Market Year Average Prices and the Farm Bill

 

Both the Price Loss Coverage Option (PLC) and the Agricultural Risk Coverage Option (ARC) rely on a USDA average price known as the Season Average, or Market Year Average (MYA), Price.  This price has a lot of influence in the determination of a payment.  USDA has created and reported this price for many years, so it is well established.  It is important for farm bill commodity program participants to understand that their farm bill payments will not be based upon their actual prices received, or on the prices reported in the futures markets.

This MYA price is an annual administrative price that relies on many data points from key states and historical prices.  The MYA price is intended to represent the average price received by farmers at the point of first sale.  The MYA price will play a role in determining whether or not a payment is made in both the PLC and ARC-county programs.

In the case of the PLC payment determination, when the annual average (MYA) price falls below the statutory reference prices, a payment will be made.  The per-bushel reference prices set in law for PLC are as follows: Corn $3.70; Soybeans $8.40; Grain sorghum $3.95; and Wheat $5.50.  Payments are based on the difference between the reference price and the MYA price (if MYA is below the reference price and triggers a payment). That per-acre revenue difference is then multiplied by either the existing counter-cyclical yield, or the updated historical yield, on 85% of the crop’s base acres to determine the payment.  The PLC relies on the farm’s yield history that FSA has on record.  The ARC County payments do not rely on the farm’s historic FSA yield.

“In the case of the ARC county option, the MYA price will be multiplied by the USDA-FSA county level yields across the last five years to begin that payment determination.  This yield is not the existing or historical yield for the farm.  In this program, the high and low county-level prices and yields within the five year period will be dropped out.  The remaining 3 years of yields and MYA prices are averaged to create 5-year, Olympic averages.  Revenue is calculated from the price and yield Olympic averages.  Once this new revenue is reduced to 86 percent, the ARC County revenue guarantee is established.  An ARC County payment will be made when the current program year revenue falls below the benchmark revenue.  The program payments are limited to a maximum of 10 percent of this benchmark revenue.  This is then applied to 85% of the base acres.”

Because this price concept is very important, USDA, FSA has posted recent MYA prices for all program crops on their website at http://www.fsa.usda.gov/Internet/FSA_File/2014_mya.pdf.

In addition, Iowa State University Economist, Chad Hart has written a very easy to understand article on how these administrative prices are calculated.  The article, from July 2014, is entitled USDA’s Season-Average Commodity Prices and can be found on the internet at http://www.extension.iastate.edu/agdm/crops/html/a2-15.html.

If you have any questions, feel free to contact me, Mark Jenner, at (660) 679-4167 or jennermw@missouri.edu, or your local MU Extension ag business specialist.

Source: Mark Jenner, Ag Business Specialist