Category: Policy

Producers are calling asking about the FSA signup decision they have to make by March 15^th.   Even though commodity programs have used marketing year average prices to trigger payments for decades, there still seems to be some uncertainty among producers. 

A quick look at nearby futures would indicate that neither agriculture risk coverage (ARC) nor price loss coverage (PLC) will likely trigger a payment for the 2022 crop.  While it makes some sense to look at nearby (old crop) and harvest time (new crop) futures to help decide what to plant, futures prices may or may not be a very good guide for program signup decisions. 

Why?  Because marketing year average prices start being calculated at harvest of this year’s crop ending prior to the next year’s harvest (Figure 1).  At the end of the marketing year, USDA will multiply each monthly price for the commodity by the percent of the crop marketed that month to arrive at a marketing year average price that weights the monthly prices with higher marketings greater than those months (like right now) with very little marketings occurring. 

While most would agree that the current futures outlook would indicate no ARC or PLC payments, trying to guess at weather, geopolitical and trade conditions around the world 18 months in advance can be daunting.

Figure 1.  Marketing Years and Expected Date Final Price will be Reported by Commodity.

Commodity	Marketing Year	Publishing Dates for the Final 2022/2023
Wheat	Jun. 1- May 31	August 28, 2023
Barley	Jun. 1- May 31	August 28, 2023
Oats	Jun. 1- May 31	August 28, 2023
Peanuts	Aug. 1- Jul. 31	August 28, 2023
Corn	Sep. 1- Aug. 31	September 30, 2023
Grain Sorghum	Sep. 1- Aug. 31	September 30, 2023
Soybeans	Sep. 1- Aug. 31	September 30, 2023
Dry Peas	Jul. 1- Jun. 30	September 30, 2023
Lentils	Jul. 1- Jun. 30	September 30, 2023
Canola	Jul. 1- Jun. 30	September 30, 2023
Large Chickpeas	Sep. 1- Aug. 31	November 30, 2023
Small Chickpeas	Sep. 1- Aug. 31	November 30, 2023
Sunflower Seed	Sep. 1- Aug. 31	November 30, 2023
Flaxseed	Jul. 1- Jun. 30	November 30, 2023
Mustard Seed	Sep. 1- Aug. 31	November 30, 2023
Rapeseed	Jul. 1- Jun. 30	November 30, 2023
Safflower	Sep. 1- Aug. 31	November 30, 2023
Crambe	Sep. 1- Aug. 31	November 30, 2023
Sesame Seed	Sep. 1- Aug. 31	November 30, 2023
Seed Cotton	Aug. 1- Jul. 31	October 30, 2023
Rice (Long Grain)	Aug. 1- Jul. 31	October 30, 2023
Rice (Med/Short Grain)	Aug. 1- Jul. 31	October 30, 2023
Rice (Temperate Japonica)	Oct. 1- Sep. 30	January 2024

Should I Buy STAX?

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Outlaw, Joe. “What is a Marketing Year Average Price?” Southern Ag Today 2(10.4). March 3, 2022. Permalink

As we’ve traveled throughout the Southern United States over the past two months, one of the questions we’ve most often been asked is whether a producer should purchase a Stacked Income Protection Plan (STAX) insurance policy for the 2022 crop year.  While we would never presume to know what’s best for a producer – because we are neither on the hook for paying the premiums nor do we know a particular producer’s financial situation or appetite for risk – we have been encouraging producers to take a very close look at STAX and to exhaust that option before considering any other alternatives.  Generally speaking, area-wide policies like STAX can serve as an effective complement to an individual crop insurance policy. With prices at their current levels, that option arguably becomes even more important.

            STAX was first authorized under the 2014 Farm Bill.  It was retained in the Bipartisan Budget Act of 2018 and the 2018 Farm Bill, but both bills required producers to choose between (1) Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) and (2) STAX.  Any farm (FSA Farm Number) with seed cotton base enrolled in ARC or PLC is ineligible for STAX.  As a result, most producers we talk to are currently trying to choose between ARC (particularly ARC County, or ARC-CO) and STAX.

            While there are a number of factors that must be taken into consideration – for example, how much seed cotton base do you have on your farm and do you plan to plant that farm to cotton – in the example that follows we attempt to draw some comparisons between ARC-CO and STAX.  For those parts of the cotton belt with February 28^th sales closing dates (including the Arkansas, Georgia, and Mississippi counties in the example below), the projected price for crop insurance has been set at $1.02/lb with a 0.22 volatility factor (which is used to establish crop insurance premiums).  While the Texas and Oklahoma counties have a March 15th sales closing date and are still undergoing price discovery, the analysis that follows uses the same price assumptions.  The analysis also assumes that the maximum amount of STAX is being purchased, including a 20% coverage level with a 120% protection factor.  If a producer has an underlying crop insurance coverage level above 70%, then the STAX coverage would be reduced.

            Table 1 below illustrates the maximum possible ARC-CO payment rate in the event of sufficient price and/or yield losses.  It illustrates the same for STAX, but it also includes the estimated premiums paid for STAX coverage.  The last column compares maximum possible net indemnities from STAX to the maximum possible ARC-CO payments.  As noted below, in every case, STAX provides more than TWICE the coverage of ARC-CO (even after accounting for premiums).  Naturally, if both prices and yields end up hitting their average levels, then neither ARC-CO nor STAX will pay, and the producer will be left paying the STAX premium.  As a result, there is no clear-cut answer to the question above, but it is abundantly clear that the amount of protection a producer can secure under STAX vastly exceeds that offered by ARC-CO.  Finally, while we provide estimates in this article for purposes of illustrating options for you to consider, nothing can substitute for discussing these options with your crop insurance agent.

Table 1: Comparing ARC-CO and STAX in the Counties with the Largest Number of Planted Acres in the 5 Largest Southern Cotton States

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Fischer, Bart L., and Joe Outlaw. “Should I Buy Stax?” Southern Ag Today 2(8.4). February 17, 2022. Permalink

Producers have until March 15^th to select their Title I safety net coverage at their local county FSA office.  Current futures prices for many U.S. covered commodities are well above the reference prices which has most producers thinking there will be no payments for the Price Loss Coverage (PLC) so they should choose the revenue coverage provided by Agriculture Risk Coverage-County Option (ARC-CO).  The combination of price and yield protection provided by ARC-CO should be somewhat more likely to trigger a payment than just the price protection provided by PLC.  On the surface this seems quite reasonable, however, as is the case with most decisions in life, this one is much more complicated than that.

First, with a 2022 yield equal to the 2022 county benchmark yield, ARC-CO would not trigger a payment until market prices fall below $3.18/bu for corn, $7.84/bu for soybeans, $3.40/bu for grain sorghum, and $4.73/bu for wheat (Figure 1).  These trigger prices are considerably lower than the effective reference prices for each crop.  So, what if the yield isn’t average?  Across these 4 commodities, it would take a 14 percent yield decline relative to the 2022 county benchmark yield just to increase each commodity’s ARC-CO trigger price to the effective reference price (i.e., $3.70 for corn, etc).

Second, the supplemental coverage option (SCO) is only available on the crops for which a producer chooses PLC as their Title I safety net program.  Given the extremely high futures prices that currently are in place during price discovery, if a producer is looking for a shallow loss revenue protection option, SCO often provides significantly more revenue protection than ARC-CO which uses marketing year average prices to determine revenue benchmarks.  While SCO has a premium that must be paid, many producers may find the coverage difference well worth the cost.

Finally, the current high futures prices for most commodities are good indicators that market prices will be quite strong this harvest.  However, both ARC-CO and PLC use marketing year average prices to determine whether a payment is triggered.  The 2022-23 marketing year for corn begins September 1, 2022 and continues through August 31, 2023.  While not likely to crash, a lot can happen between now and August 2023.  Purchasing SCO allows a producer to elect PLC for the covered commodity, effectively establishing a free put option at the reference price (at least on those base acres and program yields).

Figure 1.  Example ARC-CO and PLC Parameters for the 2022 Decision.

Crop Name	2016 County Yield	2017 County Yield	2018 County Yield	2019 County Yield	2020 County Yield	2022 Benchmark County Yield	2022 Benchmark Price	2022 Benchmark Revenue	2022 Guarantee Revenue	Price below which ARC-CO is Triggered with an Avg Yield	2022 Effective Reference Price (ERP)
Corn	129.62	144.90	168.80	137.45	157.42	146.59	$3.70	$542.38	$466.45	$3.18	$3.70
Grain Sorghum	97.93	109.10	120.02	93.14	93.48	100.17	$3.95	$395.67	$340.28	$3.40	$3.95
Soybeans	49.46	44.56	51.96	39.06	45.11	46.38	$9.12	$422.99	$363.77	$7.84	$8.40
Wheat	74.45	86.24	61.69	61.77	64.21	66.81	$5.50	$367.46	$316.46	$4.73	$5.50

Outlaw, Joe, and Bart Fischer. “The ARC-CO/PLC Decision isn’t as Easy as You Think.” Southern Ag Today 2(6.4). February 3, 2022. Permalink

The farm program election deadline for 2022 is March 15^th, and producers have the option to enroll commodities in Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC).  PLC protects against declines in prices, and ARC protects against revenue losses at the county level (ARC-CO) or individual farm level (ARC-IC).  Among Southern producers, ARC-IC has not been popular in previous program elections, accounting for less than 1 percent of farm signups.  However, for the 2022 crop year, producers are making their farm program decisions at a time with relatively high commodity prices.  In this situation, it is unlikely that PLC will provide much support, and only alternatives that include yield losses will likely trigger support (ARC-CO and ARC-IC).  This begs the question of whether producers should consider ARC-IC for 2022.  ARC-IC differs from ARC-CO in the following ways: 

1. The ARC-IC benchmark revenue is determined by a producer’s individual farm yields rather than county average yields. 
2. ARC-IC election is made by Farm Service Number (FSN) rather than by commodity, i.e., if ARC-IC is selected for a FSN, then all commodities on that FSN are enrolled in ARC-IC.  If multiple FSNs are enrolled in ARC-IC, they will be treated as one “ARC-IC Farm.” 
3. An ARC-IC payment is made on 65% of base acres rather than 85% for ARC-CO.
4. Coverage applies to commodities with planted acres rather than base acres, i.e., if a producer has seed cotton base but plants corn in 2022, the ARC-IC benchmark revenue will be determined by corn prices and yields. 

In addition to the ARC-CO/PLC decision tool, Texas A&M University offers a spreadsheet calculator for producers considering ARC-IC available at www.afpc.tamu.edu.  For the ARC-IC calculator, producers will need the information in Table 1.  Producers can utilize the calculator to compare potential ARC-IC payments with different combinations of FSNs and different price and yield expectations. 

Table 1. ARC-IC Calculator Inputs

Graff, Natalie, and Joe Outlaw. “ARC-IC Considerations for 2022 Farm Program Elections“. Southern Ag Today 2(4.4). January 20, 2022. Permalink

For the 2022 crop year, producers will have several decisions to make over the next few months.  For example, the U.S. Department of Agriculture’s Farm Service Agency (FSA) has announced that producers will have until March 15, 2022, to make their Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) elections and enrollments for the 2022 crop year.  In addition, many of the sales closing dates for crop insurance for spring-planted crops are rapidly approaching.

For the ARC-County (ARC-CO) and PLC decision, the Agricultural & Food Policy Center (AFPC) at Texas A&M University provides a decision tool to evaluate the trade-offs between the two programs on a crop-by-crop and farm-by-farm basis.  AFPC also offers a spreadsheet calculator for producers who are considering ARC-Individual (ARC-IC).  Given the current price outlook – where producers may expect to receive little (or no) assistance from ARC and PLC – it arguably makes the crop insurance coverage decisions even more important.  

To that end, we offer the following “rules of thumb” for you to consider as you make farm safety net decisions for the 2022 crop year:

• Similar to the 2021 crop year, ARC and PLC are less likely to pay.  That’s okay!  Most producers tell us they would rather get their income from the market than the government anyway. 
• Rather than focusing on expected ARC/PLC payments (when neither may trigger), consider instead where you are most vulnerable.  Is it lower prices due to trade disruptions or slow economic recovery?  Is it lower yields due to persistent drought?
• Talk to your crop insurance agent to make sure you’ve evaluated all yield enhancement options (e.g., Yield Exclusion) and unit structures.
• With current price elections on crop insurance, perhaps now is the time to focus more on adding area-wide tools like the Stacked Income Protection Plan (STAX) for upland cotton, the Supplemental Coverage Option (SCO), and the Enhanced Coverage Option (ECO).
  • You can have STAX on a farm if the seed cotton base on the farm is not enrolled in ARC/PLC.
  • You can purchase SCO for a crop on a farm as long as it’s not enrolled in ARC.
  • You can purchase ECO on the farm regardless of ARC/PLC enrollment.
• At a minimum, on farms with little (or no) seed cotton base, be sure to take a close look at area-wide policies like STAX.  
• If your APH is relatively higher than the county average yields, then be sure to compare STAX against both SCO and ECO.  Because of the 10% limitation in ARC, you may find SCO to be a more attractive alternative (and PLC can be utilized as well, providing some downside price protection, even if you do not expect to need it).

Fischer, Bart, and J. Marc Raulston. “2022 Farm Safety Net Decisions“. Southern Ag Today 2(2.4). January 6, 2022. Permalink