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  • Making the ARC/PLC Election for 2024

    Making the ARC/PLC Election for 2024

    On November 16, 2023, President Biden signed H.R. 6363 – the Further Continuing Appropriations and Other Extensions Act of 2024 – into law. The bill extended the Agriculture Improvement Act of 2018 (2018 Farm Bill), reauthorizing programs like the Agriculture Risk (ARC) and Price Loss Coverage (PLC) programs through September 30, 2024. Producers will have an opportunity to make a one-time election between ARC and PLC for the 2024 crop year. USDA opened the election and enrollment period on December 18, 2023, and it runs through March 15, 2024.[1]

    The ARC/PLC decision for 2024 is against the backdrop of a general softening in prices, but the implications vary by crop. For some crops, the decision may be clear-cut. In this article, we illustrate the case of wheat (Figure 1). While Effective Reference Prices are projected to climb starting next year for wheat, it is important to remember that you are making a one-year decision for crop year 2024, where the Statutory Reference Price remains at $5.50/bu. With a projected Marketing Year Average Price (MYAP) of $6.63/bu, it is unlikely (though not impossible as we are very early in the growing season) that PLC will trigger. While some may be tempted to elect ARC as a result, note that the 86% trigger threshold is at a price of $5.34/bu, largely indicating that any hope of receiving an ARC payment would rest on very low yields. In other words, in the case of wheat, it’s unlikely that either ARC or PLC will trigger (unless there is a disaster that results in low yields).

    Figure 1. Historical and Projected Wheat Prices and What They Mean for the ARC/PLC Decision.

    As we have noted in the past,[2] we highly encourage you to also look at tools like the Supplemental Coverage Option (SCO) or the Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. Importantly, if you elect ARC, you cannot purchase SCO. In other words, you are essentially evaluating ARC versus PLC + SCO. Even if PLC is not expected to trigger, you may still choose to elect it and purchase SCO, particularly if the value of SCO is expected to exceed that of ARC. 

    For cotton producers, we continue recommending that you first evaluate the Stacked Income Protection Plan (STAX) before making decisions about ARC/PLC. In the case of cotton, STAX cannot be purchased on any farm where the seed cotton base has been enrolled in ARC or PLC for that crop year. As we will discuss at the Red River Crops Conference in Altus, OK, later today, in a scenario where the crop is a total loss, the area-wide policies can provide considerably more coverage than ARC. For example, as noted in the example for Jackson County, OK, in Table 1, STAX can provide more than twice as much support as ARC in a total loss scenario.

    Table 1. ARC versus STAX Comparison for Cotton in 2024, Jackson County, OK

     PracticeMaximum Possible ARC PaymentSTAXRatio: 
    STAX-to-ARC
    Expected County Yield (lint lbs/ac)Maximum Possible IndemnityProducer-Paid PremiumMaximum Possible Net Indemnity
     IRR$1261,273$243$30$2131.69
     DRY$31385$74$9$652.08
    NOTE: this example relies on several key assumptions that are subject to change: (1) a price election of $0.7959/lb (based on CTZ23 as of 1/16/2024); (2) volatility factor of 0.23 (from 2023); (3) 70% Revenue Protection (RP); and (4) 20% STAX Coverage with 120% Protection Factor. Importantly, ARC payments are limited to 85% of base acres and are subject to a number of restrictions, including payment limits.
     

    As always, we aren’t in the business of telling you exactly what to do because, frankly, we don’t know what will end up being the best choice. But, as with previous years, we do have a decision aid available at www.afpc.tamu.edu where you can input your info, and it will show you expected payments under as many different price scenarios as you want to look at. We also have students who will input your information for you and call you to discuss results. All you need to do is call (979) 845-5913 and ask for decision aid help.

    Hopefully we have given you something to think about as you consider your signup decisions. We wish you luck, and don’t hesitate to call for assistance.

    [1] https://www.fsa.usda.gov/programs-and-services/arcplc_program/index

    [2] https://southernagtoday.org/2023/03/02/strongarc-plc-sign-up-deadline-just-weeks-away-strong/

    Fischer, Bart L., and Joe Outlaw. “Making the ARC/PLC Election for 2024.” Southern Ag Today 4(3.4). January 18, 2024. Permalink

  • Cotton Crop Insurance: Regional Differences in Sales Closing Dates and Cancellation Dates

    Cotton Crop Insurance: Regional Differences in Sales Closing Dates and Cancellation Dates

    Updated February 8, 2024

    Navigating crop insurance for upland cotton can be complex, with various options and critical timelines. Our previous Southern Ag Today article discusses crop insurance policies available for upland cotton (Chong, Liu, and Biram, 2023). This article highlights essential dates for upland cotton producers to track to ensure effective management and protection of their investments.

    Securing federal crop insurance coverage relies on adhering to critical timelines and dates associated with these policies. Keeping track of these important dates can be challenging for producers since different crops have different decision deadlines. Among the crucial dates, producers must carefully track the sales closing date and the cancellation date for effective management. The Sales Closing Date is the last date to apply for or change crop insurance coverage from the previous year. Producers are expected to decide by this date on the type of policy and the level of protection. The Cancellation Date is the last date for producers to inform the insurance company if they do not want to renew their crop insurance for next year. Otherwise, their insurance policy will automatically renew for another year. 

    For upland cotton, the U.S. Department of Agriculture Risk Management Agency (USDA RMA) has released important dates regarding the sales closing and cancellation dates for crop insurance. The sales closing date and cancelation and termination date are the same date for all counties for cotton, and they are also the same date among the different crop insurance policies available for upland cotton (see our previous Southern Ag Today article for a detailed discussion of the insurance policies available for upland cotton). Notably, these dates remain consistent annually but vary according to state and location, as detailed in Figure 1 and Table 1. Texas has been separated into three regions, each with a different date for sales closing dates and cancellation dates. For all the other states, the same dates apply to different counties in the state. 

    Producers can find these specific dates in their county through the USDA RMA Actuarial Information Browser and contact a crop insurance agent (see Agent Locator Tool offered by the U.S. Department of Agriculture Risk Management Agency) for more information regarding specific questions. 

    Figure 1. Regional Differences in Cotton Crop Insurance Policies’ Sales Closing Dates and Cancelation and Termination Dates 

    Table 1. Cotton Crop Insurance Policies’ Sales Closing Dates and Cancellation and Termination Dates by State and County

    State and CountyDates
    Val Verde, Edwards, Kerr, Kendall, Bexar, Wilson, Karnes, Goliad, Victoria, and Jackson Counties, Texas, and all Texas counties lying south thereof.Jan 31
    Alabama; Arizona; Arkansas; California; Florida; Georgia; Louisiana; Mississippi; Nevada; North Carolina; South Carolina; El Paso, Hudspeth, Culberson, Reeves, Loving, Winkler, Ector, Upton, Reagan, Sterling, Coke, Tom Green, Concho, McCulloch, San Saba, Mills, Hamilton, Bosque, Johnson, Tarrant, Wise, and Cooke Counties, Texas, and all Texas counties lying south and east thereof to and including Terrell, Crocket, Sutton, Kimble, Gillespie, Blanco, Comal, Guadalupe, Gonzales, De Witt, Lavaca, Colorado, Wharton, and Matagorda Counties, Texas.Feb 28
    All other Texas counties and all other states.Mar 15

    Source: Summary of Changes for the Cotton Crop Provisions (17-0021), U.S. Department of Agriculture

    References: 

    Chong, Fayu, Yangxuan Liu, and Hunter Biram. “Exploring Diverse Crop Insurance Options for Cotton Producers.” Southern Ag Today 3(51.3). December 20, 2023. Permalink

    U.S. Department of Agriculture, Summary of Changes for the Cotton Crop Provisions (17-0021), November 2016. https://legacy.rma.usda.gov/policies/2017/17-0021.pdf

    Liu, Yangxuan, Hunter Biram, and Fayu Chong. “Cotton Crop Insurance: Regional Differences in Sales Closing Dates and Cancellation Dates.” Southern Ag Today 4(3.3). January 17, 2024. Permalink

  • More COF Still?

    More COF Still?

    More cattle on feed than a year ago late in 2023 was a factor in falling fed and feeder cattle prices.  USDA will release its January Cattle on Feed (COF) report on Friday.  This SAT takes a look at what we might expect in the report.

    There is a group of market analysts that do COF “pre-report” estimates of their expectations for the report. Analysts pre-report estimates are published in major business outlets and industry newsletters.  These are my estimates of what I expect in the upcoming report.  

    I expect December marketings to be about 99.4 percent of last year.  Marketings have been below the previous year since May and their decline has been a source of concern for some.  But, fewer cattle marketed is related to fewer cattle on feed and a slowdown in Saturday fed cattle processing by meat packers.  

    My estimate for December placements is 98.0 percent of last year.  Placements typically decline sharply during the last couple months of the year and this year should be no exception.  The various data points that many analysts use offer a mixed bag of information.  The number of head sold that are used to calculate the CME feeder cattle index was about 2.5 percent lower in December compared to last year.  But, feeder cattle imports from Mexico were up about 7,000 head and the sales receipts data from USDA were up almost 14 percent. Improvements in wheat pasture conditions may have held some more feeders in the country.  Lower fed cattle futures market prices and some unprofitable closeouts for unhedged cattle may help to hold back placements.

    Placements a little bit bigger than marketings means that the estimated number of cattle on feed on January 1st remains at about 102.5 percent of last year.  More cattle on feed remain with us for the time being.  Slower marketing rates means more days on feed and likely heavier weights although, this latest winter storm may slow weight gains and reduce dressed weights. 

    While the COF report is only focused on feedlots for cattle ranchers in the South, that’s where most of the calves head after weaning.  The report does give some insight into near term cattle and beef supplies and some direction for prices in coming months.

    Anderson, David. “More COF Still?” Southern Ag Today 4(3.2). January 16, 2024. Permalink

  • Real and Nominal Corn Futures Prices 

    Real and Nominal Corn Futures Prices 

    Most prices over time are displayed as nominal prices, indicating the numeric value of the item. This, however, can be misleading due to the declining purchasing power of money over time leading to increases in price, or inflation. Inflation can easily be conceptualized in the housing market. In 1980, the average price of a home in the United States was $80,000, while in 2023 the average house price was estimated at $513,000. The function of the home has not changed, but the numerical value has changed dramatically. To compare values over time, economists will transform nominal values into real values. The nominal price is the value of an item in dollars that are not adjusted for the value of the dollar over time. Real prices are an item’s nominal value adjusted for inflation and thus measure that value in terms of other items, over time. In the housing price example, the $80,000 average price in 1980 would be $238,320 in 2023 dollars.  This article adjusts nominal nearby corn futures prices from 1980 to 2023 to real prices. The baseline month for real prices for this analysis is November 2023 (for November 2023, nominal price = real price = $4.83; figures 1 & 2).

    Figure 1. Monthly Nominal Nearby Corn Futures Prices, 1980-2023

    Figure 2. Monthly Real Nearby Corn Futures Prices, 1980-2023 (Base = November 2023)

    * Real prices = nominal prices adjusted by the producer price index. 

    Since 1980, the monthly average corn futures price (nominal price) has averaged $2.89/bu. The highest monthly average price was in April 2022 at $8.14/bu, and the lowest monthly average price was $1.47/bu in January 1987. So, comparing the current price of corn – $4.83/bu – would indicate that although prices are down from the recent high, prices are still nearly $2.00 above the long-term average. 

    Examining real monthly nearby corn futures prices provides a very different comparison. The current price is the same $4.83/bu; however, this is $0.50/bu below the 1980 to 2023 real average price of $5.33/bu. The current price is near the price range from 2014 to 2020, a period that few corn farmers would associate with high prices. For real prices (in November 2023 dollars), the high and low occurred October 1980 at $10.73/bu and September 2005 at $3.00/bu. 

    So, are corn prices high or low? Like all good economic questions, it depends. Analyzing real prices can be beneficial to provide historical context and allow for a comparison considering the same purchasing power.  Decisions can then be based on longer-term price cycles and trends.

    References and Resources

    Barchart.com. Monthly Nearby Corn Futures Interactive Chart.  https://www.barchart.com/futures/quotes/ZCH24/interactive-chart. 

    U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: All Commodities [PPIACO], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PPIACO, January 10, 2024. 

    Smith, Aaron. “Real and Nominal Corn Futures Prices.” Southern Ag Today 4(3.1). January 15, 2024. Permalink

  • Online Training for Cooperative Boards

    Online Training for Cooperative Boards

    Being elected to the board of directors for your local cooperative can be an intimidating experience. An agricultural cooperative may have some fundamental differences from a farm operation that makes it difficult for new board members to assess and direct. Part of these differences are due to business activities in adjacent parts of the supply chain. Additionally, cooperatives have unique financial and legal issues that use unfamiliar terminology, adding to the confusion. 

    Not surprisingly, education is a hallmark principle of cooperation. Many states offer educational programs for cooperative directors through their state agricultural cooperative council. Other resources for education include the farm credit system members and, of course, your state Extension service. Many of these offer traditional programs over 1-3 days, with speakers and workshops covering a variety of topics. Programs such as these continue to be widely available and appreciated. 

    However, directors are increasingly requesting alternative educational opportunities with online delivery. On-demand education is often a better fit for modern directors seeking a better balance of time devoted to home, business, and life in general. The pandemic of 2020 taught many boards that a lot of their activities can be effectively conducted online if needed. In response to this, a group of Extension specialists from across the nation established the Cooperative Director Foundations Program. This program provides 15 hours of training across 23 learning modules, targeted to directors of agricultural cooperatives. The course is available from Thinkific, on an online learning platform. 

    Directors needing cooperative specific training are encouraged to speak to their state Extension specialist for cooperatives and to check out the Foundations course on the Thinkific website at http://cacdd.thinkific.com.

    Further Reading

    Boland, Michael A., Kopka, Christopher J., Jacobs, Keri, Berner, Courtney, Briggeman, Brian, Elliott, Matthew, Friend, Diane, Kenkel, Phil, McKee, Greg, Olson, Frayne, Park, John L., Secor, William, Schweiss, Kristi, Scott, Hannah and Worley, Tom, (2022), Extension Programming During a Pandemic: The Cooperative Director Foundations Program, Applied Economics Teaching Resources (AETR), 4, issue 2, number 321906.

    https://www.aetrjournal.org/UserFiles/file/AETR_2022_001RR%20V4I2.pdf