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HADDONFIELD, N.J. (DTN) -- Which farm program option farmers choose under the 2014 Farm Act will be a split decision, largely along commodity lines, land grant university economists are finding.
Growers and their landlords will have a one-time chance to commit to a farm program option, and that decision will be in force through the life of the five-year law. Fortunately, it will take USDA months to write regulations, so analysts believe farmers have until at least June to bone up on the alternatives and school their landlords on the specifics.
Preliminary analysis shows wheat country is likely to opt for Price Loss Coverage (PLC) -- the version similar to the traditional Counter Cyclical Program with fixed price guarantees, said Kansas State University economist Art Barnaby in a webinar Friday.
Because wheat growers generally buy only 70% coverage on their federal crop insurance, they would also benefit from eligibility to buy subsidized Supplemental Coverage Option (SCO) insurance, effectively filling the "gap" on some of their revenue losses. PLC should trigger with normal wheat yields and when prices hit $5.50, he said. ARC's 2014 trigger is only 11 cents higher at $5.61.
In contrast, both Barnaby and economists at the University of Illinois conclude that Midwest corn growers will likely gravitate toward the Agriculture Risk Coverage (ARC) plan with county coverage. ARC kicks in at much higher price levels than PLC would and closer to levels land grant economists expect over the next few years.
By Barnaby's count, ARC's effective price trigger in 2014-15 will be $4.54 corn (after payment is reduced 14% on base acres) versus $3.70 on PLC. Both Kansas State and University of Illinois economists agree that county-level coverage ARC has more merits than tying coverage to individual farm results because it allows payments on 85% of base acres, versus only 65% with farm-level ARC coverage. Plus the choice of county coverage allows farmers to select which programs fit their crop mix best. With ARC at the individual farm level, all of a farmer's commodities must elect the same program, not an a la carte approach.
One theoretical downside is that ARC coverage is ineligible for SCO insurance, but since most Midwesterners already buy 80% or 85% crop insurance coverage at relatively reasonable premiums, that's a moot point, Barnaby said. "If you're buying crop insurance at 80% or greater, there's no advantage to SCO."
Barnaby contends that ARC works so well for corn that "only bears who believe season-average corn prices will dive to $3.30 or below" will favor PLC over ARC. The doom-and-gloom scenario got some credence at last week's Outlook conference when USDA estimated season average prices for corn at $3.65 in 2014-15 and $3.30 to $3.60 between 2015-2018 crops. However, Barnaby said "almost no one believes USDA's numbers." When prices drop that low, he argued, it stimulates additional corn demand and cures the problem, so he advised growers not be too pessimistic in assumptions about future prices.
Jonathan Coppess and Nick Paulson, University of Illinois economists writing on Farmdoc.com last week, also emphasized that the choice of ARC or PLC hinges on price expectations. "If multi-year average prices for corn are expected to be over $3.70 over the next five years, ARC will provide better protection since PLC will never trigger payments," they wrote. "If prices are expected to be very low, averaging less than $3, PLC will provide better support." Corn prices between $3 and $3.70 are more of a toss-up.