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Corn+Soybean Digest

Farm Bill decisions: ARC, PLC, 5-year choices

Farmers and landowners will be locked into five-year choice.

Ken McCauley believes the new Farm Bill’s commodity support programs provide his Kansas farm a good safety net. But like most growers he wants more information on farm-bill provisions still being finalized by USDA.

“The new ARC (Agriculture Risk Coverage) is designed similar to what we had in the previous farm bill that included ACRE,” says McCauley, White Cloud, Kan. “ACRE was a good program that paid off for us last year.”

Tony Anderson, southwestern Ohio corn and soybean grower, says he will likely select the program that works best with crop insurance. “For our situation, crop insurance will continue to be a big product for us,” he says.

University ag economists and USDA are holding workshops to better acquaint farmers with ARC, Price Loss Coverage (PLC) and other new support programs.

The new programs take the place of Direct Payments, ACRE and SURE, says Jonathan Coppess, University of Illinois Extension law and policy specialist. Marketing loan assistance programs continue for grains. Operators will face a $125,000 payment limitation per person for most crops.

Five-year decision

Coppess says not only will farmers and landowners be locked into their ARC or PLC decisions for five years, “if growers don’t make a program choice, they will default into the PLC program in 2015.”

Payments will still be made based on a farm’s total base acres. Farm owners may retain their current base acre allocation across program crops. They may also reallocate base acres, based on proportion of planted and prevent planted acres in 2009 to 2012 years, Coppess says.

In PLC, the program is triggered when the Market Year Average (MYA) price is below the designated crop Reference Price of $3.70 for corn and $8.40 for soybeans. For MYA 2014, that means the average price from the beginning of the marketing year on Sept. 1 through Aug. 31, 2015. The PLC payment rate equals the reference price multiplied by the payment yield and 85% of the crop’s base acres.

price loss coverage farm programIn this example, PLC is triggered when the MYA price is below the designated crop Reference Price of $3.70 for corn (it is $8.40 for soybeans). For MYA 2014, it’s the average price from Sept. 1 through Aug. 31, 2015. The PLC payment rate equals the reference price multiplied by the payment yield and 85% of the crop’s 100 base acres, or $1,913 in total payments.

Graphic Courtesy Jonathan Coppess, U of IL.

Agricultural Risk Coverage program

For county ARC, payment is based on the 5-year Olympic average yields, where the highest and lowest yields are thrown out of the equation. Average yields are multiplied by the average Olympic price, again with the highest and lowest prices removed.

The result is a benchmark revenue, Coppess says. ARC provides a guarantee of 86% of the benchmark. When actual revenue is below the benchmark, the guarantee cannot exceed 10% of the benchmark revenue. Then, payment is made based on 85% of base acres. 

agricultural risk coverage

This example looks at county ARC usage in McLean County, Ill.  ARC payments are based on 5-year Olympic average yields and prices. Multiplied, they produce a “benchmark revenue.” Payment is made on 85% of base acres. When actual revenue is below benchmark, the guarantee may not exceed 10% of the benchmark revenue.

Graphic courtesy Jonathan Coppess, U. of IL. 

Individual ARC operates on the sum of all covered crops on all farms enrolled, Coppess says. Calculations are based on the grower’s share of production on all farms in the state enrolled in individual ARC. “Crop-year planted acres determine the weights used to calculate the actual and benchmark revenue,” he says. “Payments are made on 65% of base acres for all program crops on the farm.”

Carl Zulauf, Ohio State University ag economist, says ARC establishes a revenue target. “But this target will change with the market, although a floor exists on the revenue target due to the reference price being the minimum price for any year in the Olympic average,” he says.

“More importantly, the ARC coverage range is 10%, so its payments are capped on a per-acre basis. It does not lock in revenue, although it does help manage revenue risk.”

SCO and crop insurance

Farmers who sign up a commodity for PLC will then get the option of buying Supplemental Coverage Option insurance (SCO) for that commodity starting in 2015, Zulauf says. “SCO is also available to farms not signed up for either (PLC or ARC),” he adds. “It is not available to farms that elect ARC.”

McCauley, his wife and son operate two separate farms, totaling about 2,300 acres each, plans to use the county (formerly called Enterprise) ARC program. “It’s similar to what we had in the past, minus direct payments,” he says. “I think it will provide good coverage. That’s the big picture.”

He hasn’t decided whether to reallocate his base acres. “We’ve been heavy on corn and got rid of our wheat base,” he says. “We may reallocate if something jumps out, but our area has been consistently 50% or higher on corn.”

 Anderson’s farm rotation is corn, soybeans and wheat on 2,500-3,000 acres. He says his program decisions favor assuring the farm works to enhance its conservation compliance. The new farm bill requires producers who purchase subsidized crop insurance policies to meet federal conservation compliance policies, similar to other participation in farm programs.

Anderson looks to get the best use of crop insurance on mostly rented land. “Crop insurance and the risk avoidance aspect will be the area I use the most,” he says. “We have shallow soils. No matter how much it rains, we can be in a near drought situation in six to seven days.”

He may lean toward PLC because of SCO availability. “We’re on a lot of rented ground. It was a challenge to use ACRE because it asked me to engage in a program landowners may not have liked. We respect the rights of landowners to do as they see fit, so we’re hesitant to go in the direction of locking a program in for a long time.”

Coppess says that in analyzing the PLC and ARC programs, and presuming trend yields for corn and soybeans, “the county ARC in 2014 would reach the cap in most Midwestern counties at prices well above the reference prices but below USDA’s projected prices. Individual ARC payments likely smaller than county ARC payments.”

Zulauf says the individual ARC may be most attractive to farmers who farm in a highly variable production environment and their farming environment is not similar to the county in which they farm.

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