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University analysis favors ARC option on this year’s corn crop

 

By TIM ALEXANDER

Illinois Correspondent

 

URBANA, Ill. — A hot topic at this year’s Agronomy Day at the University of Illinois-Urbana was the upcoming decision farmers will be forced to make regarding crop safety net options under the 2014 Farm Bill.

Those who fail to choose between Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC) will automatically be entered into PLC for Farm Service Agency (FSA) farms. Farmers will soon receive a letter from the USDA listing acreage and commodities on their farms, signaling the first stage leading to what will likely be an extended signup period for the programs that will last into next spring.

Those choosing between the two programs or electing the default PLC option will be locked into their crop safety net decisions through 2018, when the farm bill expires, according to Jon Coppess, clinical professor of law and policy for the U of I Department of Agricultural and Consumer Economics.

ARC is triggered by revenue losses based on either individual or county five-year Olympic average yield estimates (meaning the top and bottom years are dropped from the yield calculation). If farmers elect county yields, inputs are based on 85 percent of base acreage; the individual option returns 65 percent.

PLC is price-triggered, returning payments when prices are below the five-year Olympic average.

"In what currently looks like a low-price, low-revenue year, payments by these two programs could be important for the financial health of the farm," said Carl Zulauf, ag economist for the U of I Department of Agricultural, Environmental and Developmental Economics.

"After a number of years of high revenue and prices, farmers are in the process of rediscovering that the farm safety net involves commodity programs as well as crop insurance."

Along with Coppess, Zulauf has been crisscrossing the Corn Belt educating producers on the new crop insurance options in the farm bill. The pair will travel to the Farm Science Review in London, Ohio, on Sept. 16 for a 2 p.m. presentation at the vice president’s tent.

For the current crop year, it appears corn growers would be better off electing PLC, according to a new farmdoc article by Zulauf and fellow U of I ag economist Gary Schnitkey. Their study uses the recently-released U.S. yield and price estimates in the August World Agricultural Supply and Demand Estimates (WASDE) report to determine an indicator of potential payments under ARC and PLC.

The paper also estimates average payments for the 2014 crop year for barley, oats, long grain rice, medium and short grain rice, sorghum, soybeans and wheat.

Under ARC’s county yield estimate program and using the midpoint of the WASDE price ranges for the year, corn growers would realize a $41 per-acre payment. Sorghum producers would receive $3 per acre, as per calculations made on Aug. 12.

"PLC payments are indicated for barley, long grain rice and sorghum," according to the paper. "The highest indicated payment is long grain rice from PLC at $90 per acre, with the second-highest being corn from ARC (county)."

When the low price on the range of WASDE crop year prices is calculated, only medium and short rice grain and soybeans return no projected payments. Long grain rice would pay $120 per acre under PLC, and a payment of $79 per acre for corn would be generated under ARC-county under the low price range scenario, according to the U of I economists.

Coppess warned if corn prices continue their downward trend, the Olympic five-year average will fall, creating lower payments to farmers under ARC-county.

Farmers might want to visit the USDA-FSA ARC/PLC Programs website at www.fas.usda.gov before making a final decision on their crop insurance.

The website offers descriptive materials and data for producers to better understand program eligibility, how program payments are calculated and choices to be made.

Producers can learn about the base reallocation options with a "base reallocation tool," and find yield update links on the USDA-FSA site. They will have to declare their program choice during December and enroll in the spring, according to Informa Economics’ Jim Wiesemeyer.

Zulauf’s and Schnitkey’s report can be accessed online at www.farmdocdaily.illinois.edu/006396print.html

8/20/2014