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Crop Revenue Help from the Fed...With a Catch
It's been about 4 years since corn and soybeans were as low as they are right now, and it's got crop income expectations well into the red for this year barring some kind of crop weather catastrophe in the coming weeks.
Though you're likely staring down the barrel of a sharp income downturn, attention to and participation in a couple of key farm policies can keep the red ink from flowing too briskly, say 2 Purdue University Extension ag economists.
First, crop insurance: Revenue policies that take into account both yield and price could pay this year -- soon, in fact -- if you've paid for a high enough coverage level.
"Even with above-normal yields, prices could drop low enough to trigger insurance payouts on some high-coverage policies. As an example, a farm with an 85% policy and yields this year 10% above its base actual production history of 170 bushels per acre might trigger an insurance payment if December corn futures in October average below $3.57 a bushel, a level the market is approaching," according to a university report. "The same farm with an 80% policy, however, would not trigger an insurance payout until the December corn futures average in October drops below $3.36 a bushel. That is a less likely situation but still one that provides some protection against catastrophic low prices."
Though these coverage levels matter a great deal to whether revenue policies will pay for corn farmers, soybean farmers likely won't be that lucky regardless of their coverage levels, say Purdue economists Michael Langemeier and Chris Hurt in a university report. That crop's not likely to trigger a payment regardless of price or yield.
"Crop insurance currently appears less likely to be of assistance for producers with strong yields, although those with high corn coverage levels have some chance of triggering crop insurance payouts," according to Hurt and Langemeier.
Another option is the Agricultural Risk Coverage with the County Option (ARC-CO). Hurt and Langemeier say this option's got more potential to help out farmers in the need of income support with high projected yields and low projected prices. With this option, farmers are paid for corn when the market price sinks below $4/bushel. And, with this program, you're more apt to see a payment for soybeans.
"At $3.75 a bushel, estimated Indiana average payments would be about $25 to $40 per acre of corn base, and at a $3.50 marketing year average price they would grow to the maximum of about $55 to $80 per acre," according to a university report. "For soybeans with above-normal yields, ARC-CO payments might begin with a marketing year average price below about $10.60, with maximum payments occurring at a price of about $9.40. As an example, a $10 per-bushel marketing year average price would result in payments of about $20 to $30 per acre of soybean base. If prices fell to about $9.40, the payments would range from about $40 to $60 per acre."
This is all fairly good news for corn and soybean farmers, but it all comes with a catch. These programs aren't fully fleshed-out, and with that being the case, sign-up and subsequent participation won't secure any financial help until a little further down the road.
"The important point for producers is that the new government program now appears to have a high potential of providing some protection against low revenues for corn and maybe some assistance with low soybean revenues," according to Langemeier and Hurt. "However, 2014 corn and soybean government payments will not be available until the fall of 2015 and thus will not be available to meet more immediate cash-flow needs."