PAUL, Minn. (3/16/2015)—Farmers and landowners have until the end of March 31 to make their choices under the 2014 Farm Bill. These choices need thoughtful consideration because they will last for five years (through the 2018 crop) and because there are no obvious answers and no magical lines in prices that determine which choice is the best for one farm versus another.
So to be able to make the best choice for their farms, owners and producers will need to use one of the national decision tools – one created by the University of Illinois, the other through a collaboration between Texas A&M University and the Food and Agricultural Policy Research Institute at the University of Missouri – or one available from another source.
To understand what farmers face, we used historical data from 76 farms in southwestern and northwestern Minnesota. For each farm, we used the actual yields and acreages, price forecasts from FAPRI and from USDA, and the rules in the farm bill to estimate which decisions resulted in the highest payments from the government.
Patterns emerge among choices in southwestern Minnesota
Let’s look at these decisions and our results.
The landowner’s decision to update payment yields is the easiest. If the new potential payment yield from recent years is higher than the old payment yield, it should be updated. This comparison and decision can be done on a crop-by-crop basis.
The landowner’s choice of whether to keep the current allocation of base acres or reallocate the total based on more recent planting history is more complicated. Some of the example farms are estimated to receive higher government payments if they reallocate, while others may receive better payments if they do not reallocate.
The example farms do show a stronger trend in the choice of program to elect—that is whether to elect Price Loss Coverage (PLC), Agricultural Risk Coverage (ARC)-county or ARC-individual. Let’s look at those choices and then return to the reallocate or not choice.
Unless they choose ARC-individual, the example farms in southwestern Minnesota were better off choosing to participate in the ARC-county program for both corn and soybeans; none of them were better with PLC. This was true whether we used the price forecasts from USDA or the slightly higher price forecasts from FAPRI.
Only 7 of the 49 southwest farms fared better with the ARC-individual program with the lower USDA price, while 12 did better with the higher FAPRI forecast. With either price forecast, the farms that fared better with the ARC-individual program had higher average yields, higher yields relative to the county average yield, and more variable yields than the farms choosing ARC-county.
Mixed answers in northwestern Minnesota
In northwestern Minnesota, the answer was more mixed for the example farms. In the northwest, the example farms were consistently better off electing the ARC-county program for soybeans and the PLC program for wheat. Since fewer farms grew corn in the northwest, I cannot speak as strongly about the program choice for corn, but the results seem to indicate ARC-county as the better choice.
Of the 27 example farms in the northwest, 8 fared better with the ARC-individual program using the USDA forecast and 10 with the slightly higher FAPRI forecast. These ARC-individual farms tended to have higher corn and wheat yields but their soybean yields were similar to farms that were better with the ARC-county and PLC programs.
Reallocate or not?
Let’s return to the decision to reallocate base acres or not.
The owner makes this decision, but the owner and producer should talk about this since it will affect future income for both.
The results from the 76 example farms show a mix of whether to keep the current base acreage mix or to reallocate. There is not an obvious line that divides those farms that keep the current allocation and those that reallocate. The change in the mix of crops is similar between those that would decide to reallocate and those that do not.
This is true in the southwest with only corn and soybeans and in the northwest with corn, soybeans, and wheat. Yields are quite similar between farms that would reallocate and not, even though yields are different between farms that choose ARC-individual and those that choose PLC or ARC-county. Farm size does not indicate which choice is better. The difference in the estimated government check is large for some example farms, so I encourage owners to analyze this choice for their own farms.
In summary, based on these example farms, those that had higher average yields, higher yields relative to the county average, and more variable yields tended to fare better with the ARC-individual program. The example farms did show quite strongly that the ARC-county program was the best for soybeans and the PLC program was best for wheat. For the corn, the ARC-county program was best in the southwest while the results were not as conclusive for the northwest farms. These example farms did not show a strong signal on to reallocate base acres or not.
These results are also based on two sets of forecast prices through 2018. World and market events can cause actual prices and yields to differ from what we think may happen from our view in 2015 and, thus, actual government checks may differ drastically.
Each landowner and farmer needs to enter their own acreage and yield history into one of the analysis tools on the web and make the choices that appear to be best for their farm.
Kent Olson is an agricultural economist at the University of Minnesota Extension, where he serves as interim associate dean of the Center for Community Vitality.
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