Commodity programs update

As you likely know, there are many changes afoot in the commodity programs.  Direct payments and ACRE are being replaced by two new programs: price loss coverage (PLC) and agricultural risk coverage (ARC).  Note that ARC can be a county revenue program (county ARC) or an individual farm revenue program (individual ARC) and differences between the two will be discussed more fully below.

You have a one-time opportunity to make an election in 2014.  The election will cover the 2014 through 2018 crop years.  If an election is not made, a producer will be automatically enrolled in PLC.

This post will discuss some commonalities between the programs and then the differences.

Commonalities:

Base acres are used for PLC, county ARC, and individual ARC.  Producers will have a one-time opportunity to retain current base acres or reallocate their base acres based upon production from 2009 to 2012.  If reallocation is selected, base acres will be in proportion to the four-year average of acres planted to the covered commodity, including prevented planting acres.  However, reallocation cannot result in an overall increase in base acres.

Differences:

Price Loss Coverage:

Price Loss Coverage (PLC) is, at its heart, a price program.  If an election is not made, a producer will automatically be enrolled in PLC.

PLC is coverage on a crop-by-crop basis.  Payments will be made if the U.S. average market price for the crop year is less than the crop’s reference price.  Relevant reference prices include:

  • Wheat: $5.50/bushel
  • Corn: $3.70/bushel
  • Grain Sorghum: $3.95/bushel
  • Barley: $4.95/bushel
  • Oats: $2.40/bushel
  • Soybeans: $8.40/bushel

Payments are 85% of the farm’s base acres for the covered commodity.  Finally, the payment yield may be updated to 90% of the farm’s average planted yield over the 2008 to 2012 crop years.

County ARC:

Like PLC, county ARC is on a crop-by-crop basis.  Payments occur when the actual crop revenue is below the ARC revenue guarantee for a crop year.  The revenue guarantee is calculated by multiplying the average county yield for the commodity in the current crop year by the higher of the marketing year average for the commodity or the commodity’s loan rate.

Payments are made on 85% of base acres.   How is the revenue guarantee calculated?  First, the county Olympic average for the past five crop years.  This means the high and low averages for the past five years are dropped and the remaining county yield averages for the past five years are averaged.  If a crop yield is below 70% of the transitional yield for crop insurance, the county yield for that crop year is replaced with 70% of the transitional yield.

Second, the 5-year Olympic average for national marketing year average prices for the commodity is made.  If any of the five years has a national price average below the PLC reference price, the reference price is used in calculating the 5-year Olympic average.

Third, the 5-year county Olympic average of county yields is multiplied by the 5-year national Olympic average to determine benchmark revenue.  The County ARC revenue guarantee then equals 86 percent of the calculated benchmark revenue.  If actual revenue falls below the guarantee, County ARC triggers a payment rate equal to the difference.  The payment rate is capped at 10 percent of the benchmark, setting coverage from 86 percent to 76 percent of the benchmark county revenue.

Individual ARC:

Unlike PLC and county ARC, individual ARC applies to the entire farm and not on a crop-to-crop basis.  As such, individual ARC is based upon the average covered commodity experience on the farm.

Payments are made when actual revenue falls below the revenue guarantee.  However, the payment is for 65% of the sum of the farm’s total base acres.

How are payments calculated?  Actual revenue uses a weighted average of the actual revenues for each covered commodity.  The weights used to compute the average reflect the amount of acreage planted to each crop in the given crop year.  Actual revenue for each individual commodity equals the yield for that commodity multiplied by the price, which is the higher of the commodity’s marketing year average and loan rate.

Benchmark revenue is calculated using the revenue for each commodity for the 5 most recent crop years; the revenue is calculated by multiplying the yield and national average price for each year.  Just like County ARC, low yields in individual years are replaced by 70 percent of the transitional yield and the PLC reference price will replace any actual prices falling below that level.

Once the revenue for each year is calculated, the 5-year Olympic average of that commodity’s revenues is calculated. The Individual ARC Benchmark Revenue then uses the crop-specific Olympic averages to compute a weighted average whole-farm revenue, where the weights are based on planted acreage for each commodity.  The Individual ARC Revenue Guarantee is set at 86 percent of that benchmark revenue.  Like county ARC, the payment rate is the difference between the revenue guarantee and the actual revenue, but capped at 10 percent of the benchmark revenue resulting in coverage between 86 percent and 76 percent of the benchmark.

Other Issues:

Payment limitations remain for commodity payments.  For a person or entity, the payment limitation is $125,000.  For a person and spouse, the payment limitation is $250,000.  Additionally, the USDA is charged with drafting new regulations for “active engagement in farming”.

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