Minding Ag's Business

Cardinal Rules for ARC-PLC Choice

How much farm program options pay varies by crop, USDA's actual national average season price and (in the case of ARC-County) your county's yields. But based on December price forecasts, OSU Economist Carl Zulauf gave corn, peanuts, long-grain rice, sorghum and perhaps wheat hope for 2014 payments.

The great unknown of commodity prices and county yields five years into the future make simplifying farm program choices under the Farm Act of 2014 hazardous to your wallet. Ag economists stress that every farm is unique, but identify several guidelines to consider when you make elections for the 2014-2018 crops. Signup ends at your Farm Service Agency office March 31:

Do you value front-loaded payments? Reference prices for Price Loss Coverage (PLC ) are set low enough to trigger potentially large 2014 payments for peanuts, long-grain rice and sorghum (see chart), so growers of those commodities may lean toward PLC. Corn favors large payments for Agriculture Risk Coverage (ARC)-County, if local yields run average or below average.

How does your county stack up? Analysis by Economist Gary Schnitkey and colleagues from the University of Illinois and Ohio State University tested whether ARC-County paid more than PLC using multiple long-term price scenarios.

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For soybeans, 100% of the counties fared better with ARC-County and 75%-99% of the counties with corn over the five-year period. Almost 100% of the counties where peanuts, canola, barley, flax, sunflowers and grain sorghum were grown fared better with PLC (see details at Farmdoc Daily http://farmdocdaily.illinois.edu/…).

How low do you think prices could go? No one knows with certainty whether ARC or PLC will pay more over this five-year period for other commodities. The most important rule of thumb is that ARC-County will out gun PLC as long as USDA's marketing year average price for corn runs over $3.30, soybeans over $7.80 and wheat over $5.50, Schnitkey emphasized in an Illinois Corn Grower-sponsored webinar this week.. Below those thresholds, PLC reigns. So your choice depends on how bearish you are about future prices.

Do your personal yields mirror the county? Large counties with wide ranges in topography and soil types can mean wide variations in individual yields. If you farm hilly, thin soils but your county is dominated by black earth, PLC may be a better choice.

Do you expect bumper yields to negate ARC?County yields (plus price) influence your ARC-County payments, while price is the only trigger for PLC. For 2014, that means 12 states might trigger ARC-County wheat payments, including Washington ($37/acre), Oregon ($32/acre), Kansas ($21/acre) and Texas ($2/acre), according to University of Illinois and Ohio State analysis. But those with bumper yields score big zeros.

Likewise, growers in eight of 41 corn states--including Kansas and Missouri--aren't likely to trigger ARC-county payments in 2014 even though prices are depressed. Big 2014 Illinois harvests (199 bu. average) could slash the state's prospective 2014 ARC-County payments to $6/acre while neighboring Iowa (177 bu. average) and Minnesota collect $74/acre. See Farmdoc Daily posting at http://farmdocdaily.illinois.edu/….

Actual county yields and USDA's March crop report should help you gauge with clarity which program will pay more on 2014 crops, but you'll need to make educated guesses about the next four years. To test your individual farms, go to http://www.fsa.usda.gov/…

Follow me on Twitter@MarciaZTaylor

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