Saturday, February 01, 2014

In case you missed it...

Paul Neiffer has a small bombshell regarding the ARC program on his blog at AgWeb.  We talked about this Wednesday night at the TP seminar and he ran some numbers to try to verify our back of the envelope thinking.
I ran some numbers for Buchanan County, Iowa based upon the county yields for the last five years and arrived at the following conclusion:
  • The Olympic average yield for the last five years for the county is about 169 bpa.
  • The Olympic average corn price over the last five years is $5.15 (this is for the whole US, not just the county).
  • A claim would be paid if the actual revenue was less than $748.
  • The maximum claim is about $75 and if the yield was 160 bpa and the average corn price was less than $4.25, then the full claim of $75 would be paid.  The average price would have to rise to almost $4.75 to have no claim.
  • If the yield was 170 bpa, then a full claim would happen at about $4.10.  At about $4.40, no claim would be owed.
  • If the yield rises to 180 bpa, then a full claim is allowed if the average price falls below $3.70 and no claim is allowed if the price goes over $4.15.
Let’s assume we have a Buchanan farmer with 1,000 corn base acres in 2014 and the county yield ends up at 170 bushels per acre and the final corn price for the year is $4.  In this case, he would receive the maximum $75 per acre on 850 acres (1,000 times 85%) or $63,750.  Since the payment limit is now $125,000 per person ($250,000 for married couples), the farmer will get the full amount.  In fact, the farmer, if married he could farm 4,000 acres and collect full ARC payments.  Under the old law, this most likely would be limited.  If these numbers were based on his actual yields, then the payment would be reduced to 650 acres times $75 or $48,750.  Using this coverage, the farmer could farm 6,000 acres and collect full ARC payments. [More]

It looks like this math will be roughly the same for 2015 too because of the Olympic averaging. So while I had been wondering why Heritage, AEI, etc. had been complaining about the bill cost estimates being way too low, this would seem to confirm it.

We're talking ~2.5 X DCP payments. I'm calling it a 7.3 (out of 10) boondoggle.

The catch: the payment won't be made until Oct 2015, and of course everything depends on actual prices and yields during the 2014 year. My thinking is if yields are higher, prices will be (much) lower, so this is a reasonable first guess.

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