Seeking Answers on ARC Yields

3 May 2016

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Senator Charles Grassley wants USDA to explain disparities in payments for different counties under the Agricultural Risk Coverage program.

Grassley, a Republican from Iowa, told reporters in a weekly call Monday that he is sending a letter to Agriculture Secretary Tom Vilsack seeking some answers about how county yields are determined under ARC-County. Grassley pointed to counties in north-central Iowa where payments last fall on 2014 corn crop ranged from $23 an acre in one county to $91 an acre in an adjacent county.

"I've heard from farmers in my town hall meetings asking how county yields have been determined, because there are some instances where we have big discrepancies in payments between adjacent counties," Grassley said.

County yields are used two ways to calculate ARC-County payments. The county yields are multiplied by the national market year average price for the commodity to generate the actual county revenue average per acre. That actual revenue calculation then is compared against the ARC benchmark guarantee for that county. The benchmark guarantee comes from historical numbers for the county yields and national marketing year prices.

The Farm Service Agency has been dealing with issues on ARC payment disparities since 2014 payments were issued last fall. Until the 2014 farm bill was adopted, farmers were used to direct payments that allowed them to go to bankers and point to a consistent, steady payment guaranteed under the farm bill. Under ARC, potential government payments could vanish for counties that see bumper crops even though commodity prices are lower.

USDA paid out $4.4 billion in ARC-County payments last fall to about 800,000 farmers, but ARC-County payments were lower or did not trigger for farmers in counties where higher corn yields made up for the difference in lower prices. Farmers nationally enrolled roughly 96% of soybean base acres and 91% of corn base acres in ARC-County.

Grassley's complaint is similar to those raised late last year by Sen. John Hoeven, R-N.D., and House Agriculture Committee Ranking Member Collin Peterson, D-Minn. Commodity organizations in North Dakota also have complained to FSA about wide payment disparities from county-to-county. At least one law firm in Oklahoma has held meetings with farmers in Southern Plains states over ARC-County variations to gauge the potential for possible litigation on the topic.

The Farm Service Agency has essentially a cascading system of trying to come up with county yields. The starting point for FSA is county yield data from the National Agricultural Statistics Service. NASS provides data from its annual yield survey sent to farmers across the country. To use that NASS data, however, reports from the NASS county surveys need to account for at least 25% of the acreage in a county and at least five farms in the county as well.

For counties where NASS did not get that level of survey response, the Farm Service Agency turns 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.

FSA officials have told DTN they had solid county-level yield data on most crops and counties where as much as 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.

Then there are still areas where neither county NASS nor RMA data was good enough. In that case, the Farm Service Agency goes 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.

Regarding his letter, Grassley said he wanted to learn more about the process USDA uses and see if there is any double checking that occurs when there are large variances in payments between different counties. Grassley said Congress did not foresee some of the issues regarding yield discrepancies that farmers have raised to him.

"We don't actually write any formulas in the legislation," the senator said. "We set broad parameters and have the administration fill in the regulations. From the language in the bill in the ARC program. I don't think there was any way to see the discrepancy. You might from one end of the state to the other, but from adjacent counties, I don't think that's possible. If it were possible for us to see that, then I don't think it would have happened in the first place."

Grassley said he wasn't raising the issue with USDA over ARC-County as a possible need to reopen the current farm bill.

"I haven't run into anybody who wants the farm bill opened up," Grassley said. "In fact, they're afraid of the farm bill being opening up because of (a possible) crop insurance cut."

Still, the senator said he's hearing more anecdotes that farmers who pay high cash rents are in trouble and increasing number of farmers are now leaving the business. It hasn't reached a crisis point that would demand significant changes to the safety net -- yet.

"If things don't improve dramatically, I might give you a different answer next year," Grassley said.

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

Follow him on Twitter @ChrisClaytonDTN

(ES/CZ)