Consolidated Appropriations Act, 2021 – Highlights of Tax Issues Impacting Farm Businesses

by: Barry Ward, Leader, Production Business Management/Director, OSU Income Tax Schools

Congress passed the Consolidated Appropriations Act (CAA), 2021 on Monday, December 21, 2020 which was signed by the President on December 27th. The CAA funds the government through September 30, 2021, implements COVID-19 relief provisions, and extends a number of expiring tax provisions. The $2.3 trillion bill provides $900 billion in COVID-19 relief. This article highlights key provisions for farm related issues from several Acts within the CAA’s 5,593 pages.

Additional 2020 Recovery Rebates

“Economic Impact Payments”

The Act provides for “additional 2020 recovery rebates for individuals.” The additional recovery rebate credit is $600 for “eligible individuals” or $1,200 for “eligible individuals” filing a joint return. “Eligible individuals” are entitled to a $600 credit for each “qualifying child”. (Generally includes dependent children under the age of 17.) Phaseouts apply for higher income taxpayers.

Paycheck Protection Program Loans – Covered Expenses Now Deductible

Previously, the IRS and Treasury indicated that the expenses covered by PPP loans that were forgiven (or would be forgiven) would not be deductible. This new legislation now allows for these expenses to be deducted. This provision overrides IRS Notice 2020-32 and Rev. Rul. 2020-27. The CARES Act indicated that the loan proceeds from PPP loans are not to be included as taxable income. This tax treatment would apply to original PPP loans, as well as any subsequent loans made possible by the Act.

Paycheck Protection Program – Other New Guidelines

Qualified self-employed farmers who did not have employees and had less than $100,000 of net income in 2019 were not originally eligible for the maximum forgivable PPP loan. The new legislation now allows for the PPP loan forgiveness based on gross income rather than net income. Farmers are now able to receive a PPP loan of up to $20,833 (reduced by any loan already received) based on gross receipts of at least $100,000.

The legislation amends the Paycheck Protection Program (PPP) to extend the covered period from December 31, 2020, through March 31, 2021. An allocation of $284 billion is included to provide first and second PPP loans to small businesses. Details of the expanded program will not be known until SBA releases required guidance.

The PPP allows borrowers to spend proceeds on payroll costs and non-payroll costs of business mortgage interest, business rent payments, and business utility payments. This new legislation expands the allowable use of PPP loan proceeds.

The legislation allows borrowers to choose a covered period anywhere between an eight-week and 24-week covered period for purposes of loan forgiveness. The covered period must begin on the date the proceeds are disbursed.

The legislation provides a simplified forgiveness procedure for PPP loans up to $150,000. The new procedure provides that such loans “shall be forgiven” if the borrower signs a certification that shall not be more than one page in length and shall require minimal supporting information.

The legislation repeals the provision in the CARES Act requiring the SBA to reduce a borrower’s PPP forgiveness by the amount of an EIDL advance.

PPP Second Draw Loans

The new legislation establishes a PPP Second Draw Loan program that generally applies to businesses with 300 or fewer employees if the business had gross receipts during any quarter in 2020 that were reduced by at least 25 percent from the gross receipts of the business during the same quarter in 2019.

To be eligible for a second draw loan, the borrower must have received a PPP loan in 2020 and used all of the proceeds of that loan for permitted purposes.

The Act allows borrowers who have not yet received forgiveness to request an increase in their loan amount if they returned all or part of a PPP loan or did not take the full amount of a PPP loan to which they were entitled. This provision allows borrowers who received loans before more favorable regulations were enacted to take advantage of those new provisions.

Employee Retention Credit (ERC)

The legislation extends and expands the employee retention credit, allowing employers to remain eligible up until July 1, 2021. Previously, employers who received a PPP loan were ineligible to claim the ERC. The new legislation retroactively allows employers who receive PPP loans to claim the ERC and to treat payroll costs paid during the loan-covered period as qualified wages to the extent the wages are not paid for with forgiven PPP loan proceeds.

For the period from January 1, 2021 and prior to July 1, 2021 the ERC percentage increases from 50 percent of qualified wages to 70 percent. Employers can count qualified wages up to $10,000 per employee per quarter (instead of for all quarters) in calculating the credit. Employers qualify for the credit if their gross receipts for a calendar quarter are less than 80 percent of the gross receipts of the corresponding calendar quarter in calendar year 2019.

Economic Injury Disaster Assistance (EIDL) Loans and Advances

The Act allows Economic Injury Disaster Assistance (EIDL) Advances provided as emergency grants under the CARES Act to be excluded from gross income while the corresponding expenses would remain deductible. Additionally, loan forgiveness granted to an EIDL loan recipient under discretionary powers provided by the CARES Act does not result in gross income or a denial of deductions for allocable expenses.

New Net Operating Loss (NOL) Options

The new legislation provides farmers new net operating loss options not otherwise available in the wake of the CARES Act. Farmers have the option to temporarily carry back Net Operating Losses 2 or 5 years with some caveats.

Extension of Credits for Paid Sick and Family Leave

The Act extends the tax credits made available to employers by the Families First Coronavirus Response Act through March 31, 2021 (They were set to expire on December 31, 2020). This includes the sick and family leave credits for self-employed individuals. The new legislation does not provide additional credits for employees but allows for a larger window to utilize them if the employer chooses.

Emergency EIDL Grants

The Act appropriates an additional $20 billion for emergency EIDL grants. The Act extends the covered period for this program through December 31, 2021, and extends the period to approve the applications from three days to 21 days.

Temporary Allowance of 100% Deduction for Business Meals

The new legislation allows for a 100 percent deduction for business meals where food or beverages is provided by a restaurant, for the 2021 and 2022 tax years.

Charitable Contributions Deduction by Non-Itemizers

For tax years beginning in 2021, the Act extends and increases the above-the-line deduction for cash contributions by non-itemizers to $300 for individuals and $600 for married filers.

Extension of Deferred Employee Portion of Payroll Taxes

The Act delays the repayment requirement for the employee portion of the payroll taxes that were deferred in response to the President’s August 8 Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.  Instead of requiring full repayment of these deferred taxes by April 30, 2021, the new legislation delays this deadline to December 31, 2021.

References:

Tidgren, Kristine A. “What COVID Relief Provisions are in the Spending Bill?” Ag Docket Perspective on Agricultural Law & Taxation, Center for Agricultural Law and Taxation, December 23, 2020

Neiffer, Paul “Deeper Dive into PPP” Agribusiness Blog Farm CPA Today, CliftonLarsenAllen Wealth Advisors, December 22, 2020

H.R. 133 Consolidated Appropriations Act, 2021 https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf December 27, 2020

Ernst & Young LLP, Consolidated Appropriations Act, 2021 extends many credits and other COVID-19 relief, Tax News Update, December 23, 2020

 

FARM OFFICE LIVE WINTER EDITION

by: Barry Ward, David Marrison, Peggy Hall, Dianne Shoemaker – Ohio State University Extension

“Farm Office Live” returns virtually this winter as an opportunity for you to get the latest outlook and updates on ag law, farm management, ag economics, farm business analysis and other related issues from faculty and educators with the College of Food, Agriculture and Environmental Sciences at The Ohio State University.

Each Farm Office Live will start off with presentations on select ag law and farm management topics from our experts and then we’ll open it up for questions from attendees on other topics of interest.  Viewers can attend “Farm Office Live” online each month on Wednesday evening or Friday morning, or can catch a recording of each program. The full slate of offerings for this winter:

January 13th 7:00 – 8:30 pm

January 15th 10:00 – 11:30 am

February 10th 7:00 – 8:30 pm

February 12th 10:00 – 11:30 am

March 10th 7:00 – 8:30 pm

March 12th 10:00 – 11:30 am

April 7th 7:00 – 8:30 pm

April 9th 10:00 – 11:30 am

Topics to be addressed this winter include:

  • New COVID Related Legislation – Consolidated Appropriations Act, 2021
  • Outlook on Crop Input Costs and Profit Margins
  • Outlook on Cropland Values and Cash Rents
  • Outlook on Interest Rates
  • Tax Issues That May Impact Farm Businesses
  • Legal trends for 2021
  • Legislative updates
  • Farm business management and analysis updates
  • Farm succession & estate planning updates

Who’s on the Farm Office Team?  Our team features OSU experts ready to help you manage your farm office:

  • Peggy Kirk Hall — agricultural law
  • Dianne Shoemaker — farm business analysis and dairy production
  • David Marrison — farm management
  • Barry Ward — agricultural economics and tax

Register at  https://go.osu.edu/farmofficelive

We look forward to you joining us this winter!

Farm Management Needs Pulse Survey

The Ohio State University Extension Agriculture and Natural Resources program works to improve production and maximize profitability while promoting environmental stewardship.

We are reviewing our farm management resources and ask you to rank your “top 3” areas from the following list for your farm management needs and support wanted.

  1. Agricultural Finance: farm income, farm business analysis, financial management, budgeting, and investing, agricultural taxes, benchmarking, record keeping
  2. Agricultural Human Resources: farm succession planning, labor law and policy, human resource management/labor management, liability
  3. Agricultural Law: legal issues within the agriculture system and estate planning
  4. Agricultural Marketing: marketing and price analysis, commodity trading
  5. Agricultural Policy: Farm Bill/Agricultural Policy, environmental and resource policy agricultural trade
  6. Agricultural Production and Risk Management: risk evaluation and management, land use, crop and livestock production, crop and livestock insurance
  7. Agricultural Supply Chain Stability and New Market Access: stability of upstream and downstream supply chains during disruptions, identifying new markets
  8. Rural and Community Development: infrastructure – broadband access, community resources, health care, non-agricultural small business support; rural/urban interface

Please complete the survey at: https://go.osu.edu/FarmMgmtNeeds by December 18, 2020.

Thank you.

Dairy Risk Management Series Offers a Range of Important Information to Producers

By Ben Brown, Dianne Shoemaker and Chris Zoller

Offered in three sessions during November, OSU Extension, in partnership with the Ohio Dairy Producers Association, delivered a dairy risk management webinar series covering three important topics: milk pricing and producer price differentials, outlooks for domestic and international milk product markets, and dairy risk management tools. Slides and recordings for all presentations can be found at https://farmoffice.osu.edu/events/archived-videos.

Session one was presented by Mark Stephenson from the University of Wisconsin discussing milk pricing and producer price differentials. Due to COVID-19 disrupting supply chains and a change in the 2018 Farm Bill using the average of Class III and Class IV milk prices instead of the higher of the two to set Class I milk prices, Ohio dairy producers experienced several months of historically large negative producer price differentials. According to Dr. Stevenson, these negative PPDs could continue for a couple more months and producers need to be aware of these when making business planning decisions. Dr. Stephenson’s presentation can be found at https://studio.youtube.com/video/fpGfd5c0pi4/edit.

Session two highlighted domestic and international markets. William Loux from the U.S. Dairy Export Council started off the session with a presentation on dairy supply and demand outside the United States. International demand for US dairy products is up in 2020 driven primarily by China and the Middle East/ North Africa Region. Southeast Asia also saw large year over year increases in dairy product imports. Loux pointed out there are a couple things to watch for in the next couple of months: COVID-19 resurgence, Brexit and the ability to trade with England, and the subsidization of dairy exports by India. He concluded by saying it is a good sign that the US continues to export dairy products in strong numbers even with US dairy prices above world dairy prices. His session can be found at https://www.youtube.com/watch?v=fJsHMSkcHVc

Also in session two, Mike McCully from the McCully Group provided price expectations for US dairy markets over the next 12 months. Key points from his presentation included product specific outlooks with cheese prices being strong on solid demand, butter prices being extremely weak on burdensome supplies and milk prices being relatively stable. He continued that the outlook is mixed, with dairy markets having a bearish tone heading into the first quarter of 2021 on growing milk supplies and concerns over demand, but the second half of 2021 being more bullish given an expected reduction in milk supply growth and possible demand improvements. Mike’s full presentation can be found at https://www.youtube.com/watch?v=NAy6Xy-Nb7s&t=119s

Session three focused on risk management tools for dairy producers. OSU Extension Educator Chris Zoller provided an overview of USDA’s Dairy Margin Coverage program, which is authorized through the Farm Bill every year. Producers wishing to sign up for DMC need to contact their FSA office prior to December 11 to enroll for 2021. Chris’ presentation can be found here: https://www.youtube.com/watch?v=ZR_4SukNX2I&t=24s

Dr. Kenny Burdine, Associate Extension Professor, University of Kentucky, also presented during session three.  Dr. Burdine discussed Livestock Gross Margin Insurance- Dairy and gave a brief overview of using futures and options in milk price protection. Dr. Burdine suggested USDA’s Dairy Margin Coverage Program as the first level of protection for smaller producers, with Livestock Gross Margin Insurance- Dairy being the second level of protection. Kenny’s presentation can be found here: https://www.youtube.com/watch?v=PdjEijnDCMw

Session three concluded with a presentation by OSU Extension Educator Jason Hartschuh on Dairy Revenue Protection Insurance offered through the Risk Management Agency. Jason reviewed six decisions for dairy producers to consider and provided examples of how to use the program. Additional information about this topic can be found at dairy@osu.edu under Dairy Revenue Protection. Jason’s presentation from the webinar series can be found at https://www.youtube.com/watch?v=B38TVJkrlQU

For any additional questions or thoughts for future risk management webinars please reach out to Ben Brown at brown.6888@osu.edu, Dianne Shoemaker at shoemaker.3@osu.edu, Chris Zoller at zoller.1@osu.edu or your local OSU Extension Office.

Ohio Corn, Soybean and Wheat Enterprise Budgets – Projected Returns for 2021

by: Barry Ward, Leader, Production Business Management, College of Food, Agricultural and Environmental Sciences, Ohio State University Extension

Production costs for Ohio field crops are forecast to be slightly lower than last year with lower expenses for fertilizer, fuel and interest. Variable costs for corn in Ohio for 2021 are projected to range from $359 to $433 per acre depending on land productivity. Variable costs for 2021 Ohio soybeans are projected to range from $199 to $220 per acre. Wheat variable expenses for 2021 are projected to range from $162 to $191 per acre.

Grain prices currently used as assumptions in the 2021 crop enterprise budgets are $3.70/bushel for corn, $9.40/bushel for soybeans and $5.70/bushel for wheat. Projected returns above variable costs (contribution margin) range from $172 to $357 per acre for corn and $222 to $404 per acre for soybeans. Projected returns above variable costs for wheat range from $179 to $314 per acre.

Return to Land is a measure calculated to sometime assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $11 to $184 per acre in 2021 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $109 to $282 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $95 per acre to $222 per acre.

Total costs projected for trend line corn production in Ohio are estimated to be $761 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $75 per acre include depreciation, interest, insurance and housing. A land charge of $195 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $71 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.

Total costs projected for trend line soybean production in Ohio are estimated to be $522 per acre. (Fixed machinery costs: $59 per acre, land charge: $195 per acre, labor and management costs combined: $45 per acre.)

Total costs projected for trend line wheat production in Ohio are estimated to be $459 per acre. (Fixed machinery costs: $34 per acre, land charge: $195 per acre, labor and management costs combined: $43 per acre.)

Budget projections for commodity crops for 2021 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

 

 

 

 

 

Ohio Farm Custom Rates 2020 Released

by: Barry Ward, Leader, Production Business Management, OSU Extension, Agriculture and Natural Resources, John Barker, Extension Educator Agriculture/Amos Program, Ohio State University Extension Knox County and Eric Richer, Extension Educator Agriculture & Natural Resources, Ohio State University Extension Fulton County

Farming is a complex business and many Ohio farmers utilize outside assistance for specific farm-related work. This option is appealing for tasks requiring specialized equipment or technical expertise. Often, having someone else with specialized tools perform a task is more cost effective and saves time. Farm work completed by others is often referred to as “custom farm work” or more simply, “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.

Ohio Farm Custom Rates

This publication reports custom rates based on a statewide survey of 377 farmers, custom operators, farm managers, and landowners conducted in 2020. These rates, except where noted, include the implement and tractor if required, all variable machinery costs such as fuel, oil, lube, twine, etc., and the labor for the operation.

Some custom rates published in this study vary widely, possibly influenced by:

  • Type or size of equipment used (e.g. 20-shank chisel plow versus a 9-shank)
  • Size and shape of fields,
  • Condition of the crop (for harvesting operations)
  • Skill level of labor
  • Amount of labor needed in relation to the equipment capabilities
  • Cost margin differences for full-time custom operators compared to farmers supplementing current income

Some custom rates reflect discounted rates as the parties involved have family relationships or are strengthening a relationship to help secure the custom farmed land in a cash or other rental agreement. Some providers charge differently because they are simply attempting to spread their fixed costs over more acreage to decrease fixed costs per acre and are willing to forgo complete cost recovery.

The complete “Ohio Farm Custom Rates 2020” is available online at the Farm Office website:

https://farmoffice.osu.edu/farm-management-tools/custom-rates-and-machinery-costs

Farm Office Live Scheduled for October 7, 2020

Join the OSU Extension Farm Office team for discussions on the latest agricultural law and farm management news.  The next session will be held on October 7, 2020 8:00 – 9:30 a.m.

Farm Office Live will be back for a review of the latest on round two of the Coronavirus Food Assistance Program (CFAP), 2020 crop enterprise budgets, new custom rates and Western Ohio Cropland Values and Cash Rents survey summary, Ohio’s COVID-19 immunity legislation, and other current issues in farm management.

Join our experts for quick presentations and Q & A.   Go to https://farmoffice.osu.edu/farmofficelive  to register or view past webinars and PowerPoint slides.

 

Western Ohio Cropland Values and Cash Rents 2019-20

by: Barry Ward, Leader, Production Business Management, Director, OSU Income Tax Schools, College of Food, Agricultural and Environmental Sciences, OSU Extension

Ohio cropland varies significantly in its production capabilities and, consequently, cropland values and cash rents vary widely throughout the state. Generally speaking, western Ohio cropland values and cash rents differ from much of eastern Ohio and parts of southern Ohio cropland values and cash rents. The primary factors affecting these values and rates are land productivity and potential crop return, and the variability of those crop returns. Soils and drainage capabilities are the two factors that heavily influence land productivity, crop return and variability of those crop returns.

Other factors impacting land values and cash rents may include buildings and grain storage, field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, previous tillage system and crops, tolerant/resistant weed populations, population density, USDA Program Yields, and competition for the cropland in a region. Ultimately, supply and demand of cropland will determine the value or rental rate for each parcel.

The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2020. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

The study results are based on 167 surveys. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class.

According to the Western Ohio Cropland Values and Cash Rents Survey, cropland values in western Ohio are expected to decline slightly in 2020 by 1.5 to 2.6 percent depending on the region and land class. Cash rents are expected to be flat to slightly lower decreasing from 0.7 to 2.0 percent depending on the region and land class.

For the complete survey research summary go to the OSU Extension FarmOffice website at:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

 

Planning to Open Agritourism for Fall and Christmas Seasons

by: Eric Barrett, Rob Leeds, Peggy Hall, Dee Jepsen, Lisa Pfeifer & Brad Bergefurd

In big or small ways, COVID-19 has impacted aspects of farming and agribusiness. Safety, health, and wellness have become necessary concerns for all farm operations. Inviting the public to an agricultural operation for activities requires farm businesses to take additional safety measures for employees and customers. Agritourism is unique in that the activities offered by farms are enjoyed by the greater community in a managed, mostly outdoor environment.

Beyond agriculture, the pandemic has been especially difficult for businesses that focus on entertainment and related activities where large groups of people congregate. To the public, agritourism may seem similar to fairs and festivals. But agritourism is quite different. Agritourism farms are operated over a series of weeks and even months. Many have been operating pick-your-own activities and farm market/produce stands throughout the pandemic. Agritourism farms engage in emergency planning (i.e. – u.osu.edu/agritourismready). These farms are well staffed and have adopted effective tools over the years to manage all types of customer situations. Their livelihood depends on their ability to manage crowds and keep customers safe.

Agritourism operations need to go above and beyond to plan for safe operations of their farms during the pandemic. This is not only important for public safety; it is important for the future of the farm business. Additionally, customers may see well-planned safety measures as a reason to visit the farm during these challenging times.

As operations begin putting together COVID-19 safety plans for their fall and Christmas seasons it is important that the farm communicates and develops a working relationship with the local health department. The local health department is the entity that is charged with protecting the health of the community and ensuring that the standards outlined in the Responsible RestartOhio orders are met. When making the first call to the local health department, farms should have an outline prepared for the preliminary discussion. For Example, be able to explain What activities will happen, and the plan for disinfecting high touch areas of the farm. Some preliminary guidance is available that relates to agritourism farms. This includes:

Consumer, Retail, Services and Entertainment

https://coronavirus.ohio.gov/static/responsible/Consumer-Retail-Services.pdf

Restaurants, Bars, and Banquet & Catering Facilities/Services

https://coronavirus.ohio.gov/static/responsible/Restaurants-and-Bars.pdf

Ohio K-12 Schools (As it relates to operating school tours)

https://coronavirus.ohio.gov/static/responsible/schools/K-12-Schools-Guidance.pdf

Child Care (As it relates to operating school tours)

https://coronavirus.ohio.gov/static/responsible/Sector-fact-sheet-8-Child-Care.pdf

Local departments may also have additional resources and insights that will help put together a plan to allow farms to keep their guests safe and address situations that may arise during the season. The earlier you can meet with them the more help they can provide. Help them get familiar with your operation and how its operated. Talk to them about keeping your guests safe while sustaining the farm. This year our guests will be looking for fun and safe activities, working with our local partners will be one way we can show our commitment to safety.

OSU Extension Bulletin Forthcoming

OSU Extension has prepared a guidance bulletin to help farms develop their plans. The guide is based on publications from the state of Ohio, the CDC and others. The guide is in the final stage of the approval process and will be available in the coming days. This guide can be used to develop opening plans or update existing plans for agritourism operations.

The guidance bulletin will be posted here on the Ohio Ag Manager website. To watch for updates on the guide, we encourage farms to subscribe to our Ohio Ag Manager Blog at http://ohioagmanager.osu.edu/

 

 

 

Evaluating Ohio Yield Possibilities for 2019 Agricultural Risk Coverage County Level Payment Rates

By Ben Brown, Department of Agricultural, Environmental and Development Economics, The Ohio State University- August 10, 2020

Click here to read PDF version of article

The Agricultural Adjustment Act of 2018 (2018 Farm Bill) made minor structural changes to both the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs in relation to the Agricultural Adjustment Act of 2014 (2014 Farm Bill). However, one of the nonstructural changes made in the 2018 Farm Bill adjusts the primary yield sources in creating Farm Service Agency (FSA) yields for the ARC-County program. Starting with the 2019 program year, which runs from September 1, 2019- August 31, 2020 for corn and soybeans and June 1, 2019- May 31, 2020 for wheat, Risk Management Agency (RMA) yield data is the preferred data source in a cascading formula for FSA county yields, whereas National Agricultural Statistics Service (NASS) data previously severed as the primary source. Realizing FSA reserves the right to adjust county yields, area-based RMA yields can only estimate, not predict, final FSA county yields. This article reviews RMA area-based reported yields for the 2019 crop year in Ohio and compares them to county-based NASS survey yields released February 21, 2020.

Cascading Yield Preference

Considerable debate during the passage of the 2018 Farm Bill related to accuracy of county-based yields and yield differences between county yields for the ARC-County commodity program. FSA is authorized to make commodity program payments, but uses external agency yield data to create ARC-County yields. While both RMA and NASS report county-based yields, NASS yields are based on voluntary farmer-reported survey results, whereas, RMA county yields are based on farmer certified yields as completion of crop insurance contracts. Fraudulent crop insurance reporting is subject to criminal liability. Legislators perceive RMA data to be more accurate even though there is no statistical difference between the two data sets. After years of using NASS yields as a primary data source for FSA yields, Congress mandated FSA to use RMA yields. FSA holds the right to adjust RMA yields before setting 2019 ARC-County yields.

Two scenarios where FSA may adjust RMA yields before certifying county yields:

  • there is a low number of insured acres in a county for the respective crop overweighting county yields on few acres and
  • counties where RMA insured yields are significantly different than NASS reported survey yields.

Table 1. Cascading Method for Certified FSA Yields.

2014 Farm Bill 2018 Farm Bill
1.     National Agricultural Statistics Service 1.     Risk Management Agency
2.     Risk Management Agency 2.     National Agricultural Statistics Service
3.     State Farm Service Agency Committee 3.     State Farm Service Agency Committee

RMA and NASS yield data comprises approximately 90% of the historical base acres enrolled in ARC-County. The State FSA Committee uses any available data for the remaining 10%.

Area RMA Yields and Blended Irrigated and Non-irrigated Yields

Not all insured acres in a county for a specific crop are used to calculate county yields, as not all individual policies trigger an insurance claim. Yields are captured for area-based insurance policies to calculate potential revenue or yield policy indemnities. Area policies are not as popular as individual policies across the country, but policy participation varies. This study uses Supplemental Coverage Option yield data as the assumed RMA data source. Area-based RMA policies are also released by practice (organic, irrigated, following another crop, and others). The 2018 Farm Bill adjusted the ARC program by authorizing specific counties to have both irrigated and non- irrigated ARC-County eligible payments. For counties with one combined ARC payment rate a blended yield is used by weighting the share of acres in each practice. Figures 1, 3, and 5 illustrate the blended yield per county for Ohio. Figures 2, 4, 6 illustrate the percent change between RMA SCO yields and NASS survey yields. Shaded counties have NASS yields larger than one standard deviation either positive or negative.

 

According to RMA, Clinton County had the highest area yield at 193 bushels per acre, whereas Carroll County had the lowest area yield at 95 bushels per acre. NASS estimated the state corn yield to be 164 bushels per acre. Corn irrigation is a relatively minimal practice in Ohio compared to other corn producing states. Four Ohio counties do have both an irrigated and non-irrigated ARC- County payment: Champaign, Pickaway, Ross, and Williams. For 2019, there was no reported difference between irrigated and non-irrigated yields in any of the four counties.

 

Figure 2. illustrates percent change of NASS survey yields from RMA reported yields. Thirteen out of sixty-eight counties were greater than one standard deviation. Red and purple shadded counties are where RMA and NASS were noticably different in yield reports. These thirteen counties have the greatest likelihood of being adjusted before FSA certifies the county yield.

For soybeans, there were three counties where RMA did not have either insured soybean acres or enough data points to protect producer identification: Belmont, Monroe, and Noble. Clinton County had the highest soybean yield at 59 bushels/acre, where Coshocton had the lowest at 31 bushel/acre. Eleven Ohio counties receive sepearte ARC-County payment rates by practice- Allen, Auglaize, Champaign, Hardin, Putnam, Seneca, Shelby, Union, Van Wert, Williams, and Wyandott. Only four had different irrigated and non-irrigated yields as represented by Table 2.

Table 2. Irrigated and Non-irrigated Soybean Yields (bushels per acre).

Practice Champaign Union Williams Wyandot
     Irrigated 53 49 56 49
     Non-irrigated 44 43 50 47
         
         

 

Figure 4. illustrates percent change of NASS survey yields from RMA reported yields. Grey shaded counties are counties were either NASS or RMA data was missing. Since, NASS yields are derived from a voluntary producer survey, a certain number of responses are required to generate an appropriate sample size. Frequent rains during the spring of 2019 delayed planting in parts of Ohio and some counties that normally have NASS soybean yields did not have enough observations to calculate a NASS yield, represented in Figure 4 by grey shading. Eleven Ohio counties had a NASS value that was greater than one standard deviation from the corresponding RMA yield. Most notable were Lawrence where the reported SCO RMA yield was 50 bu./acre and a NASS survey yield of 35 bu./acre for a deviation of almost 45%. Conversely, Coshocton County had an RMA yield of 31 bu./acre, but a NASS yield of 45 bu./acre and a nearly a 31% deviation.

Seventy-six Ohio counties had a reported RMA wheat yield in comparison to fifty-eight with NASS survey yields. Wheat yields were highest in Southwest and South Central Ohio and weakest in Northeast Ohio. Although, Fulton County in Northwest Ohio had the stronger wheat yield at nearly 70 bu./acre. Medina County had the smaller wheat yield at almost 28 bu./acre.  Ohio does not have any counties with both an irrigated and non-irrigated wehat ARC-County payment.

 

In comparison to corn and soybeans, wheat had the largest amount of Ohio counties where the NASS survey yield was outside one standard deviation at twenty-six counties and the largest percent deviations (Figure 6). It is likely the largest number of county adjustments to certified FSA yields will be for wheat. The majority of counties indicate NASS wheat yields are higher compared to RMA reported yields, foreshadowing a greater change of triggering ARC-county payments.

Conclusion

Final FSA yields and corresponding ARC-County payment rates will not be released to the public for several more weeks. However, the cascading yield discovery method established in the 2018 Farm Bill identifies RMA reported area yields as the first source for FSA county data. Using SCO area yields and weighting by share of irrigated and non-irrigated acres should be a good indication of FSA certified yields expected to be released in October. FSA does hold the right to adjust yields using other available data. Counties with a deviation greater than one standard deviation in NASS survey yields and RMA reported yields will be the most likely candidates for adjustments. County wheat yields are more likely to be adjusted than corn and soybeans.

References

United States Department of Agriculture- Farm Service Agency. “Agriculture Risk Coverage and Price Loss Coverage Program Handbook.” Page 5-131. October 28, 2019. https://www.fsa.usda.gov/Internet/FSA_File/1-arcplc_r01_a03.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Corn County Estimates 2019.” February 21, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_OH_corn_CE.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Soybean County Estimates 2019.” February 21, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_OH_soy_CE.pdf

United States Department of Agriculture- National Agricultural Statistics Service. “Ohio Wheat County Estimates 2019.” December 12, 2020. https://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/2019/2019_CE_Wheat_Ohio.pdf

United States Department of Agriculture- Risk Management Agency. “2019 County Supplemental Coverage Option Yields.” July 15, 2020. https://webapp.rma.usda.gov/apps/RIRS/SCOYieldsRevenuesPaymentIndicators.aspx