Farm Bill and Sparking a Rally - Monday, 03 February 2014

The new Farm Bill is expected to be approved by the U.S. Senate sometime today.  Providing it passes the Senate it then will go in front of the President for his decision.  One of the new components of this farm bill is the option that farmers will have to sign up for either Agricultural Risk Coverage (ARC) or the Price Loss Coverage options.  Based on what I have been able to find on these options it will be most likely to see growers of corn, beans and wheat opting for ARC while producers of peanuts, rice and similar crops will opt for the Price Loss Coverage.  Farmers will also have the opportunity to reorganize their base acres ONE TIME if they so choose.  Payments are based on a series of calculations, below I included an example I found of how this gets calculated:

(This example was found on “Ag Web” and the numbers were calculated using data from Buchanan County, Iowa)

  •  The Olympic average yield for the last five years for the county is about 169 BPA.
  • The Olympic average corn price over the last five years is $5.15 (this is for the whole U.S., not just the county).
  • A claim would be paid if the actual revenue was less than $748.
  • The maximum claim is about $75 and if the yield was 160 bpa and the average corn price was less than $4.25 then the full claim of $75 would be paid.  The average price would have to rise to almost $4.75 to have no claim.
  • If the yield was 170 bpa then a full claim would happen at about $4.10 but at about $4.40 no claim would be owed.
  • If the yield were 180 bpa then a full claim is allowed if the average price falls below $3.70 and no claim would be allowed if the price were to exceed $4.15

The ARC program is not crop insurance, nor should it be looked at as a substitute for crop insurance, but instead it is a replacement for the former ACRE/DCP programs found in the old farm bill.  With the price uncertainty and falling profits facing producers in 2014 this Farm Bill may provide more needed revenue protection than the former bill because payments will be based on specific price and yield qualifications instead of a predetermined set of annual payments.

One of the casualties of this proposed farm bill is the provision that provided subsidies for biofuel blending pumps in rural areas.  The new provision could place a road block for gasoline blended with higher concentrations of ethanol to reach rural areas where demand is highest for the product.

Corn and soybean prices have seen a bit of a rally over the past few days.  March corn futures have seen a textbook chart bottoming at $4.35 and a monthly bullish key reversal.  If the market could receive some friendly news there is an upside potential of $.25 in the charts.  Now late in today’s session Informa estimated the corn yield for Argentina at 66.5 million metric tons which is significantly lower than the USDA estimate of 70 million metric tons.  This may be the friendly news we needed to spark that rally.

What should we expect this spring for weather/planting conditions?  I wish I knew where to find that answer but according to Elwynn Taylor, climatologist and ag meteorologist for Iowa State, it’s too early say for sure but as we get into March and April we will need to watch for signs of El Niño or La Niña patterns developing to help determine what we might experience.  If you remember back to the drought of 2012, those conditions were brought on by a La Niña weather pattern in the Pacific.  El Niño though is considered to be friendly to producers and brings with it a 70% chance of corn yields averaging above trend line when present.  The U.S. normally sees 6 years in a row of above normal corn yields then followed by four years of below normal corn yields.  “For what we are seeing right now the odds favor a slightly higher trend line yield for U.S. corn-roughly 166 bushels per acre.”  Extreme weather like the powerful polar vortex we have experienced this winter is  “cyclic” and was common during the 1950’s, 60’s and 70’s.  He predicts that we will see more of this “extreme” weather during the next 20 years.  This type of excessive temperature variation usually affects the summer temps as well as those of the winter months.  He also noted that based on past, similar, weather events that generally occur in predictable increments, that IF we are to experience another “Dust Bowl” period it could likely occur close to the year 2025.  Plan ahead!

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