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Farm Bill: More Corn in PLC?
Tuesday, January 27, 2015 2:38PM CST

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Corn farmers may not be looking as closely at the potential government payment for corn this year as some observers might think.

Despite estimates of $70-per-acre payments for corn farmers in as many as 16 states for this year's corn crop, the Congressional Budget Office released a new projection Monday showing only 37.5% of corn acreage will enroll in the new Agricultural Risk Coverage-County program.

The CBO forecast appears to run counter to the argument from Midwest agricultural economists that the Agricultural Risk Coverage-County program is the better option for corn farmers.

Commodity farmers have to pick new commodity programs for their crops by March 31. Under the guidelines, farmers can enroll different commodities in separate farm programs and can also enroll different Farm Service Agency farms in separate programs as well.

Agricultural Risk Coverage-County, or ARC-County, creates a somewhat complicated payment formula based on a rolling five-year average of county yields multiplied by national average prices for the year. A benchmark guarantee then determines what the county revenue must be and then a payment is determined if county revenue is below the benchmark.

Besides ARC-County, farmers can consider Price Loss Coverage, or PLC, which is a simpler program. PLC pays when the national market-year average for a commodity falls below a reference price set in law. For corn, the reference price is $3.70 a bushel.

The Congressional Budget Office projects corn prices for 2014 to 2019 will average in a price range from $3.50 to $3.92 per bushel. For at least the current market year and the next two market years, CBO projects corn prices will remain under the $3.70 PLC reference price.

If 62.5% of corn acres are enrolled in PLC as the Congressional Budget Office forecasts, then PLC payouts would average $1.48 billion per year from FY 2016 to FY 2020, the effective budget years of the current farm bill. PLC payments would peak in the early years, reaching $1.97 billion in 2017.

For ARC-County, the Congressional Budget Office forecasts ARC payouts for corn at an average of $656 million per year over that same five-year span. ARC payments would hit $1 billion in FY 2016 and $1.16 billion in FY 2017.

USDA commodity program prices are based on market year average prices such as the current 2014-15 crops while federal program payments are based on the fiscal year. Under that set up, commodity payments for the 2014-15 market year would be paid in FY 2016.

CBO's long-term price projections are lower than a recent analysis by DTN Senior Analyst Darin Newsom who estimates the average corn price from 2015-19 will be $4 a bushel while the average soybean price for that same timeframe will be $11 a bushel.


CBO forecasts nearly double the number of acres would go into PLC over ARC-County despite the latest university forecasts projecting far higher commodity payments for corn producers in most of the Corn Belt for the 2014-15 crop. The latest projection released by University of Illinois and Ohio State University economists last week projected the average ARC-County payment in Iowa, Minnesota, Nebraska and Ohio would be more than $70 an acre.

For most of the Corn Belt, outside of Illinois, ARC-County payments for corn farmers would be anywhere from five to 10 times greater than the PLC payment. Along with that, the way ARC-County is structured using five-year averages that exclude high and low prices, the ARC-County payment for the 2015-16 crop is likely to be comparable.

The university analysis does note that corn farmers in eight states would likely not receive an ARC-County payment, including farmers in Kansas and Missouri. Farmers in Illinois, one of the nation's biggest corn states, also would receive a low payment of $6 an acre.

Carl Zulauf, an agricultural economist at Ohio State University, replied to DTN in an email that the CBO projections highlight a point he has been making in recent months. "In my opinion, a critical question that every program decision maker has to think through is, 'Does the fact that I know more (but not as much as you think you know) about 2014 payments mean something to me and, if so, how much does it mean to me?' The answer can vary all the way from 'it does not matter' to it 'matters a lot.' The more it matters, the more important expected 2014 payments become. There is no right or wrong to this decision, but you do need to be honest to yourself about what matters and then to make choices accordingly."

Zulauf added that the FSA enrollment decision is one of uncertainty. "And this changes the way you have to look at tradeoffs."

Earlier in January, other economists at the University of Illinois writing the Farmdoc Daily column analyzed the accuracy of long-term corn price forecasts as a measuring stick for trying to figure out whether to choose ARC or PLC. That column highlighted the percentage of error in the USDA five-year baseline for corn prices. The problem noted in the column is that a high error rate is more the norm with almost every long-term forecast.

As Farmdoc Daily concluded, "The analysis of the historical accuracy of USDA 10-year baseline and futures market forecasts of corn prices demonstrates that it is exceedingly difficult to forecast marketing year average corn prices very far into the future." The column adds, "This implies that long-term forecasts, regardless of the source, may not be very useful in evaluating farm program choices."


Under the Congressional Budget Office forecast, more farmers would enroll their soybeans in ARC-County, according to the Congressional Budget Office forecast. Soybean payments under PLC would average $291 million a year for the next five years while ARC-County payments would average $727 million a year. That implies far more soybean acreage would enroll in ARC-County than in PLC.

CBO projects 62.5% of soybean acres would enroll in ARC-County and thus 37.5% of soybean acres would be enrolled in PLC. CBO estimates the market-year average price for soybeans would fall to $8.19 a bushel for the 2015 crop and remain below $10 a bushel throughout the rest of the farm bill.

The Price Loss Coverage reference price for soybeans would pay when the average price falls below $8.40 a bushel for the market year.

The latest estimates by University of Illinois and Ohio State University economists show farmers in only seven states would receive an ARC-County payment for the 2014-15 soybean crop, ranging from a low of $1 per acre in Alabama to a high of $20 an acre in New York. The analysis shows prices remain high enough currently that there would be no PLC payments for soybeans nationally.


For wheat, CBO projects only 38% of wheat acres would be enrolled in Agricultural Risk Coverage-County and thus as much as 72% of wheat acreage would be in PLC. The average price from 2015-2019 would range from a low of $4.74 per bushel to a high of $5.22. PLC would pay wheat farmers when the market year average price is below $5.50 an acre.

Congressional Budget Office projections: http://www.cbo.gov/…

Farmdoc Daily on projected ARC-PLC payments for the 2014 crop: http://farmdocdaily.illinois.edu/…

Farmdoc Daily column on using long-term corn prices to choose a farm-bill program: http://farmdocdaily.illinois.edu/…

Five-year price analysis for corn and soybeans from DTN's Darin Newsom: http://www.dtn.com/…

Chris Clayton can be reached at chris.clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


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