Minding Ag's Business

Designers of both the University of Illinois and Texas A&M farm bill simulators have been swamped with the question: How can they project any Price Loss Coverage (PLC) payments in any year corn averages $4? By law PLC only triggers when marketing-year prices average $3.70 or less. It's not an error in their complex FSA-approved computer calculations, directors at both universities assured me (see "Farm Programs Dueling Computers" on the Farm Business page http://www.dtnprogressivefarmer.com/…). Unlike simple Excel spreadsheets, the Texas and Illinois programmers use a range of random prices to assess your best farm program choice and come up with probabilities of payments under either PLC or Agricultural Risk Coverage (ARC). Texas A&M automatically inputs 500 prices based on historic variability since 1982.

Texas A&M Agriculture and Food Policy Center's James Richardson estimated the odds of PLC payments by commodity, even when growers assumed an average price above the legal trigger thresholds. For example, there's a 38% chance of a PLC payment at $9 soybeans, even though PLC doesn't trigger until $8.40, he said.

In any year where you think prices will average $4 corn, there's actually about a 40% probability that prices could actually dip to $3.70 or below, both Texas A&M and Illinois agree. However, since the Texas A&M model bases its recommendations on slightly lower prices, its PLC payments could be a bit higher than Illinois.That's an honest difference in methodology, not an error.

Ken Sobaski, who farms land in three counties in southeastern Iowa, is a bit bewildered by various recommendations he's tested at Texas A&M, University of Illinois and Iowa State University. "In the end, you have to make the decision on what you value most," Sobaski reasons. "Do you want price protection in case the bottom falls out of markets? That's PLC. Or do you want to make the most amount of money in the first few years, which ARC can do for corn?"

Note: Join DTN for a free webinar March 12 for a last-minute analysis of your farm program options. Guest speakers Gary Schnitkey and Jonathan Coppess from the University of Illinois and Keith Coble from Mississippi State University will share strategies based on newly released county average yields and USDA's 2014 crop price outlook. For details and registration go to http://tinyurl.com/…

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