Service is the difference.

Numbers ready to calculate crop insurance payments

The USDA National Agricultural Statistics Service recently released county yields, which the Farm Service Agency will use to calculate Agriculture Risk Coverage - County payments this fall. The final yields and how they are calculated are gaining increasingly negative attention, especially with regard to the difficulties of administering the ARC-CO program using data collected by an agency with an ever-shrinking budget.

Many producers in the Sorghum Belt experience these difficulties firsthand, as production challenges and small county acreage figures have prevented NASS from releasing yield data for individual counties. The lack of NASS county yield data makes calculating a potential ARC-CO payment very difficult. Furthermore, today’s tight margins mean this uncertainty also makes bankers nervous. Fortunately, county yield could be estimated other ways.

First, the historical relationship between NASS district and county yields is pretty steady. For background, NASS also releases a yield for a crop reporting district for almost every growing area in the U.S., which encompasses several counties. Also, the agency released county yields much more reliably before the recent trend of budget cuts. To determine how closely county and district yields correspond, about 10 years of data are needed. Most counties will have at least this many published county yields.

This method of estimating county yields is by no means infallible. After all, individual counties can have exceptional yields and outperform their neighbors. Also, market or environmental factors can force FSA to make major adjustments to the NASS yields. For example, an inordinate number of corn acres cut for silage could artificially depress a county’s NASS grain corn yield. In this case, FSA might adjust the yield upward, lowering or even eliminating the ARC-CO payment. Most importantly, remember that nothing is final until checks are cut this fall.

On the Price Loss Coverage of the farm bill, Art Barnaby, professor and risk management Extension specialist at Kansas State University, projects marketing-year average prices for sorghum, corn, soybeans and wheat of $3.35, $3.62, $8.77 and $4.92, respectively. This translates to price losses of 60 cents for sorghum, 8 cents for corn and 58 cents for wheat. Soybeans are not projected to trigger a PLC payment.

To calculate your total PLC payment, multiple the price loss coverage amount ($0.60) by your PLC yield, and then multiply this amount by 85% of the base acres on which you elected PLC. For example, sorghum base acres in the U.S. total 8.9 million. Producers elected PLC on 66.4% of these acres and have an average yield of 67.6 bushels. With a price loss of 60 cents, total PLC payments to U.S. sorghum producers this fall will total almost $206 million.

A strong reference price is key to this additional protection. The National Sorghum Producers worked tirelessly to ensure producers had a reliable safety net for times like these. This work paid off when the proposed reference price of $3.70 was raised to the final $3.95.

This seemingly small 25-cent difference will put an extra $85.7 million in sorghum producers’ pockets this year. In margin environments like today, that is a big win for a small crop.

Chris's columns appear in Kansas Farmer magazine monthly. You can view this column published in the online edition here.