Decisions need to consider yields

County-level yields are important for Agriculture Risk Coverage-County for establishing the annual benchmark revenue. The benchmark yields for a given year are calculated using the Olympic-average yield from the five previous years.

Continuing our posts reviewing changes for the 2018 Farm Bill enrollment, this week’s post takes a look at an easily overlooked element of program – yields.

Reduced commodity prices are an obvious change since producer last picked between Agriculture Risk Coverage-County and Price Loss Coverage. But comparing back to 2014 decisions, producers will find yields have also changed. This week’s post looks at where Agriculture Risk Coverage-County benchmark yields have moved the most.

Background

County-level yields are important for Agriculture Risk Coverage-County for establishing the annual benchmark revenue. The benchmark yields for a given year are calculated using the Olympic-average yield from the five previous years.

As we wrote about earlier, large swaths of the Corn Belt had disappointing Agriculture Risk Coverage-County payments due to excellent county yields during the early years of the 2014 Farm Bill. The direct impacts were small or missing Agriculture Risk Coverage-County payments. And those large yields worked their way into the benchmark-yield calculations in future years. That process – largely unchanged in the current farm bill – has increased Agriculture Risk Coverage-County benchmark yields in some regions of the country. The data used to consider county-level changes in annual Agriculture Risk Coverage-County benchmark yields was posted by the U.S. Department of Agriculture’s Farm Service Agency.

We first wrote in 2017 about Agriculture Risk Coverage-County yields increasing. We even provided a great example of how the design of Agriculture Risk Coverage-County can make timing critical. Specifically two counties with the same exact average yield across seven years can have very different annual Agriculture Risk Coverage-County benchmark yields. In many ways those county Agriculture Risk Coverage benchmark yields can behave like loaded dice.

This post only considers changes due to yields and the Olympic-average process. The 2018 farm bill added a trend-adjusted factor for the Agriculture Risk Coverage program similar to what’s used for crop insurance. The trend-adjusted factor will also impact Agriculture Risk Coverage-County benchmark yields in 2019 and 2010. But that factor wasn’t considered in this post.

Corn benchmarks reflect good yields

Figure 1 shows the estimated change in Agriculture Risk Coverage-County benchmark corn yields for 2014 to 2019. Across the majority of the Corn Belt, annual Agriculture Risk Coverage-County benchmark yields increased. The backdrop for the increase in yields is twofold.

The 2014 benchmark spanned 2009-2013, which included several less-than-trend yields. The 2019 benchmark spans 2014-2018, which includes several years of better-than-trend yields. In short Agriculture Risk Coverage-County yields in 2014 were set with some really crummy yields while those benchmarks in 2019 were set after a run of strong yields across the country.

That was particularly obvious in southern Iowa, central Illinois and throughout Missouri. Many counties in those regions experienced their Agriculture Risk Coverage-County benchmark yields increase by more than 40 bushels per acre. While that seems absurd, consider Champaign County in Illinois. In 2014 the benchmark yield was 167. By 2018 it had increased by 35 bushels to 202. It’s estimated to be 211 for 2019.

But the increases weren’t everywhere. Ohio and Michigan had large Agriculture Risk Coverage-County payments during the 2014 Farm Bill, but didn’t have the large yields to increase their benchmarks significantly. Some counties in these states actually have reduced benchmark yields in 2019.

Soybeans – same story

The general story is the same for soybeans. Large swaths of the Corn Belt have experienced a large increase in their annual Agriculture Risk Coverage-County benchmark yields. A large share of Illinois has experienced soybean-yield increases of more than 10 bushels per acre. Again consider Champaign County, Illinois. The soybean benchmark yield was 53 bushels per acre in 2014 but has since increased by 12 bushels to an estimated 65 bushels per acre in 2019.

Wheat increases but not significantly

Figure 3 shows the change in Agriculture Risk Coverage-County benchmark yields for wheat. The Plains states, with the exception of western Kansas, have seen their benchmark yields generally increase. But those increases are not as significant as what was observed in corn and soybeans. Most of western Kansas has reduced benchmark yields in 2019 as compared to 2014.

Producers can update yields

It’s worth noting the 2018 farm bill includes a provision for producers to update their field-level Price Loss Coverage yields starting for the crop planted in 2020. There are several moving pieces to that. It’s something producers will want to consider when they work through their decisions for Agriculture Risk Coverage-County vs Price Loss Coverage. There will be field-level details that need to be considered, but producers of corn and soybeans in Corn Belt states that experienced large increases in Agriculture Risk Coverage-County yields will likely realize the largest benefits of updating Price Loss Coverage yields.

Wrapping it Up

Most conversation concerning Agriculture Risk Coverage-County versus Price Loss Coverage has focused on commodity prices. While prices are an important consideration, producers should also review yields with the Agriculture Risk Coverage-County and Price Loss Coverage programs. With Agriculture Risk Coverage-County many producers in the Corn Belt have likely experienced a large increase in benchmark yields in recent years. Those regions are also where the advantage of updating Price Loss Coverage yields will likely be greatest.

Keep in mind producers will be making decisions for 2019 and 2020 production. They have until March 15, 2020, to make their decisions. Waiting until early 2020 to enroll could be advantageous for some. For example much more information about marketing-year-average prices for the 2019-2020 marketing year will be known better in early 2020.

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David Widmar is an agricultural economist with Agricultural Economic Insights.