What farm programs may pay off for farmers with yield losses this year?

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Farmers traveling to Decatur, Illinois, next week for Farm Progress Show will notice the closer they get to Decatur the worse the crops look.  Some farmers are already planning to begin harvest on Monday because the corn is dry enough to warrant harvest, given the weak stalks and chance of shatter loss at the corn head.  It will not be a pretty sight in the fields around Decatur, but that’s what ACRE and SURE, and Yield Protection Crop Insurance is for.  Isn’t it?

In the eastern Cornbelt, the issues are focused on great yield variability, depending on the size of the weather window that gave them a chance to plant.  In the western Cornbelt, drought was prevalent in the southern part and delayed planting from wetness in the northern part.  In other words, everyone has their troubles, but what about the middle of the Cornbelt, where central Illinois farmers have both planting variability and drought reduced yields.  The safety net should work, but Illinois farm management specialist Gary Schnitkey says most of the programs are not going to make any payments to farm operators.

For farms with deteriorated yields from pollination problems, lack of moisture, and heat, there may be some help from crop insurance, if yield is the issue.  But the ones who will benefit the most will be those with the harvest price election.  Current prices are above the spring guarantees of $6.01 for corn and $13.49 for beans.  If current price premiums hold as the national yield average declines, then harvest prices will be above the spring guarantees.  Farmers who spent the additional dollars to get the harvest price may be in line for dividends from their investment.  Schnitkey says those include Products with a guarantee increase include Revenue Projection (RP) and Group Risk Income Plan with the harvest revenue option (GRIP-HR).

Schnitkey says, “When harvest price is above the projected price, Revenue Protection and GRIP-HR will make payments when there is a yield loss. For RP, a yield loss occurs when yield is below the Actual Production History (APH) yield times the coverage level. Take a 170 bushel APH yield and an 80% coverage level. Payments will occur when yield is below 136 bushels (170 bushel APH yield x 80% coverage level).  RP likely will make payments on some Illinois farms due to yield losses. In addition, GRIP-HR likely will make payments in central Illinois where weather is particularly dry.”  That will be the same case in other states will dry pockets.

But will ACRE pay off, which is the prime safety net program that was designed to solve many problems, but received little interest in the countryside?  Schnitkey gives it little chance, because of the unlikelihood that prices will fall dramatically during the marketing year from Sept 1, 2011 to Aug 31, 2012.  Payments depend on the state guarantee, and those will require yields and prices to be lower than many farmers are counting on.  And Schnitkey says with current state guarantees, prices below those levels “are not probable.”
Additionally, the USDA’s farm program still includes the counter-cyclical program that makes payments when prices are low.  But trigger prices for payments have to be $2.35 for corn and $5.56 for soybeans, which are well below current price levels.

So does that mean the SURE national disaster program will pay off, since ACRE probably will not?  Don’t count on that either, says Schnitkey.  SURE is the federal program to reimburse farmers caused by natural disasters.  While many counties in Kansas, Oklahoma, and Texas have been declared federal disaster areas, other parts of the Midwest have not.  While current declining yields will be disasters for many farmers, they have not caught the attention of the USDA.  Since a requirement is to be in a disaster county or adjacent to one, the benefit of the SURE program is doubtful.

Summary
Other than crop insurance, there are few opportunities for some of the hardest hit yields in the Cornbelt this summer to draw any farm program benefit.  The SURE program requires a disaster declaration for your county.  The ACRE program will have state guarantees that are likely below current pricing levels.  Crop insurance will pay some farmers with heavy yield losses and others with the harvest pricing benefit.

Source: the FarmGate blog


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