ARC vs. PLC Enrollment Decisions

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1 ARC vs. PLC Enrollment Decisions April 2014 Steven D. Johnson Farm & Ag Business Management Specialist (515) FSA Commodity Crop Enrollment Decisions County ARC Farm ARC 85% of base acres, Revenue Trigger = 5-yr. OA county yields X 5-yr. OA MYA price (Estimated Price: $5.33/bu corn & $12.27/bu soybeans) 65% of base acres, Revenue Trigger = 5-yr. OA farm yields X 5-yr. OA MYA price (If elected, revenue summed across all commodity crops on farm. Base acres can be reallocated using , but can t exceed farm s total historic base. Enrollment at FSA? Summer/Fall - Base and/or Yield updates; Winter - ARC or PLC sign-up. One-time choice (irrevocable) by FSA farm number (need both operator and landlord signatures). PLC SCO If a farm fails to enroll in either ARC or PLC in 2014, then PLC serves at the default for 2015 through

2 Solving the ARC PLC Enrollment Puzzle ARC PLC Overview Base Acreage Reallocation Potential ARC PLC Payments Final Rules & Regulations Reallocating Base Acreage Farm Historic: 100 Total Base Acres 50 Acres 50 Acres 2

3 Base Acreage Reallocation Example #1 Total Reallocation Example #1 Can be requested at ARC/PLC Sign-up 65 Acres 35 Acres 3

4 Comparing ARC 5-Year Average Prices vs. PLC Reference Prices Agriculture Risk Coverage (ARC) Year 2009 $3.55 $ $5.18 $ $6.22 $ $6.89 $ $4.60 $13.00 ARC 5-yr. OA MYA Prices = $5.33/bu. = $12.27/bu. Price Loss Coverage (PLC) = $3.70/bu. = $8.40/bu. Fig 11 Crop Prices to Decline from Record Highs 2008/ / / / / / /15F Wheat Cotton Rice Wheat, corn and soybeans in dollars per bushel; rice in dollars per hundredweight; cotton in cents per pound. Numbers in green denote record levels. Source: USDA NASS, WASDE and World Outlook Board, February 20,

5 County ARC: Calculating Revenue Reference Price $3.70 Year Yield MYA Price ARC Price $3.55 $ $5.18 $ $6.22 $ $6.89 $ $4.60 $4.60 Yield Price Revenue Benchmark $5.33 $889 Revenue Guarantee $765 Notes: Boone County, Iowa actual corn yields. Revenue Guarantee equals 86% of Benchmark. County ARC: 2014 Potential Payment 2014 ARC Payment Trigger 2014 Yield (bu./acre) $ ARC Actual ARC Payment ARC Payment 2014 MYA Price Revenue Rate ($/base acre) $3.00 $500 $88 $75 $3.50 $583 $88 $75 $3.90 $650 $88 $75 $4.25 $708 $52 $44 $4.50 $750 $10 $9 Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate. 5

6 County ARC: Calculating Soybean Revenue Soybean Reference Price $8.40 Year Yield MYA Price ARC Price $9.59 $ $11.30 $ $12.50 $ $14.40 $ $13.00 $13.00 Yield Price Revenue Benchmark $12.27 $585 Revenue Guarantee $503 Notes: Boone County, Iowa actual soybean yields. Revenue Guarantee equals 86% of Benchmark. Source: Johnson, ISU Extension, March 2014 County ARC: 2014 Soybean Payment 2014 ARC Payment Trigger 2014 Yield (bu/acre) $ ARC Actual ARC Payment ARC Payment 2014 MYA Price Revenue Rate ($/base acre) $8.25 $394 $58 $49 $9.00 $429 $58 $49 $9.65 $460 $39 $33 $10.50 $501 $1 $1 $11.25 $537 $0 $0 Notes: The ARC Payment ($/base acre) is 85% of the ARC Payment Rate. Source: Johnson, ISU Extension, March

7 Farm ARC: 2014 & Soybean Combined Revenue Guarantee 2014 Reference Price $ Reference Price $8.40 Farm ARC ARC Year Yield ARC Price Revenue Year Yield ARC Price Revenue ARC Revenue $3.70 $ $9.59 $ $5.18 $ $11.30 $ $6.22 $1, $12.50 $ $6.89 $1, $14.40 $ $4.60 $ $13.00 $534 Benchmarks $856 $567 $741 Revenue Guarantee $637 Notes: and soybean revenues reflect combined MYA prices and Boone County yields for Acres are based on weighted average planted acres. Revenue Guarantee equals 86% of Benchmark. Farm ARC: 2014 & Soybean Combined Potential Payment Farm ARC USDA Baseline $3.90 USDA Baseline $9.65 Guarantee Yield (bu./acre) Yield (bu./acre) 47.7 $ Price Revenue 2014 Price Revenue Revenue Payment Rate $ / Base Acre $3.00 $500 $8.25 $394 $457 $74 $48 $3.50 $583 $9.00 $429 $522 $74 $48 $3.90 $650 $9.65 $460 $574 $59 $38 $4.25 $708 $10.50 $501 $625 $8 $5 $4.50 $750 $11.25 $537 $665 $0 $0 Notes: Crop specific revenue is the product of actual MYA price and the farm-level yields. The 2014 yield estimates are Boone County trend yields of 180 bu/a corn and 56 bu/a soybeans. The $/Base Acre payment equals 65% of the Payment Rate. 7

8 PLC: 2014 Payment Potential Reference Price Yield (bu./acre) $ MYA Price Payment Rate PLC Payment ($/base acre) $3.00 $0.70 $99.19 $3.50 $0.20 $28.34 $3.90 $0.00 $0.00 $4.25 $0.00 $0.00 $4.50 $0.00 $0.00 Notes: PLC payments are made on 85% of base acres and based on a payment yield of bu/a corn. PLC: Soybean 2014 Payment Potential Reference Price Yield (bu./acre) $ MYA Price Payment Rate PLC Payment ($/base acre) $8.25 $0.15 $6.08 $9.00 $0.00 $0.00 $9.65 $0.00 $0.00 $10.50 $0.00 $0.00 $11.25 $0.00 $0.00 Notes: PLC payments are made on 85% of base acres and based on a payment yield of 48.8 bu/a soybeans. 8

9 ARC vs. PLC Strategies Separate a Revenue Trigger (ARC) from a Price-only Trigger (PLC); 2014 to 2018 MYA Prices: above $3.70/bu, above $8.40/bu? Benefit from ARC, larger payments with County ARC (85% of base acres). You don t have to prove your farm s yields to FSA. below $3.70/bu, below $8.40/bu? Benefit from PLC, then you can add SCO to your crop insurance beginning in Focus on the historical base acres for each farm. Consider reallocation of 2009 to 2012 planted acres. New Farm Program Web Sites Crop Risk Management - ISU Polk County (Crop Marketing Strategies Newsletter, New Farm Program & Farmland Owner Updates, Recorded Webcasts and Videos) Farm Doc U. of Illinois Extension Econ Ag Manager K-State Extension Econ Ag Decision Maker ISU Extension Econ (Decision Tools, Newsletters, Publications, Voiced Media, Monthly e- Newsletter, New Farm Program) USDA Risk Management Agency (RMA) 9