Ag Notes

WILL - Ag Notes - September 30, 2014

Grain Stocks Report

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WILL - Ag Notes - September 26, 2014

USDA Finalizes Farm Program Rules

by Gary Schnitkey, Jonathan Coppess, Nick Paulson, and Carl Zulauf

Thursday, September 25, 2014, U.S. Secretary of Agriculture Tom Vilsack announced the regulations for the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs created by the 2014 Farm Bill. Along with the regulation, Secretary Vilsack also announced the public release of the web-based decision tools that have been developed under cooperative agreements with the Farm Service Agency. This article provides more information on these items.

Background

The Agriculture Act of 2014 (the 2014 Farm Bill) revised the commodity support programs beginning with the 2014 crop year. Direct payments, counter-cyclical payments and the Average Crop Revenue Election payments were eliminated by this farm bill. In place of those support programs, three new programs were created for covered commodities or program crops. These programs are: Agriculture Risk Coverage, County Option (ARC-CO), Agriculture Risk Coverage, Individual Farm Coverage (ARC-IC), and Price Loss Coverage (PLC). The 2014 Farm Bill also provided one-time opportunities for farm owners to update the payment yields for the FSA farm and a one-time opportunity to reallocate the base acres among program crops planted on the FSA farm. Finally, the farm bill included funds for the development of web-based decision aids or tools that farmers, landowners and others could use to help sort through the program decisions required.

Discussion

The University of Illinois as the lead institution for a national coalition has worked under a cooperative agreement to develop the web-based decision tools. In addition to the web-based tools, the coalition has also created an online resource site affiliated with farmdoc and will be conducting outreach, education and training on the programs and the web-based tools. The following is an overview of the resources currently available.

(1) The Farm Bill Toolbox on farmdoc: a one-stop resource for all aspects of the farm bill program decisions, it is available here (or by entering the following web address: http://farmbilltoolbox.farmdoc.illinois.edu) provides a seven-step decision process or matrix to guide producers through the program decisions and use of the web-based tool. The Toolbox also provides one-page fact sheets and links to additional resources such as previously published articles and new articles on farm bill program issues and topics. Finally, the farmdoc team will be conducting weekly webinars explaining the programs, the web-based tool and analysis, as well as program and harvest updates. These webinars will be every Friday morning at 8:00 a.m. (CST) beginning September 26th and continuing through the end of October. Webinars will be archived and available for review. Additional webinars are also available in the archives. For registration, more information and archives please visit the Farm Bill Toolbox.

(2) The Agriculture Policy Analysis System (APAS): available here (or by entering the following web address: http://fsa.usapas.com) this web-based application provides the ability to calculate updated payment yields for the FSA farm, calculate reallocated base acres for the FSA farm and analyze, compare and understand the program choices (ARC-CO, ARC-IC and PLC/SCO). Program analysis and information is available in two forms. First, the Sample Farms button allows for a quick program comparison and analysis based on a data-generated sample farm for your state and county, both expected program payments and per-acre, crop-by-crop payments. Producers can also select the Build Your Own Farm (BYOF) option that will allow them to input their farm-specific information and run estimates of program payments. Both options also provide a "safety net" analysis using specific revenue targets and providing the probability of reaching those revenue targets under different program scenarios.

(3) Farm Service Agency: the APAS web-based tool is also available on the FSA website, along with detailed fact sheets and other related program information (available here or by entering the following web address: www.fsa.usda.gov/arc-plc).

FSA has not announced a final deadline for making the farm program decisions (payment yields, base acre reallocation and program election), but it is anticipated that the deadline will be sometime in 2015, maybe as late as March. Producers and landowners are encouraged to wait until later in the year or early next year. More information about prices and yields will be known at that time, allowing for a more informed, better decision. With many farmers already in the fields, or about to begin harvesting, there is no immediate action needed. There is time to learn more about the programs, use the web-based tools and understand the analysis before any decision will have to be made. Updates on deadlines and program decisions will be available on the Farm Bill Toolbox and through farmdoc daily.

Categories: Agriculture

WILL - Ag Notes - September 15, 2014

USDA Updates Cash Rents by County

by Gary Schnitkey

In recent weeks, two sources released cash rent information for Illinois. The U.S. Department of Agriculture released county average cash rents for 2014. The Illinois Society of Professional Farm Managers and Rural Appraisers released 2014 and expected 2015 cash rents for professionally managed farmland. Expected 2015 rents point to decreasing cash rent levels on professionally managed farmland. Whether or not other cash rents follow professionally managed cash rents down is an open question.

Average Cash Rents in Illinois

The National Agricultural Statistical Service (NASS) - an agency of the U.S. Department of Agriculture - released 2014 average rents per county on September 5, 2014. A number of counties do not have cash rents reported, likely because statistically reliable rents could not be obtained with survey responses.

As can be seen in Figure 1, there is a considerable range in cash rents across Illinois. Four counties had average cash rents over $300 per acre: Logan ($308 per acre), Piatt ($303 per acre), Sangamon ($302 per acre), and Ogle ($300 per acre). Except for Ogle County, these high-rent counties are located in central Illinois. The five counties with the lowest cash rents are Johnson ($80 per acre), Williamson County ($92 per acre), Perry ($106 per acre), Saline ($107 per acre), and Franklin ($108 per acre). These counties with the lowest cash rents are located in southern Illinois. Generally, average cash rent levels are related to productivity, with counties having more productive farmland have higher cash rents than those counties with less productive farmland (farmdoc daily, September 10, 2013).

figure1.jpg

Overall, 2014 average cash rents were higher in 2014 than 2013. According to NASS, the average rent in Illinois increased from $224 per acre in 2013 to $234 per acre in 2014, an increase of 5%. This continued a string of years of large increases. Since 2006, average state rents in Illinois have increased from $132 per acre in 2006 to $234 per acre in 2014, an increase over this eight year period of 77%.

Professional Cash Rents Levels

The Illinois Society of Professional Farm Managers and Rural Appraiser released results of its annual mid-year survey. This survey asked for 2014 and expected 2015 cash rents on professionally managed farmland. These rents, along with 2013 cash rents from a previous survey, are shown in Table 1. Average rent levels are shown for four classes of farmland productivity:

Excellent - expected corn yields are over 190 bushels per acre
Good - expected corn yields are between 170 and 190 bushels per acre,
Average - expected corn yields are between 150 and 170 bushels per acre, and
Fair - expected corn yields are below 150 bushels per acre.
table1.jpg

Average cash rents decreased between 2013 and 2014. For excellent quality farmland, cash rents decreased from $396 per acre to $374 per acre in 2014, a decrease of $14 per acre.

Decreases for professionally managed farmland stands in contrast to average cash rents, which increased from $224 per acre in 2013 to $234 per acre in 2014. Farm managers follow agricultural markets, likely much more closely than land owners without management. As a result, farm managers likely set rents closer to those suggested by market conditions. Cash rents on professionally managed farmland increased faster than average cash rents between 2006 and 2013, when returns rose as a result of higher prices. Now that prices have decreased from levels experienced during 2009 through 2013, farm managers are lowering cash rents. On farmland, not managed there may be considerably more lagged relationship between changes in returns and changes in rent levels.

On professionally managed farmland, cash rents likely will continue to decline into 2015. For all quality classes, Society members indicated that rents would be lower in 2015. For excellent quality farmland, for example, cash rents are projected to decrease from $374 per acre in 2014 to $338 per acre in 2014, a decrease of $36 per acre (see Table 1). If the decrease occurs, cash rents would decrease by about 10%.

There is a considerable range in cash rents for similar productivity farmland within a small geographical area, with some rents above the average by $100 and other rents below the average by $100. Below average cash rents could continue to increase to "catch up" with average levels. At the same time, above average cash rents could decrease, as indicated by results from the Illinois Society. These two forces could counter each other, leading to stable or maybe even increasing average cash rent levels.

Projections are for much lower returns in 2014 and 2015 return (farmdoc daily, July 8, 2014). Even with decreases in cash rents projected by the Illinois Society, farmer returns would be projected to decrease because returns have decreased more than cash rents.

Summary

Rents on professionally managed farmland could decrease in 2015. Other above average cash rents could decrease as well. However, below average cash rents may remain stable or increase. Overall, rent decreases likely will not cover decreases in lower returns projected for 2014 and 2015.

Categories: Agriculture

WILL - Ag Notes - September 15, 2014

Setting Silage Chop for Best Digestion

Corn silage can make up to as much as thirty to forty percent of a dairy cow’s diet. So, it is really important to get it right. That starts in the field. Todd Gleason has more on some University of Illinois work on harvesting silage.

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WILL - Ag Notes - August 23, 2014

Book a University of Illinois Agriculture Event Today

Book your WILLAg event today for this fall or winter. We'll be glad to work with you to set up a WILLAg Panel of analysts to discuss the commodity markets, arrange for University of Illinois campus based agricultural specialists in economics, crops, or livestock, or simply to come speak to your group or organization. Contact Todd Gleason for complete details.

Todd E. Gleason, Farm Broadcaster
College of ACES / Univesity of Illinois Extension
tgleason@illinois.edu or (217) 333-9697

Categories: Agriculture

WILL - Ag Notes - August 22, 2014

August Corn Estimates

by Todd E. Gleason

Pro Farmer Midwest Crop Tour results are plotted here against the United States Department of Agriculture National Agricultural Statistic Service corn yield projections and the Pro Farmer Newsletter estimates. USDA NASS estimates are as of August 1, 2014 and the Pro Farmer crop tour yields were taken the week beginning Monday August 18. The Pro Farmer estimates were made August 22, 2014.

The final Pro Farmer Midwest Crop Tour estimates tallied corn and soybean yields across seven Midwestern states stretching through the primary corn growing counties in the United States. The tour is watched closely by those in the grain and oilseed trade. However, it should be noted USDA gathers much more objective and survey based information about the size of U.S. crops. 

--

2014 Midwest Pro Farmer Tour Results

Corn        Soybean      State

182.11     1342.42       Ohio
185.03     1220.79       Indiana
196.96     1299.17       Illinois
178.75     1173.59       Iowa
163.77     1103.26       Nebraska
170.76     1031.54       Minnesota
152.71     1057.80       South Dakota

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WILL - Ag Notes - August 17, 2014

ARC-CO and PLC Payment Indicator Using August WASDE U.S. Yield and Price

by Carl Zulauf, The Ohio State University & Gary Schnitkey, University of Illinois

NOTE: This article appeared in full on www.farmdocdaily.illinois.edu August 13, 2014

The 2014 farm bill gives Farm Service Agency (FSA) farm owners the option to choose their crop program for the 2014 through 2018 crop years. A factor, perhaps key factor that will influence this decision is the payment by the program choices for the 2014 crop year. This article uses the just released U.S. yield and price estimates in the August 2014 World Agricultural Supply and Demand Estimates (WASDE) to calculate an indicator of potential payments by the Agriculture Revenue Coverage - county program (ARC-CO) and the Price Loss Coverage (PLC) program. The indicator estimates are for the 2014 crop year for barley, corn, oats, long grain rice, medium (and short) grain rice, sorghum, soybeans, and wheat.  These are indicator estimates because they use U.S. yield not county yield or farm payment yield, as ARC-CO and PLC use, respectively.  AR-CO payments, for example, will vary across counties, with some counties having no payments due to high yields and some counties having large payments due to low yields.  Thus, this article is not estimating payments that an individual FSA farm owner would receive.  Nevertheless, the indicator estimates using U.S. yields should help frame questions and perspectives for FSA farm owners regarding program choices.

Calculation of Estimated Program Payments
ARC-CO makes payments when county revenue for the crop year is less than 86% of the county's benchmark revenue.  ARC-CO pays when actual revenue is between 76% and 86% of benchmark revenue.  PLC makes payments when the U.S. crop year average price is less than the crop's reference price.  The reference price is specified by Congress in the 2014 farm bill.  The various formulas used to determine the ARC-CO and PLC payments are presented at the end of the article.  An initial comparative summary of these two programs is that ARC-CO is a market-oriented multiple year shallow loss assistance program and PLC is a low price assistance program where low price is defined by Congress, not the market.

Calculation of Yield per Planted Acre
Both programs use yield per planted, not harvested acre.  Yield per planted acre is calculated as production divided by acres planted to the crop, expect for corn and sorghum.  For these two crops, acres harvested for silage are subtracted from planted acres.  No estimate is available for corn and sorghum silage acres for 2014.  For simplicity, we assume that corn and silage acres will be the same in 2014 as in 2013.  The one exception to the use of yield per planted acre is oats.  For oats, yield is per harvested acre because a large share of acres planted to oats is for a cover crop to establish hay production. 

Source of Data
U.S. crop year yield, price, planted acres, and harvested acres are from U.S. Department of Agriculture (USDA) August 11, 2014 WASDE (http://www.usda.gov/oce/index.htm), except for planted and harvested acres of long grain and medium/short grain rice.  The acre data for both rice varieties are from USDA, National Agricultural Statistics Service June 2014 Acreage report.

ARC-IC
A third program option exists --- the Agriculture Risk Coverage - Individual Farm option.  The computations for this program are more difficult besides being farm specific.  The ARC-CO estimates provide some indication of ARC-IC payments per acre but caution should be used since ARC-IC makes payments on the whole ARC-IC farm experience and thus is most akin to the average experience of all program crops on the farm.  For an extension discussion of ARC-IC, including the conditions under which it is most likely to be an option to consider (farmdoc daily, June 6, 2014)

U.S. Per Acre Payment Indicator - August WASDE Mid Price (see Figure 1)

figure1.jpg
 

Using the midpoint of the WASDE range of prices for the 2014 crop year, ARC-CO payments are indicated for corn and sorghum.  PLC payments are indicated for barley, long grain rice, and sorghum.  The highest indicated payment is long grain rice from PLC at $90 per acre, with the second highest being corn from ARC-CO at $41 per acre.  The only crop with indicated payments from both programs is sorghum at $3 from ARC-CO and $15 from PLC.  Remember, actual payments depend upon county yield for ARC-CO and FSA farm payment yield for PLC, and payment is made on only 85% of base acres (65% for ARC-IC).

U.S. Per Acre Payment Indicator - August WASDE Low Price (see Figure 2)

figure2.jpg

When the low price in the range of crop year prices projected by WASDE is used, only medium/short grain rice and soybeans have no payment indicated.  ARC has no payment indicated for long grain rice.   PLC has no payment indicated for oats and wheat.  Both programs have payments indicated for barley, corn and sorghum .  ARC has the higher payment indicated for corn.  PLC has the higher payment indicated for barley and sorghum.  The highest per acre payment indicated is $120 for long grain rice by PLC, with the next highest being $79 for corn by ARC-CO.

A potentially important piece of information conveyed by comparing Figures 1 and 2 is how close ARC-CO is to making a payment if county yield is relatively poor compared to its benchmark yield and the 2014 U.S. crop year price is the WASDE midpoint price.  This comparison suggests that ARC-CO might make payments if the midpoint-price is realized and if county yield is relatively poor for barley, oats, and wheat.  This situation could be a particular consideration for wheat producers in the southern plains given their relatively poor 2014 wheat yields due to drought.  A related point is that if the low projected price for soybeans emerges as the market price for 2014, ARC-CO could make payments for those counties with relatively poor yield.  The reason for this observation is that actual U.S. revenue at the low WASDE price is only 1.3% higher than 86% of the U.S. benchmark revenue.  Note, consideration of the role that yield plays in determining payment by ARC-CO does not apply to PLC.  Whether PLC makes a payment depends solely on how U.S. crop year price compares to its reference price.  In other words, PLC payment yield is fixed and thus not a determinant of whether payment is made.

U.S. Per Acre Payment Indicator - August WASDE high Price (see Figure 3)

figure3.jpg

Long grain rice and PLC is the only crop - program combination for which payment is indicated if the high price of the price range projected for 2014 in the August 2014 WASDE materializes.  

Summary Observations
    • As of August 12, 2014, it appears that, among the crop examined in this article, long grain rice is the most likely to receive a payment from the 2014 farm program options, specifically from PLC.
    • As of August 12, 2014, it appears that above average chances for payments exist for barley from PLC, corn from ARC-CO, and sorghum from both programs.
    • Lower prices increase the likelihood of payments, especially from ARC-CO.
    • County yields that are below average will be a factor in determining payments by ARC-CO in 2014, given currently expected prices.
    • Payments are far from certain if prices strengthen due to lower production or strength in demand.
    • Unlike past crop counter-cyclical programs, ARC and PLC have a greater likelihood of not making payments.  There was a high probability that prices and revenue would end up below the relevant payment support level between 1933 and 1990 with a few exceptions, such as the 1970s.  Such is not the case now.  Farmers and farm land owners need to adjust their understanding of how farm programs work in the 21st Century as opposed to the 20th Century.

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