Important ARC/PLC decisions for 2020: part 1

Steve

Johnson: decisions. I'm saying get this thing done. I mean, the message that you need to deliver is unless you've got a prevented planting farm, you're chasing $5, $10, $15 off the bottom of the market, guys. Why would you spend a lot of time on this program? But there's some people that, A, it's multiple choice, B, it involves some math calculations, And C, it's the group that cannot estimate county yields and national cash prices.

Shay

Foulk: Welcome back to the Ag View Pitch, everyone. This is Shay Foulk and joined with Steve Johnson, Iowa State University Extension Farm Management Specialist, talking about important ARC and PLC decisions that we need to be looking at here before March 15th. I really encourage you all to take a look at this, make sure that you're taking notes and making the considerations. Look at the tools that Steve mentions online. And really give this some serious discussion. Hope this brings you a lot of value. Enjoy.

Steve

Johnson: And this should scare the crap out of you. The 2020 cash prices from the University of Missouri for beans were $8.43 and for corn was $3.56. So when you hear somebody say PLC on corn, they're talking about that $3.56 that potentially is coming in 2020. You've got to tie this into crop market outlook. And lower crop prices for the 2020 crop, and that is— that's in my wheelhouse.

Shay

Foulk: Yeah, absolutely.

Steve

Johnson: It's not a '19 decision, but you're making the '19 decision because you have made the '19 decision. You're primarily making the ARC PLC election based on what you think is going to happen in '20, and the fact is, is that with those 15 million acres of prevented planting, most of them are coming back into production. Right. And I think you've got to recognize is if 11 or 12 million acres suddenly show up on June 30th, this party is over.

Shay

Foulk: Mm-hmm.

Steve

Johnson: I mean, you're gonna have— I think you're gonna have to be more aggressive in pre-harvest marketing the '20 crop than you have been over the last 5 years, in my opinion. I don't think China is gonna save our skinny. And a lot of people are saying, oh, look at this, soybean markets rallied 75 cents this month. Yeah. But the reality is, is that there's no guarantee China is coming after our soybeans, especially now when you've got a Brazilian crop. So tie market outlook in there somewhere because that is going to be key. You've got to get beyond '19 and these higher crop prices or else you can't see the risk that could be out there in '20 with lower prices. And trust me, ARC PLC is not going to save your skinny. And then often didn't realize why ARC-CO basically turned out to be no payments in the '17 and '18 crop years.

So I think it depends on those that paid attention 5 years ago as to whether they have knowledge as to how ARC PLC will work. Again, it's only a 2-year election and an annual enrollment. So you're only doing the '19 and '20 crops on or before March 15th, which by the way, Shay, is a Sunday. You get an extra day. You get Monday, March 16th to make final decision on ARC PLC.

Shay

Foulk: Interesting. So, you know, based on kind of how cash projections are sitting right now for the '19-'20 marketing year, you know, what program do you think producers might elect and enroll in when it comes to corn, soybeans, and wheat?

Steve

Johnson: Okay, let's go back to WASDE. WASDE told us December 10th what the national average cash prices would be. Again, it, it's nothing more than a forecast. They don't know because we're only about, you know, 4 months into the marketing year. But with those prices that are likely for corn going to be above $3.70, for beans going to be above $8.40, and for wheat, are they going to be below $5.50? Probably. It tells me that for the '19 crop, I'm probably going to go to PLC on wheat, definitely on corn, probably, but not soybeans. There won't be a payment, there won't be a soybean payment because we're not going to be below $8.40. So I think understanding the effective reference price— $3.70 corn, $8.40 beans, $5.50 wheat— I think is key. That's where you start. Because we likely have implications there's not going to be much for the '19 crop.

I do not expect most farmers to collect anything using PLC or ARC-CO on corn and beans unless they're in a county with low county yields. There's the Western Belt versus the Eastern Belt issue. If you're in a county with low county yields For '19, it's pulling you to our county because we're not going to trigger a PLC payment. So you've got to pay attention to your county and the likely final county yields that we probably won't know till next summer.

Shay

Foulk: So let's, let's talk briefly kind of from the 30,000-foot view here that the decision this year is maybe simpler than it's ever been, but there's just there's just not as much money there, and that might be something that hits home with producers this year.

Steve

Johnson: Yeah, absolutely. Again, an ARC is a 5-year revenue benchmark. It'll be a county revenue or it'll be an individual farm revenue. So step away, ARC revenue-based, PLC is only triggered by a price loss. That's why it's called price loss coverage. You have to have the entire marketing year below the effective reference price of $3.70 corn, $8.40 beans, $5.50 wheat. Just memorize that for the next 5 years. You don't get anything unless the national cash price is below the effective reference price. Start with price, don't get down in the minutia. Are you're going to be waiting till March 13th to make a decision. Understand that it's primarily these lower national cash prices that are limiting the amount of payments that will likely be available for the '19 crop, but I think things could get worse in '20.

I think we likely see lower cash prices for the '20 crop, and that's why we're probably going to see the potential for payments in '20, but you don't get that money until October of '21.

Shay

Foulk: So if you're in a county with, you know, a really low '19 county yield, would this prompt a decision to kind of elect and enroll in the ARC County program?

Steve

Johnson: Only if you did your homework. In Iowa, you'd use the ISU payment estimator. For the rest of the Corn Belt, you would use the University of Illinois Farm Doc Decision Tool. And so you're going to have to do your homework, and this isn't going to be, you know, go to the co-op and somebody will tell you what to do. This is going to have to be— you're going to have to estimate the '19 and '20 final county yields for the county that that farm is located in. We're making these decisions by FSA farm number, and you're making these decisions by commodity crop. So you're going to have to estimate your final county yields for both '19 and '20, and you're going to have to estimate that national cash price for the '19 and '20 crop. And I know that drives some farmers nuts.

They can buy land for 100 years, but they struggle to make a decision that's going to stay with them for 2 years, the ARC PLC election and enrollment.

Shay

Foulk: No, that makes sense. There's a lot of, a lot of headaches and a lot of big decisions to be be made there. I appreciate you bringing up the tools. So let's, let's talk a little specifically here, you know, what might be a circumstance, you know, for a producer, you briefly touched on it, but to kind of elect and enroll all the crops on a farm in the ARC from an individual program standpoint.

Steve

Johnson: Yeah, there's going to be a tremendous advantage for anybody that took prevented planting in '19 because if you took prevented planting on all of those acres on that FSA farm number, For this program, the ARC-Individual, the ARC-IC, FSA considers that those were planted acres even though you didn't plant them. Therefore, they consider the production as zero. So when you have to subtract your benchmark revenue minus your actual revenue, that you likely trigger large ARC-Individual payments, but they're capped at 10% of the benchmarks. So I'd see some farms, especially in the Dakotas, Minnesota, Wisconsin, the Eastern Belt, Illinois, Indiana, Ohio, if that farm was prevent plant, you're going to have to count anything that was planted. So maybe you did plant a few soybean acres, but you took prevent plant on most of the corn-based acres.

You're probably going to trigger an ARC-IC payment. It'll only be for the '19 crop. You're going to have to provide production evidence to the FSA for '13 through '17. You're going to have to provide your production to the FSA office for the '19 crop. But when you plug these into these spreadsheets, and the good spreadsheets at North Dakota State University Extension, when you plug these in, I, I can likely see some $40, $50, $60 an acre payments. You won't get it until October of '20, and it is a 2-year election. But yeah, I see ARC-IC as kind of a slam dunk, or what I call the slot machine, that it's likely for those farms that didn't produce in 2019. But they took prevented planting. So the low yields, extremely low yields on prevented planting, ARC-IC is a slot machine for '19.

Shay

Foulk: I appreciate the thoughts on that. So, you know, I guess a couple things just to wrap up this first conversation here. Can you reiterate what the program signup deadlines are and kind of where our listeners can find out more information about making these ARC PLC decisions?

Steve

Johnson: Sure, and again, the best source now is going to be county. FSA. Universities have been out, we've done our meetings. Iowa State, Illinois, probably leading the Corn Belt, probably have the most information provided. We recorded videos at Iowa State, they've recorded those webinars at the University of Illinois. So I would turn online again and look where the resources are. I've got articles in the Successful Farming in both December as well as February issues. So go online and then be knowledgeable. Make sure you've got a copy of your 156EZ form from your local FSA office. I wrote about that 6 weeks ago, and so that will indicate your base acres as well as your old PLC yields. That deadline is March 15th. It'll be Monday, March 16th. You're gonna have to elect for 2 years and at least enroll for the 2019 program.

If you don't, then you do not receive any 2019 payments and you're automatically electing for the same program that you elected in 2015. So there is a penalty, no decision is a decision. That decision needs to be made for ARC PLC election and 2019 enrollment by Monday, March 16th. At 5 PM.

Shay

Foulk: And as you and I were talking offline here, this is something producers need to be doing sooner rather than later because at this point the county FSA offices are probably going to be swamped.

Steve

Johnson: Yeah, typical county FSA office in Iowa would have, um, probably in the neighborhood of, uh, 800 to 1,000 producers and probably somewhere around 2,200 to 2,500 farms that need to have that election and enrollment done. So you want to respect FSA, and if you back these decisions into February and March, good luck, because I think these FSA offices will look like homeless shelters. There'll just be coats and hats and coffee cups everywhere. So I'm suggesting after January 10th, when you see the— WASDE numbers, I would say that if we're below 370— or excuse me, above 370 corn, and we won't even be close on beans, go ahead and make your decision. Estimate your yields and don't worry about it. I think we're chasing $5 to $10 to maybe $15 an acre, and we're chasing that for the '20 crop that we won't see until October of '21.

This is not the biggest or best decision you ever made in your life. Don't don't sweat it. Let's go ahead and get these PLC decisions done and get out of that FSA office and then let the laggards and the procrastinators show up in February and March.

Shay

Foulk: I think one of the best points that you said there, Steve, is no decision is still a decision. So to kind of wrap up this first part of the conversation, you know, just our clients, listeners, be active, be proactive on this, get in there, have the discussion, make sure you have things lined up. And not only yourself and for your farm, but be talking with your family and friends when you're in at the coffee shop, you know, stop someone on the street and tell them about this. Make sure that we're getting action taken on this. So Steve, I appreciate first part of the conversation here.

Steve

Johnson: No problem, my pleasure.