University of Illinois Consortium

University of Illinois

Consortium

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www.farmdoc.illinois.edu/farmbilltoolbox

1. Outreach

2. ARC / PLC

3. Dairy

4. NAP tool

Partners

• ARC / PLC– University of Illinois– Watts & Associates– The Ohio State University

• NAP– Michigan State

• Dairy– Program on Dairy Markets (Cornel, MSU, Wisconsin,

Illinois)• Outreach

– Delaware State– University of Arkansas at Pine Bluff– North Carolina Agricultural and Technical State

University2

Commodity Program Decisions

Each FSA farm:

1. Programs yields (current or updated)2. Base acres (current or reallocated)3. For each FSA farm/crop, which program will be used to

make payments:– Price Loss Coverage (PLC) – option to buy SCO– Agriculture Risk Coverage – County level (ARC – County)– Agriculture Risk Coverage – Individual level (ARC –

Individual) * ARC-individual applies to all crops and all farms in a state

* SCO not available with ARC

Decision begin this fall on updatingCommodity program choice in winter

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Steps for Each FSA Farm(on Farmdoc website)

1. Collect information for each FSA farm2. Determine to keep or update yields3. Determine to keep or reallocate acres4. Decide PLC or ARC-County for each crop5. Will ARC-IC be considered?6. Will SCO be considered (only if choose PLC)?7. More info and iterate back8. Complete forms / other issues

Green – Yield decisionRed – Acre updateBlack – Program choice 4

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Update Yields

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Determine to Keep or Update Yields

• Crop by crop decision• Choice:

– Current Yield: (FSA letter) or– Updated yield: 90% of 2008-2012 yields, plug yields for low

yields

• Choose highest yield• Only impacts PLC payments• Consider updating even if not use PLC, yields could “hang

around”• Only reason not to choose highest is if its an updated yield and

documentation is difficult to come by

Program Yield Updating

2008 2009 2010 2011 2012Corn 168.7 176.4 165.7 150.5 88.2Soybeans 50.0 50.0 58.0 46.4 44.3Wheat 61.9 66.0 62.0 69.0 68.7

YieldsUpdatedMethod"Max"

Yields137.3139.3

44.859.0

Do not enter 0 if crop is not planted

CurrentYear Updated

48.840.9 Updated

Updated

Base Acre Updating

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Keep or Reallocate Base Acres Across Crops

Choices: 1) Current base acres (letter from FSA) 2) Updated based on 2009 to 2012 plantings

(Does not change total base acres)

Pick allocation with most acres in corn

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Base Acre Updating

Reallocated Current2009 2010 2011 2012 Base Base

Corn 75 75 75 75 75.0 55.0Soybeans 25 25 25 25 25.0 43.0Wheat 0 0 0 0 0.0 2.0Total 100 100 100 100 100.0 100.0

75.0%

0.0%25.0%

Planted Acres by Year 09-12Average

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Program Decision

Three choices:– PLC (Price Loss Coverage) – can have SCO

• Target price (now reference price) program– ARC-County – can not have SCO

• Agricultural Risk Coverage • County level revenue program

– ARC-IC – ARC individual – can not have SCO• Farm Level revenue program• All crops together in guarantee calculations• Not be used much, explain why latter

Except for ARC-IC, all program by FSA farm/crop, ARC-IC is per farm

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Suggestions for Program Decisions

• Rank order expected payments

• Know for each crop, break points between PLC / ARC – County

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Thank you and Questions

Bonus Slides

1. Collect Info for Each FSA Farm

From FSA (you should have received a letter for each farm with the following information)

– Base acres– Program yields– Planted acres

Other– Yields from 2008 to 2012

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2. Determine to Keep or Update Yields

• Crop by crop decision• Choice:

– Current Yield: (FSA letter) or– Updated yield: 90% of 2008-2012 yields, plug yields for low

yields

• Choose highest yield• Only impacts PLC payments• Consider updating even if not use PLC, yields could “hang

around”• Only reason not to choose highest is if its an updated yield and

documentation is difficult to come by

Program Yield Updating

2008 2009 2010 2011 2012Corn 189.0 183.3 168.1 158.8 107.8Soybeans 51.0 54.0 58.5 56.0 52.3Wheat 67.4 74.0 68.1 76.1 78.0

YieldsUpdatedMethod"Max"

Yields140.8147.6

48.965.4

Do not enter 0 if crop is not planted

CurrentYear Updated

53.644.2 Updated

Updated

3. Decide: Keep or Reallocate Base Acres Across Crops

Choices: 1) Current base acres (letter from FSA) 2) Updated based on 2009 to 2012 plantings

(Does not change total base acres)

Pick allocation with most acres in corn

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Base Acre Updating

Reallocated Current2009 2010 2011 2012 Base Base

Corn 100 0 100 100 75.0 57.0Soybeans 0 100 0 0 25.0 43.0Wheat 0 0 0 0 0.0 0.0Total 100 100 100 100 100.0 100.0

75.0%

0.0%25.0%

Planted Acres by Year 09-12Average

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Base Acre Updating

Reallocated Current2009 2010 2011 2012 Base Base

Corn 100 100 100 0 75.0 57.0Soybeans 0 0 0 100 25.0 43.0Wheat 0 0 0 0 0.0 0.0Total 100 100 100 100 100.0 100.0

75.0%

0.0%25.0%

Planted Acres by Year 09-12Average

Base Acre Updating

Reallocated Current2009 2010 2011 2012 Base Base

Corn 100 100.0 57.0Soybeans 0 0 0 0 0.0 43.0Wheat 0 0 0 0 0.0 0.0Total 100 100.0 100.0

100.0%

0.0%0.0%

Planted Acres by Year 09-12Average

Base Acre Updating

Reallocated Current2009 2010 2011 2012 Base Base

Corn 100 100 100 100 50.0 57.0Soybeans 100 100 100 100 50.0 43.0Wheat 0 0 0 0 0.0 0.0Total 200 200 200 200 100.0 100.0

50.0%

0.0%50.0%

Planted Acres by Year 09-12Average

Example 1. Multiple years corn

Example 2. Alfalfa 2009 – 2011, corn in 2012

Example 3. Overplant base, same acres

Program Decision

Three choices:– PLC (Price Loss Coverage) – can have SCO

• Target price (now reference price) program– ARC-County – can not have SCO

• Agricultural Risk Coverage • County level revenue program

– ARC-IC – ARC individual – can not have SCO• Farm Level revenue program• All crops together in guarantee calculations• Not be used much, explain why latter

Except for ARC-IC, all program by FSA farm/crop, ARC-IC is per farm

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Examples: 2 FSA farms, corn and soybeans each farm

Example 1Farm 1 Corn – ARC-County Soybeans – PLCFarm 2 Corn – ARC-County Soybeans – PLC

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Example 2Farm 1 Corn – ARC-County Soybeans – ARC-CountyFarm 2 Corn – ARC-County Soybeans – PLC

Example 3Farm 1 Corn – ARC-County Soybeans – ARC-CountyFarm 2 ARC-IC – all crops

Other Points

• Payments are made on base acres, not planted acre for PLC and ARC-County.

• Plantings matter under ARC-IC but payments made on total base acres

• Farmers could easily make different decisions on each farm.

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4. Decide ARC-County or PLC

ARC-CountyARC-County is a county revenue program – payments below a guarantee, guarantee is based on past 5 yields and Market-Year-Average prices

Given current benchmark prices , ARC-County likely to make larger payments than PLC

PLCPLC is a target price program – payments are made when below a reference price

Reference Price: Corn: $3.70 Soybeans: $8.40 Wheat: $5.50

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What-If

Input

County MYA ARC ARC PLC

Year Yield Price1 Yield2 Price3 Guarantee4 Payment5 Payment6

2009 183.3 3.552010 168.1 5.182011 158.8 6.222012 107.8 6.892013 185.3 4.452014 205.0 3.70 170.1 5.28 772 12 02015 190.0 4.00 170.7 5.28 775 13 02016 180.7 4.00 178.0 4.89 749 22 02017 182.4 4.00 185.3 4.15 661 0 02018 184.1 4.00 185.9 4.00 639 0 0

Average 9 01 Market year average price.2 Equals Olympic average of fi ve-previous yields3 Equals Olympic average of fi ve-previous prices , price can not be less than reference price.4 Equals benchmark yield x benchmark price x .86.5 Equals .85 x maximum of (ARC guarantee - county yield x MYA price) or (10% of ARC guarantee)6 Equals (reference price - MYA price) x PLC payment yield x .85. Reference price equals

Benchmark

$3.70

Coverage (PLC)Agricultural Risk Coverage (ARC) - County Price Loss

McLean County, Corn, Example

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What-If

Input

County MYA ARC ARC PLC

Year Yield Price1 Yield2 Price3 Guarantee4 Payment5 Payment6

2009 183.3 3.552010 168.1 5.182011 158.8 6.222012 107.8 6.892013 185.3 4.452014 205.0 3.30 170.1 5.28 772 76 502015 190.0 3.30 170.7 5.28 775 77 502016 180.7 3.30 178.0 4.79 733 72 502017 182.4 3.30 185.3 3.95 629 23 502018 184.1 3.30 185.9 3.70 592 0 50

Average 50 501 Market year average price.2 Equals Olympic average of fi ve-previous yields3 Equals Olympic average of fi ve-previous prices , price can not be less than reference price.4 Equals benchmark yield x benchmark price x .86.5 Equals .85 x maximum of (ARC guarantee - county yield x MYA price) or (10% of ARC guarantee)6 Equals (reference price - MYA price) x PLC payment yield x .85. Reference price equals

Benchmark

$3.70

Coverage (PLC)Agricultural Risk Coverage (ARC) - County Price Loss

Example of Expected 4-Year Payments

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EstimatedProgram ARC-County SCO

Crop Payment Benefit Total$/acre $/acre $/acre

Corn 20.75 NA 14.36Soybeans 9.63 NA 0.76Wheat 9.80 NA 5.86

The expected MYA price will influence expected payments.

5.86$10.50$6.0054.3

MYA

Bu/acre $/bu.

Expected EstimatedPLC

PLCPayment

Program

14.360.76

YieldsMax

150.746.4

Price

$4.00$/acre

PLC

Break Points

• Corn ($3.70 reference price)ARC-County make higher payments if MYA price averages above $3.30 (all five years)

• Soybeans ($8.40 reference price)ARC-County higher payments > $7.80

• Wheat ($5.50 reference price)ARC-County higher payments > $5.50

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PLC / ARC-County

• PLC is attractive if farmer believes (or is concerned about) low prices well below reference rates

• ARC-County is attractive if lower prices, near or above reference prices

ARC-County for corn and soybeans likely to make higher payments, but be aware of disaster price risk

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7. Enroll Farm in ARC-Individual

Not likely, why?– Whole farm insurance (group all

crops/FSA farms together)– ARC-Individual pays on 65% of base

acres, ARC-County and PLC on 85% of base acres

Maybe use ARC-Individual for one farm with extreme yields and one crop, but if you get two they will average together

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6. Will SCO be Considered

SCO is crop insurance, through crop insurance agent, not FSA, no FSA signup

Only available under PLC

Provide county triggered coverage from 86% to COMBO product coverage level

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SCO eligibility1. Do not select ARC as commodity program choice2. Be in a county where SCO is offered (see map).3. Select a COMBO product (RP, RPwExcl, YP)

3. Decide Whether SCO is an Alternative You Will Consider?

Observations:

• If an 85% COMBO product is available, very little additional risk protection under SCO,

• SCO+RP will have premiums mostly above 75% coverage level

• SCO products may have higher returns than COMBO product. Picking SCO with RP-80% may have net payments (insurance payments – premiums) of $5 per acre more than RP-85%. Preliminary estimate need to see rates

• Many Midwest farmers will be indifferent (not a big deal)

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State: County: Date Printed:

Crop:

Individual Farm Level Policies APH Yield: 73.1 Use TA adjustment Yes TA Yield: 77.1 Rate yield: Risk class:

Acres: 100 Type: Practice: Prevented planting:

Minimum

Coverage Revenue Revenue Yield

Level Enterprise Basic Optional Guarantee Enterprise Basic Optional Guarantee Enterprise Basic Optional Guarantee

$/acre $/acre Bu./acre

50% 3.64 6.01 7.48 259 3.03 5.00 6.33 259 2.70 4.46 5.76 38.655% 5.15 9.27 11.47 285 4.40 7.92 9.91 285 3.98 7.16 9.14 42.460% 6.33 11.39 13.85 311 5.39 9.69 11.99 311 4.84 8.71 10.99 46.365% 7.76 15.95 19.07 337 6.61 13.60 16.49 337 5.92 12.16 15.15 50.170% 9.27 19.06 22.61 363 7.88 16.22 19.45 363 7.03 14.49 17.84 54.075% 12.61 24.80 29.04 389 10.65 20.97 24.91 389 9.50 18.71 22.78 57.880%85%

Quote input ---> Type:

Minimum

Coverage Revenue Revenue Yield

Level 120% 90% 80% Guarantee 120% 90% 80% Guarantee 120% 90% 80% Guarantee

$/acre $/acre Bu./acre

70%75%80%85%90%

Parameters Exp. Yield: 0.0 Proj Price: $6.72 Vol: 0.21

Notes Supplemental Coverage Option (SCO) Product Coverage Level

Range RP RPwExl YP Unit Protection Level

50% - 86% 18 14 11 55% - 86% 16 14 10 Premium per acre $12.61 60% - 86% 15 13 10 Cost per APH bu. $0.17 65% - 70% 14 11 9 Subsidy per acre $42.22 70% - 86% 12 9 7 75% - 86% 9 7 6 Yield guarantee 57.825 80% - 86% Revenue guarantee $389 85% - 86%

Area Revenue Protection

Standard

$ per Acre

$ per Acre

0.21

Area Yield Protection

Rev Prot.75%

0.21

Quote input -->

County Level Products

Projected Price: $6.72

$ per Acre

Revenue Protection

Not available

Volatility (revenue):

Protection Factor

No Type Specified

Illinois

Livingston

Wheat

2015 iFARM Premium Calculator

$ per Acre

Yield Protection

73.1

Non-Irrigated

8/27/2014

$ per Acre

Revenue Protection with Harvest Price Exclusion

None

Protection Factor

Area Revenue Protection

Practice:

Harvest Price Exclusion

Protection Factor

Volatility (rev w ith exclusion):

Not available

The iFARM Premium Calculations developed at the University of Illinois and is available for dow nload at farmdoc (w w w .farmdoc.illinois.edu. Updated: March 6, 2014.

$ per acre

Parameters

Enterprise100%

$ per Acre

Print Help Menu

Parameters

Parameters

TA APH

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PremiumsCoverag

eLevel

RP SCORP +SCO

50% 3.64 18.00 21.64

55% 5.15 16.00 21.15

60% 6.33 15.00 21.33

65% 7.76 14.00 21.76

70% 9.27 12.00 21.27

75% 12.61 9.00 21.60

• Enterprise unit (100 acres), Livingston County

• $6.72 projected price, .21 volatility• 55 APH yield, 60 TA-APH yield

My point:

Note how close RP + SCO premiums are to one another

PremiumsCoverag

eLevel

RP SCORP +SCO

50% 1.73 7.00 8.73

55% 2.33 7.00 9.33

60% 3.14 7.00 10.14

65% 4.20 7.00 11.20

70% 5.28 7.00 12.28

75% 7.50 6.00 13.50

80% 12.52 4.00 16.52

85% 22.16 1.00 23.16• Enterprise unit (100 acres), Henry County, Ohio• $6.72 projected price, .21 volatility

My point:

I would not go to low coverage levels, particularly on corn.

SCO at 70% and higher coverage levels is at or above RP 80% alone.

ARC-Individual Example

ARC – Individual

• ARC – Individual is best thought of as whole-farm insurance, payments are calculated based on whole-farm revenue

• Rates are calculated across all FSA farms enrolled in ARC – Individual

• Planted acres determine weights in benchmark revenue

• Payments are made on base acres x .65

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ARC – Individual

ARC-Individual will make payments when a farm’s actual revenue falls below .86 times benchmark revenue

Actual revenue equals sum of each crops’ revenue (National Market Year Average price x farm yield) weighted based on planted acres

Benchmark revenue equals sum of each crops’ benchmark weighted based on planted acres.

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ARC – Individual2014 Example

The following example shows a 2014 payment for one FSA farm with 100 total base acres. In this example, no other farms are enrolled in ARC – Individual

In 2014, the farm plants:

60% of acres in corn40% of acres in soybeans

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ARC -- IndividualEach Crop’s Benchmark Revenue

Corn Soybeans

Year Price Farm Yield

Revenue1 Price Farm Yield

Revenue1

2009 3.55 186 688 9.59 54 518

2010 5.18 170 881 11.30 59 667

2011 6.22 160 995 12.50 56 700

2012 6.89 110 758 14.40 52 749

2013 4.50 190 855 12.50 54 675

1Revenue equals maximum of national market year average price or reference price ($3.70 for corn, $8.40 for soybeans) times farm yield

Each crop’s benchmark revenue equals Olympic average of revenues: Corn: $831 = ($881 + $758 + $855) / 3 Soybeans: $681 = ($667 + $700 + $675) / 3

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ARC -- IndividualBenchmark Revenue and

GuaranteeBenchmark Revenue weights each crop’s benchmark revenue by proportion of program crop acres planted on ARC-Individual farms

Corn Soybeans $771 = $831 x .60 + $681 x .40

Guarantee is .86 x benchmark revenue:

$663 = .86 x $771 benchmark revenue

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ARC – Individual2014 Revenue

A farm’s revenue equals each crop’s revenue weighted by proportion of acres:

$3.75 MYA corn price185 bushel per acre corn yield$11 MYA soybean price50 bushel per acre soybean yield

$636 = .6 x ($3.75 x 185) + .4 x ($11 x 50)

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ARC – Individual Payment Rate

Payment rate equals ARC guarantee minus revenue

$27 Rate = $663 Guarantee - $636 Revenue

Rate can not be less than one.

Rate can not be more than 10% of benchmark revenue ($77 = .10 x $771). 53

ARC – Individual Payment

Payment equals payment rate x base acres x .65 (payment acres are 65% of total base acres)

$27 payment rate 100 base acres

$1,755 = $27 payment rate x .65 x 100 acres

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