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ARC/PLC payments in 2016 and 2017

pdf fileAgDM Newsletter
March 2016

USDA will issue ARC/ PLC payments associated with the 2015/16 marketing year in October 2016. As of January 2016, two critical variables for the calculation of ARC/PLC payments are still unknown: the 2015 marketing year average price and the 2015 county yields. However, payments can be projected using USDA price projections and extrapolating county yields.

The current USDA price projections for corn and soybean in 2015 are, respectively, $3.60 and $8.80 per bushel. County yields are projected by multiplying 2014 county yields by the ratio of 2015 to 2014 yields in the corresponding crop reporting district (CRD).

The 2015 ARC-CO guaranteed prices are unchanged from 2014. The 2014 prices that are incorporated into the calculation of the rolling five- year Olympic average are the lowest prices in 2010-2014. Therefore, the 2014 prices do not affect the resulting average, just as 2009 prices did not affect the 2014 ARC-CO guaranteed prices.

Under the described assumptions, Iowa farmers would receive, on average, ARC-CO payments for $43 per corn base acre and $19 per soybean base acre in 2016. Projected yields in 2015 are higher than the Olympic average yields over 2010–2014 for all counties but Adams (soybeans), Lyon (corn), and east and west Pottawattamie (corn and soybeans). However, the projected prices would drive crop revenues below the ARC-CO guarantee revenues for corn and soybean base acres in 79 and 69 counties, respectively (Plastina, Hart, and Anderson 2016).

PLC payments in Iowa would average $9.50 per corn base acre, but would be null for soybean base acres (Figure 2). PLC payments are calculated as 85 percent of the difference between the marketing year average price and the reference price times the PLC payment yields for each farm. By default, PLC payment yields are the old Counter-Cyclical Payment Yields.

The projected gross margins per rented acre in 2016 compute to negative $151 for corn following corn, negative $51 for corn following soybeans, and negative $115 for soybeans (Plastina 2016). There are 51 counties where projected ARC-CO payments exceed $51 per corn or soybean base acre, but the highest projected payment (corresponding to O’Brien County), amounts to $75.85 (Plastina, Hart, and Anderson 2016).

figures 1 and 2

Projected payments for 2017

If 2015/16 USDA price projections materialize, 2014/15 prices will replace 2010/11 prices in the five-year Olympic average calculation, and the ARC-CO guarantee prices for 2016/17 will be 9 percent and 3 percent lower for corn and soybeans, respectively, than in the previous two years: $4.79 and $11.87 per bushel. As a result, the 2016/17 ARC-CO guarantee revenue for corn and soybean base acres would be $37 and $8 lower, on average, than in 2015/16.

County yield forecasts for 2016 were provided by the Iowa State University Climate Science Program, based on an index of El Niño strength as of October-December 2015. Projected yields are lower than the five-year Olympic average yields in 61 counties for corn base acres and 39 counties for soybean base acres.

The 2016/17 marketing year average price is projected using futures market prices (Hart 2014) at $3.76 per bushel of corn and $8.53 per bushel of soybeans (as of January 14, 2016).

The payment rate, or the difference between the projected price and the ARC-CO guarantee price, after 6.8 percent sequestration would be $0.96 per corn base acre and $3.34 per soybean base acre. The 2016/17 corn and bean payment rates are 62 cents and 13 cents lower, respectively, than in 2015/16.

ARC-CO payments in Iowa would average $49 per corn base acre and $46 per soybean base acre in 2017 (Figure 3). All counties would receive payments for soybean base acres, and all but Lyon and Sioux Counties (due to high projected yields) would receive payments for corn base acres (Plastina, Hart, and Anderson 2016).

Since the projected marketing year average prices for 2016/17 exceed the reference prices for PLC, no PLC payments are expected in 2017.

A detailed report of ARC/PLC payments by crop and county is available in Decision Tool A1-33, Farm Bill Payments in Iowa.

figure 3

References:

Hart, Chad. 2014. "USDA Season-Average Price Calculator." Ag Decision Maker. File A2-15.
Plastina, Alejandro 2016. "2016 gross crop  margins negative despite lower costs." Ag Decision Maker Newsletter. Vol 20, no. 3.
Plastina, A., C. Hart, and C. Anderson. 2016. "Farm Bill Payments in Iowa." Agricultural Policy Review, Center for Agricultural and Rural Development, Iowa State University, Ames, IA.

 

Alejandro Plastina, extension economist, 515-294-6160, plastina@iastate.edu
Chad E. Hart, extension economist, Iowa State University, 515-294-9911, chart@iastate.edu
Christopher Anderson, agronomy research assistant professor, 515-294-9948, cjames@iastate.edu