ARC Yield Lawsuits Possible

9 Feb 2016

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Law firms and grain marketers are pushing for possible legal action against the U.S. Department of Agriculture over the way USDA came up with the final county yield totals for the Agriculture Risk Coverage program.

Complaints have festered since last fall when the Farm Service Agency released the final 2014 payment rates. Payments weren't as high as projected in some counties around the country, especially in areas with high yields for particular crops.

A caveat to the 2014 farm bill is that it requires the Farm Service Agency to calculate yearly county yields for ARC-County payments. Therein lies the problem. At least a couple of law firms and others are holding meetings with farmers in parts of the Plains and Midwest to argue that FSA did not accurately calculate county yields.

"We've had a lot of inquiries, a lot of questions from producers in eastern Colorado, Kansas and other states as well where they believe FSA did not follow the proscribed procedures in determining county yield," said Jeff Todd, an attorney in Oklahoma City for the law firm McAfee & Taft.

ARC-County and Price Loss Coverage were created in the 2014 farm bill and farmers were given a choice of which program they wanted to enroll individual commodities in for the life of the farm bill. Farmers enrolled roughly 96% of soybean base acres and 91% of corn base acres in ARC-County.

Producers are used to direct payments that allowed them to go to bankers and point to a consistent, steady payment. Under ARC, potential government payments could vanish for counties, districts or states that see bumper crops.

USDA has paid out roughly $4.4 billion for ARC-County, of which $3.7 billion went to corn farmers. PLC has paid out about $756 million, mainly to long-grain rice and peanut farmers.

Farmers in just three states -- Iowa, Minnesota and Nebraska -- account for just under $2.19 billion of that $4.4 billion paid out for ARC-County, a full 49% of the payments.

Todd points out that the terms and conditions of the program spell out how FSA is supposed to determine county yield. That language begins, "Actual average county yield means the yield calculated as the production of a covered commodity in the county divided by the commodity's total planted acres for a crop year in the county, as determined by FSA."

Ray Grabanski, president of the North Dakota-based marketing and risk-management company Progressive Ag, recently wrote a column on ARC-County yields describing that farmers "got shafted" and "got screwed" by FSA's yield calculations. Grabanski estimated $100 million or more in government payments may have been lost.

"This program (ARC-County) looks arbitrary and capricious in the way it's administered," Grabanski said in an interview.

Grabanski is collecting contact information for farmers and consulting other attorneys who have a history of challenging USDA in court.

At least a few commodity organizations have posted information on their websites about meetings with attorneys over FSA calculations of ARC-County yields.

USDA officials have pointed out in the past that ARC-County has 21 covered commodities spread over more than 3,000 counties nationally. In order to do ARC-CO calculations, FSA needed five years of county benchmark yields, as well as the yield for the current year. That translates into six years of yields for each crop in each county, or roughly 100,000 separate crop-county combinations for yields.

FSA officials said they had solid county-level yield data on about 43,000 of those 100,000 or so crop yield-county combinations. The best data was concentrated in areas where about 90% of the base acres are centered for a given crop. Thus, the bigger struggles lie in the marginal production areas, outliers or areas where farmers may have added new commodities to the rotation in recent years.

FSA's yield rules were laid out in the agency's handbook procedure and in an FSA fact sheet on the ARC program.

The Farm Service Agency has essentially a cascading system of trying to get data on county yields. The starting point for FSA is county yield data from the National Agricultural Statistics Service. NASS provides data from its yield survey. As a minimum standard, though, reports from the NASS county survey need to account for at least 25% of the acreage in a county and at least five farms in the county as well.

This means surveys that may be deemed voluntary now play a critical role in coming up with county yield data for ARC-County payments.

FSA officials declined to be quoted but maintain the agency has a solid system and process for coming up with county yield data considering the constraints on getting accurate yields. A process is needed for data and best estimates when farmers decline to fill out and return yield surveys.

For counties where NASS did not get that level of survey response, the Farm Service Agency turned to another sister agency, the Risk Management Agency, to get the 2014 yield. RMA calculates yield by taking total production of crop insurance records and dividing that production total by the number of insured acres in the county.

Officials from North Dakota complained about that procedure last month after RMA data led to a record 2014 yield in one county, causing an estimated loss of $7.5 million in payments in that one county.

The McAfee & Taft law firm points to all of the counties in particular regions of a state, such as eastern Colorado, for example, where six or seven neighboring counties were all listed with the same county yield. "It is virtually impossible for that to happen," Todd said.

In such cases, FSA likely had to turn to district-level data from NASS where yield surveys from multiple adjacent counties were used. District-level data is used as a default, but the Farm Service Agency provides state FSA committees some discretion to adjust those yields based on crops and soils. In some states, there is little yield reporting and so few base acres for crops such as sunflowers or sorghum in northern states, so every county ended up with the same yield as the state yield for the crop.

Todd and Grabanski argue FSA did not implement the program for 2014 payments consistent with the contract terms or the 2014 farm bill language. FSA was supposed to determine county yields in all cases. Todd said he thinks it's possible there will be legal action sooner rather than later.

"I think you can look at the FSA data and identify issues in nearly every state; whether or not that results in producers wanting to take action in every state, that has yet to be determined," Todd said. He added, "Obviously folks who didn't get a payment, when all the data indicated they were going to receive a payment, you can imagine they probably feel like the FSA numbers are inflated."

Grabanski said his firm, Progressive Ag, could announce its possible actions on ARC-County yields as soon as this week.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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