During winter meetings, I asked farmers, in regard to their operations, this simple question: “Who is the risk taker and decision maker?” From a producer standpoint, the answer is a resounding “I am!” However, a trend I have noticed in recent years is an over reliance on someone else to make decisions.
There is no doubt, that the 2014 farm bill is complicated. There are multiple long-lasting decisions to make and a great deal of information to process and attempt to understand. The calculations have many moving parts that will change from year to year and are a guess. We can make an educated guess, but it is still a guess on how the next four years will play out. It is no wonder that many producers are relying on someone else to examine their data and give them a direction or rely on just a general direction to go.
While it is great to get opinions on how to sign up for the farm bill, producers will be affected the most and need to have an understanding on why someone has recommended the direction for them to sign up. Whether I agree or not on how they signed up, I feel more comfortable with a producer’s farm bill decisions when they can discuss why they went the direction they did on reallocation of bases, and selection of the ARC-CO, ARC-I, or PLC programs.
Make yield update
About the only decision that is a given is whether to do a yield update or not. There is no downside to updating yields, and with the March 31 deadline extended for it and reallocation, there is still time to do it. Basically, if your yields are higher than your counter cyclical payment yields you need to update. The reallocation or not of covered commodity crop bases can be a little more tricky.
Reallocation seems to be based on determining which is most important to the farm: 1) obtaining a covered commodity base that resembles the current operation or 2) using the base (whether 2013 base or reallocated) that attempts to maximize payments. If maximizing payments is the choice, there probably are some generalities that can be made. However, in many cases, it needs to be tied in to the ARC and PLC decisions as that can have an influence on the direction a producer goes. In my area of Tennessee, the desirable crop bases are rice (not many producers in Tennessee have a rice base), then corn, grain sorghum, wheat and soybeans.
I have strictly been looking at ARC-CO or PLC as not many producers have had an interest in ARC-Individual. Between those two, the generalities are rice in PLC and soybeans in ARC-CO. After that the decision aids have varied with corn leaning more toward ARC-CO and wheat toward PLC. Although I have seen some combinations that have had corn more favorable in PLC. ARC-CO for corn tends to be favorable the first three years of the farm bill while PLC may favor the last two. Since the National Agriculture Statistics Service yields have been released, the potential for payments for corn ARC-CO have become a little clearer.
Yield and season average price parts of equation
Yields are one part of the payment equation with season average prices being the other. Producers in counties where 2014 corn yields appear to be too high to generate an ARC-CO payment at the projected season average price, may want to look closer at the PLC choice since the possible years ARC-CO may pay over PLC have narrowed.
Since generic acres depends on what is planted in a given year, the decision may depend on what is estimated to be planted through 2018. If corn is planted more so on a farm the first three years of the farm bill and not as much the last two years because of the rotation then ARC-CO may need to be the choice.
If corn is planned more in 2017 and 2018, then PLC may need to be the choice. It is easy to see where this can be complicated thus making the decision somewhat paralyzing. I will still go back to my statements earlier that producers need to have an understanding on why they chose what they did on their farm. They may not have to know how all the calculations are done, but how the potential outcomes will affect them or under what conditions would favor one choice over the other.
Producers at risk
On production decisions including seed selection, fertility, weed and insect control, the ultimate production decision needs to be made by the one who has it all at risk – the producer. The producer is really the only one who probably knows the whole picture including the financial end of the business.
Others involved in helping the producer make decisions such as consultants, farm suppliers, and Extension agents most likely only see a part of the picture which can make it difficult to make an informed recommendation that will best benefit the producer.
I encourage producers to develop a trusted group to visit with on not only major production decisions but also financial decisions that can impact the operation. As the producer or owner/operator of the farm business, gather the best information or recommendations available then make the production or financial decision that will be sustainable for the operation.