My Neighbor is Getting an ARC Payment, Why Not Me!
I am starting to hear some of the “coffee talk” about neighbors getting ARC-CO payments for corn this year, but the farmer is not getting one and they ask “How can that be?”. Now, the term neighbor can be a little borad since the neighbor may be 10-20 miles away, however, they may be at least 2 counties over and that is why the “neighbor” is getting a payment and they are not.
South Central Iowa has the lowest yields compared to any other section of Iowa in most years. However, this year, they had record yields and thus, they are likely not to get any ARC-CO payment since their increased yield offset the reduction in corn prices.
Let’s look at Warren County. The Olympic average for Warren County is 125 bushels per acre. Therefore, their benchmark revenue is $661.25 (125 X $5.29 Olympic average corn price). In order for them to get any payment for 2014, their net corn income for the year (county yield times national MYA price) must be less than $568.67 (86% of $661.25). If we divide this number by $3.65 (estimated 2014 MYA corn price), we arrive at maximum yield to receive any payment of 156 bushels per acre. The estimated yield for Warren County this year is likely to be in excess of 170 bushels, therefore no ARC-CO payment in 2014.
Now, if we travel over to Dallas County, which is only two counties away (maybe 30 miles or so), a farmer in Dallas County has an Olympic average of 153 bushels per acre. His benchmark revenue is $809.37 and his guarantee kicks in at $696.05. The county yield has to be 191 or less to get a payment. If it is 180, a farmer in that county will get $33 per corn base acre (after 15% reduction) and if the yield is 170, then he will receive about $65 per acre.
Therefore, as you can see, a “neighbor” (at least in the next county) can get a 2014 ARC-CO payment while you may not. Now, the important thing to remember is if county yields for 2015 revert back to trend yields for these counties, then Warren County would receive about $60 per acre (assuming corn stays lower than $4 for the year), while Dallas County farmers would receive about $70 per acre, so both farmers would get a decent size payment.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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