Does 2024 Rhyme with 2014
Does 2024 Rhyme with 2014
Agricultural Risk Coverage (ARC) uses Olympic Average MYA prices to determine the amount of guarantee. The 2024 numbers may be almost exactly the same as 2014 numbers.
ARC is a Title 1 program that provides support to farmers if the current year mid-year average price (MYA) plus the average county yield for a crop result in total revenue less than a benchmark guarantee.
The benchmark guarantee is arrived at by multiplying the Olympic average yield and MYA price for the last five years (with a year in arrears). For example, assume the corn price was $4.00, $4.50, $5.75, $6.00 and $3.25. The Olympic average would take out the high of $6.00 and the low of $3.25. The average of the remaining three numbers is $4.75.
When the 2014 Farm Bill was enacted we had a period of a few years of very high prices. The MYA corn price for 2011/12 and 2012/13 crop years was $6.22 and $6.89 respectively. However, there was also a very low price of $3.55 from 2009/10.
For the 2014 crop year, the Olympic average price for corn was $5.29; soybeans was $12.27; and wheat was $6.60.
The Farm Bill now uses Olympic average prices and yields that are one year in arrears. This makes it easier for the farmer to know what benchmark revenue will be for the current crop year (the MYA and yields for the previous crop year are usually not fully determined until almost harvest time of the current crop year).
Therefore, 2024 benchmark revenue is based on the Olympic averages of the 2018-2022 crops.
However, we wondered how the Olympic average prices would be for the 2024 crop if we used the MYA for the five years ending 2023 to see how it would compare to 2014. We still don’t know the 2023 MYA price yet, but USDA does provide an estimate of this price and usually the ending MYA is not too far off from their estimate (unless we have an extreme event such as the Russia/Ukraine crisis of last year).
As an example, USDA is projecting a corn MYA price of $4.95, soybeans of $12.90 and wheat of $7.30.
If we use these prices in projecting the Olympic average price, we arrive at following table of Olympic Average Prices for 2014 versus 2024:
As you can see the estimated 2024 Olympic Average Price is extremely similar to the 2014 price. The difference for corn is only 13 cents which on percentage terms is about 2.5% lower while soybeans and wheat are less than 1% higher in 2024 versus 2014.
This suggests that almost all farmers will elect ARC instead of PLC for the 2024 and 2025 crop year since the Olympic Average Price for each of these years will be much higher than the reference price.
The key difference in the 2018 Farm Bill is that it allows the farmer annually to switch between ARC and PLC. The 2014 Farm Bill locked the farmer into their election for the full five years.
However, if the MYA starts to drop near the Effective Reference Price, then most farmers will switch to PLC.
It will be interesting to see how close the final 2025 numbers are to the 2014 numbers. We will keep you posted.