February 18, 2015

Yield Exclusion and Crop Insurance

When farmers go to their federal crop insurance agents in March they may have a new decision to make. The new Yield Exclusion option may allow some producers to increase their covered yields.



Yield Exclusion, or Y-E, will not be available in every county or on every covered crop. We’ll explain how the availability is triggered in a moment. It was created in conference on Capitol Hill as part of the 2014 farm bill. Consequently, says University of Illinois ag economist Bruce Sherrick, it is a little quirky, but really valuable.

Quote Summary - The Yield Exclusion is really important because it provides the ability to drop a yield out of the APH calculation based on conditions triggered by the county’s experience, or the experience of a contiguous county.

Here is how Y-E allows a producer to exclude a yield from their APH calculation. If the farm is in a county or contiguous to a county that had a prior year yield less than fifty percent of its prior ten year average then the farm is eligible for a yield to be dropped from the APH calculation.

 

see USDA RMA APH Commodity Maps website

The yield dropped is from the year the county experienced the fifty percent or greater decrease. Because the database used to calculate rates still contains the original ten years of data the rate yield does not change, but the coverage amount does change.

Quote Summary - This is primarily explained by RMA as a change in the effective coverage. Instead of picking 65, 70, 75, 80, or 85 percent coverage of a number, you are picking bushels and calculating what the implied coverage would have been. It is not a very complicated program if you think about it in those terms.

 


see USDA RMA APH YE Overview of Premium Rating pdf file

However, while most might see this as a way to increase APH and consequently the revenue guarantee, it can sometimes have a detrimental impact.

Quote Summary - You can lose part of trend by electing to exclude a yield. This could be really important. Especially as a farmer picks up new ground. Maybe this ground was in a unit structure that makes the APH history unavailable. Farmers want to be careful about the impact of dropping a yield to increase APH because it could lose trend on all yields in the database.

The decision can be changed, and or updated in future years. However, like other crop insurance decisions, previous year’s decisions remain in play until a change is requested.


February 16, 2015

U.S. Soybean Production Prospects for 2015

There are lot of soybeans in the world. Last fall U.S. farmers harvested a record crop, and their counterparts in South America are doing the same right now.

The South American soybean crop should be about 400 million bushels bigger than it was last year, some six billion bushels in total. More than a third of it should still be around, about 2.2 billion bushels, when U.S. farmers go to the field this fall. Add that number to what USDA expects will be left from the U.S. crop and you get about 2.6 billion bushels... before the combines roll in the United States. It is a big number and can't be good for price, but maybe it's not as bad as many think either says University of Illinois Ag Economist Darrel Good.

Soybean prices have remained relatively high in the face of such large U.S. and world soybean supplies, with the un-weighted average price received by U.S. producers during the first five months of the 2014-15 marketing year likely near $10.25 per bushel. However, prices have declined by $0.50 to $0.60 per bushel over the past month. Going forward the price of soybeans will be determined largely by the expected size of the 2015 U.S. soybean crop. The first milepost will be the number of acres planted. USDA will release an estimate March 31st. This past year U.S. farmers planted almost seven million more acres of soybeans than they did in 2013.Given the large increase in soybean acreage over the past three years, a more modest increase might be expected this year if crop prices remain near current levels.

Planted acreage near 85.5 million seems a reasonable expectation thinks Darrel Good.

Since the beginning of the "freedom to farm" era in 1996 says Darrel Good, planting intentions reported in March have provided an unbiased forecast of actual plantings. Over the 19 year period actual acreage exceeded intentions in 10 years and was less than intentions in nine years. On average, actual plantings exceeded intentions by just 98 thousand acres. However, the difference (some negative and some positive) exceeded a million acres in nine years, two million acres in 4 years, and three million acres once.

The June USDA Acreage report will provide a clearer picture of soybean acreage. Good says if U.S. farmers plant 85 and half million acres of soybeans, and if the harvested acres yield 45 bushels to the acre, then the United States would harvest 3.8 billion bushels of soybeans. That would be162 million bushels smaller than the 2014 crop, but probably lead to an over all supply of about 4.2 billion bushels or 120 million bushels more than this marketing year.

Compared with the current marketing year, expectations for the 2015-16 soybean marketing year include increased acreage, a further increase in year-ending stocks, and lower prices. The expected price decline is moderated by the likelihood that stocks at the end of the current marketing year will be about 90 million bushels less than projected last fall. That is equivalent to two million acres. Given all this, Darrel Good says prices are not expected to be as low as the CBO baseline projection of $8.19 or even the USDA baseline projection of $8.50. The futures market currently points to a marketing year average near $9.50 per bushel for new crop soybeans.


February 13, 2015

Farm Program Sign Up Deadlines

Time is running out for landowners and farmers to decide what to do about the new farm programs. They have until the end of February to make the first two decisions, and must make a final choice by March 31st. There are decision aids available on the University of Illinois FarmDocDaily website.


February 12, 2015

2015 Corn Balance Sheet

There are likely to be fewer corn acres planted this spring. It is clear farmers and landowners are concerned about the high cost of corn production and the consequence may very well be a drop in the number of acres sown to the crop.
 
     
 
Anecdotal evidence supports the drop, however University of Illinois Ag Economist Darrel Good says the factual evidence suggests it may be muted. This is because U.S. farmers have already reduced the number of acres planted to corn over the last two years by nearly seven million acres. Add to this the two million acre reduction in winter wheat seedings last fall, likely not to be sown to corn this spring, and you arrive at beginning point for acreage planted to corn. Darrel Good expects a 1.25 million acre reduction. This would project U.S. plantings at 89.3 million acres of corn, with 81.8 million of those harvested this fall.
 
USDA and the CBO both have lower planted acreage numbers than Darrel Good. USDA in its February 11th Long Term Projection set it at 88 million acres with a 167.2 bushel to the acre average. CBO is using 89 million acres and 165.8 bushel to the acre yield. There are really two ways to go about figuring yield states Good in his February 9, 2015 Weekly Outlook article posted to the FarmDocDaily website. Analysis of trend-yield and yield-under-normal-weather-conditions puts his projection lower than either USDA or CBO.
 
A yield expectation somewhere around 164 bushels to the acre seems reasonable says Good. This is seven bushels less than the record set in 2014. The combination of acreage and yield would produce a crop of 13.4 billion bushels and ultimately create a total supply of 15.3 billion including the carryover stocks.
 
This total is 170 million bushels less than the amount tallied for the current marketing year. Good expects more corn to be consumed next year, than this year... in an amount greater than the total harvest. This, he says, should lead to some small decline in stocks by the end of the marketing year in the fall of 2016. His numbers bump up corn used to make ethanol by 50 million bushels to 5.225 billion, put corn exports at 1.85 billion, and he says the feed and residual number will stay steady at 5.275 billion bushels.
 
Taken together these projections point to consumption of 13.76 billion bushels and year ending corn stocks of 1.54 billion. This is down 300 million bushels from the expected ending stocks for this year. It points to a marketing year average price from September 2015 to August 2016 in the low $4.00 range. This price is higher than most other analysts projections and is just slightly higher than the price currently reflected by the futures market.
 
Factually, Darrel Good's 2015 season's average price is 50 to 70 cents higher than most other analysts' price projections.

February 10, 2015

Blown Away by the Soybean Export Number

The price of soybeans has been dropping and many in the trade are very worried about the potential for futures to continue to move lower. However, the February WASDE numbers may suggest some strength remains.


February 09, 2015

Finer Ground Corn More Digestible

An animal nutritionist at the University of Illinois has quantified the importance of particle size in ground feed for hogs.


February 06, 2015

Crude Oil Jumps Off Lows

The cost of a barrel of crude oil has dropped dramatically since last June. Back then the price was more the $100 per barrel. It dropped to nearly $44 a barrel earlier this year and has now begun to make a sharp turn higher. There are series of reasons for the rally says Bloomington based energies specialist for Growmark Harry Cooney. 

There has been a steelworkers strike at some of the refineries. This has caused some concerned. The rig counts have also declined. This number indicates how many oil wells are operational and the trade, which focuses on future supply, thinks the supply may peak out and then start to decline. 

However, it is important to remember says Harry Cooney crude oil started its price decline at around $107.00 a barrel. It is very unlikely the oil rig count contraction taking place now will greatly constrain supply. Still Cooney has been advising end users, like farmers that purchase gasoline and diesel in bulk, to lock in the price of their 2015 needs. 

The end users see these values, values they haven’t seen for four or five years, as an opportunity to lock in the price of fuel even though they’re above the recent lows. The price of fuel, unlike other inputs on the farm, has decreased more rapidly in percentage terms. 

Nitrogen fertilizer, for instance, has yet to drop in price.


February 05, 2015

Beef Expansion Is Underway

The nation's cattle producers are expanding the herd and they're doing it at a somewhat faster rate than had been anticipated.


February 03, 2015

Using the APAS Sample Farm

Farmers and landowners wanting to learn more about the new farm programs and the sign up process can visit the Farm Bill Toolbox online. It was developed by the ag economists at the University of Illinois and Ohio State. Just search Google for Farm Bill Toolbox and you'll find a seven step decision making process. There is also a link from the Farm Bill Toolbox to USDA's APAS website.


February 01, 2015

Signing Up for the Farm Programs

The time to sign up for the farm programs has arrived. Decisions will need to be made in February and January. Read on for a quick lesson in the process, and then please visit the Farm Bill Toolbox website created by the ag economists at the University of Illinois. Landowners and farmers should find the seven decision process items in the toolbox very valuable as an aid to making the new farm program choices.
 


The deadline for making two of the three farm program choices is the end of February. University of Illinois Ag Economists Gary Schnitkey, Jonathan Coppess, & Nick Paulson along with The Ohio State’s Carl Zulauf penned an article this past week about the acreage allocation and yield update decisions. It follows;

Base Acre and Yield Updating Decisions: Push to the Finish
The deadline for completing base acre and yield updating decisions is February 27th (see steps 2 and 3 of “7 Steps” on Farm Bill Toolbox). Choosing between alternatives for each of these decisions is relatively straight forward:

1) For yield updating, select the highest yield for each program crop.
2) For base acre reallocation, choose the allocation that maximizes acres in program crops with the highest payments, given that the desire is to maximize program payments.

While the decisions usually are straightforward, collecting the information and completing the process will take some time. For this reason, beginning the process now seems prudent.

Landowners Officially Make the Decisions
Decisions will be made for each Farm Service Agency (FSA) farm. For each farm, there will be a landowner who owns the farm. Under rental arrangement, there also will be a producer who farms the land.

Landowners are responsible for making the base acre reallocation and yield updating decisions. While the landowner officially makes the decisions, in many rental situations producers have the proper power of attorneys to complete paperwork for these decisions. FSA has a record of whether proper power of attorneys exists for each farm. If an appropriate power of attorney does not exist and the landowner wishes the producer to complete the process, a power of attorney will need to be signed for farmers or farm managers to complete the decisions. If a power of attorney does not exist, the landowner will need to complete the process for base acre and yield updating decisions.

Collect Yield Data
If program yields are to be updated, yields are required for each year the crop was planted from 2008 through 2012. Documentation is not required at signup. However, documentation will be required if the FSA farm is audited during the life of the Farm Bill. The method of documentation will need to be indicated at signup. In many cases, crop insurance records will be used to provide documentation. These records are the actual yearly yields used to calculate Actual Production History (APH) yields. An explanation of using crop insurance records for documentation is available here (farmdocdaily December 23, 2014).

It will not be uncommon that documentation for a yield will not exist for a year. For example, a producer may have only farmed the land in 2010 through 2012 and cannot obtain documentation for 2008 and 2009.

If a yield is provided without documentation under an audit, farm program payments may have to be repaid and a fine could result. When yield documentation does not exist, a plug yield will need to be used. The plug yield equals 75% of the county average. When documentation cannot be provided, the plug yield should be used for 2008 and 2009

Plug yields for each county and crop are publicly available. FSA has this information. They can be obtained from the Payment Yield Update tool on the APAS website. The plug yields also are contained in the Base Acre and Yield Updating tool, a Microsoft FAST spreadsheet available for download at the FAST website.

Yields can be reported to FSA using CCC–859. This form is available here.

Make an Appointment with FSA
An appointment should be made immediately with FSA. If possible, yields for updating should be completed before this meeting. Bringing completed CCC–859 forms will facility the signup process.

Yield Updating Decision
Two alternatives for the program yield will exist for each program crop (see farmdocdaily April 3, 2014 for more detail):

  • The current program yield. These yields were reported for each FSA farm in a letter received from FSA in August 2014.
  • The updated yield equal to 90% of the average of yields from 2008 through 2012. If a year’s actual yield is below the plug yield, the plug yield will be used instead of the actual yield. If an actual yield does not exist for a year in which the crop was planted, the plug yield will be used in the update yield calculation.

Choose the highest yield. The decision can differ by crop for an FSA farm.

Base Acre Reallocation Decision
There are total base acres on each FSA farm. Landowner will be given two alternatives for dividing those total base acres into acres for each program crop (see farmdocdaily March 6, 2014 for more detail):

  • Current allocation of base acres on the farm. These acres were sent to landowners and producers in a letter received in August 2014.
  • Reallocated base acres. Total base acres are reallocated based on plantings from 2009 through 2012. Actual plantings were described in a letter received in August 2014. Total base acres under reallocation will equal base acres if current base acres are retained.

This decision is important as Price Loss Coverage (PLC) and Agricultural Risk Coverage at the county level (ARC-CO) will make payments in 2014 through 2018 on base acres. Planted acres in those years will not influence payments.

Many individuals will wish to make the allocation that maximizes commodity program payments, suggesting that the allocation be selected that places most acres in the crops with the highest expected payments. Estimating expected payments by crop requires forecast of prices and yields in 2014 through 2018. Obviously, forecasts can be wrong and crop rankings can vary from forecast rankings. With the knowledge of potential differences, estimated expected payments per program crop by county are available in the sample farms section of APAS. These same estimates also are available in the Base Acre and Yield Updating tool (available at the FAST website).

Users can see expected payment per program crop under different price forecasts for individual counties. In most counties, however, the following ranking exists:

  • Corn will have higher expected payment
  • Wheat will have lower expected payments than corn
  • Soybean will have lower expected payments than corn and wheat.

Corn and soybeans are only program crop: Given the above program crop ranking, choosing the acre alternative with the most corn acres likely will maximize program payments.

As an example take a farm whose current allocation is 60 acres of corn and 40 acres of soybeans. The reallocation alternative based on 2009 through 2012 plantings is 75 acres of corn and 25 acres of soybeans. Note that both alternatives total 100 total base acres. The above ranking suggests that the reallocated alternative (75 acres of corn and 25 acres of soybeans) will have the highest expected payments.

Corn, soybeans, and wheat are the program crops: When these three program crops exist, the reallocation with the lowest acres in soybeans while maximizing corn acres usually will result in the highest expected payments. Use of the Base Acre and Yield Updating Tool is advisable in these cases.

Summary
In many cases, making choices for base acre reallocation and yield updating will be relatively straightforward. Collecting yields, getting the proper power of attorneys, and signing proper election forms will take time. Beginning the process now is important. The process needs to be completed by February 27, 2015


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