARC at the county or individual level or PLC is not due until March 31. Many FSA offices and extension offices are just starting their training and finding that in some cases, there are more questions than answers. To help settle some of the uncertainty, Kansas State’s Art Barnaby recently held a webinar and then published the questions and answers that surfaced during the hour-long session.
In fact, one thing most of the economists attending the Louisville meeting agreed upon was that it would likely make sense for producers to delay any of these decisions as long as possible, in order to get a better grasp on the commodity price outlook. That’s not good for the Farm Service Agency (FSA) office staff, perhaps, but better for producers.
The other area of agreement: If you’ve got rice base acres, keep every one of them.
But in some cases, the decision tools can only go so far in answering more strategic questions.
“In the past, we tended to approach farm program decisions from the standpoint of maximizing government payments – which is a sensible approach,” Anderson adds. “But is that approach sufficient now?”
For example, Anderson says a producer might want to consider whether timing matters. “Am I more concerned about payments in years 1-2 or 4-5?” he asks. And if you are truly concerned about risk management, “do you really want to reallocate base acres to corn and soybeans or spread your risk by keeping base acres for a more diverse mix of crops?”
For now, Texas A&M Economist James Richardson says it’s most important for producers to start plugging their numbers into the on-line tools, which he assures are as safe and protected as student grades at Texas A&M or other leading universities.
“Start looking at the first question of whether or not you should reallocate base and update yields,” Richardson says, “And look at the impact of doing so under ARC (individual and county) and PLC. Then test the decision under multiple price scenarios.”
For more news, go to www.agri-pulse.com.