Iowa’s two U.S. senators last week questioned the factors behind the wide county-to-county variation on safety net payments for farmers in the popular Agriculture Risk Coverage County (ARC-CO) program in the 2014 farm bill.

In a letter to U.S. Agriculture Secretary Tom Vilsack, Sens. Charles Grassley and Joni Ernst said farmers around Iowa are looking for clarification about how the county yield data and other factors are being used to set ARC-CO program payments.

"We recognize counties are different sizes, which can affect how well the crops in a county correlate to the county average yield," Grassley and Ernst wrote. "However, legitimate questions have been raised about the significant payment disparity that has occurred between adjacent counties in certain areas throughout the country."

Ernst added that concerns about the wide variations in ARC-CO payments have come up often in her visits with Iowa farmers.

Key part of safety net

The ARC-CO program was by far the most popular option for Iowa farmers during the farm bill sign-up period in early 2015. Iowa farmers enrolled 97 percent of their corn acres and 98 percent of their soybean acres in the ARC-CO program. Those enrollments are locked in through 2018.

The ARC-CO program is de­­signed to pay farmers when revenue declines below specified levels whether from low yield or low price.

ARC-CO payments are det­er­mined by a county’s average yield, as calculated by the USDA’s National Agricultural Statistics Service (NASS), and national marketing-year average prices.

The average yield and price is calculated on a so-called Olympic average yield of the county’s past five harvests. In that calculation, the highest and lowest yearly averages are tossed out. The remaining three years are then averaged to develop the yield and price used in the payment calculation.

To make the payment calculation, the five-year Olympic-average yield is then multiplied by average price, also determined by an Olympic average system of average crop prices over the past five years.

An ARC-CO payment is made if the current year’s revenue falls below 86 percent of the reference revenue and is limited to a maximum of 10 percent of the reference revenue for the county.

The U.S. Department of Agri­culture (USDA) made the first ARC-CO corn and soybean payments in October 2015 for the crops harvested in the fall of 2014.

Those payments, as Grassley and Ernst noted, varied widely between counties in Iowa, and often between neighboring counties. They cited Calhoun County in northwest Iowa as a good example.

The ARC-CO program paid farmers in Calhoun County approximately $23 per acre for corn for the 2014-15 crop year. That was far less than the $89 per acre paid in neighboring Sac County, which borders Calhoun to the west. Farmers in other neighboring counties also got much higher corn ARC-CO payments than those in Calhoun, including $92 in Pocahontas County, $76 in Carroll County, $75 in Greene County and $47 in Webster County.

Calhoun County is not alone. Maps show wide variations in corn and soybean ARC-CO payments between bordering Iowa counties.

The county-to-county differences stem from variations in average yields from year-to-year in a county, as well as how the five-year Olympic average yield is calculated, said Dave Miller, Iowa Farm Bureau Federation’s director of research and commodity services.

"The variations often show up because of the relatively short period used in the calculation," Miller said. "Added to that, the use of the Olympic average means that neighboring counties are often using different years to calculate their average yield," he said.

Along with asking for clarification on the methodology of calculating payments, the Iowa senators asked Vilsack if anything prevents the USDA from using county yield data from other sources, such as the USDA’s Risk Management Agency, which manages the federal crop insurance program.