Cash flow planning with PLC, ARC-CO, ARC-IC

Many farm operators, ag lenders and farm business managers are now in the process of cash flow planning for the 2015 crop year. At the same time, farm operators are currently finalizing decisions for the various options available in the new farm program at local Farm Service Agency (FSA) offices.  The farm program choices will be in place for five years, for the 2014-2018 crop years. Producers must finalize their farm program option decision by March 31. Decisions on base acre reallocation and updating FSA payment yields must be completed by Feb. 27 at FSA offices, and do require a landowner signature.

Those currently involved in doing cash flow planning may wonder what amount, if any, can be included in a cash flow projection for estimated farm program payments from the 2014 corn and soybean crop, and possibly for the 2015 crop year. There are many variables that factor in to the calculation of potential farm program payments; however, by knowing a few of the basics, a person can make a reasonable estimate of potential payments for 2014, as well as possibly for 2015.

  • What is the number of base acres for each eligible crop? Potential payments for all farm program options are based on crop base acres, and the payment potential varies considerably among the various crops.
  • What is the payment yield? The PLC program uses either the established counter-cyclical (CC) yields or the updated FSA payment yields. ARC-CO uses the olympic average of the county average yield for the past five years (2009-2013) for 2014 crop year as a benchmark yield. ARC-IC uses farm-level yields.
  • Which farm program option was selected? There is a big variation in the calculation methods for each farm program option, as well as in the potential farm program payment levels with each option in a given year.

All potential farm program payments for the 2014 crop year for the PLC, ARC-CO, and ARC-IC programs will be based on the 12-month 2014 MYA price from Sept. 1, 2014 through Aug. 31, 2015. The potential ARC-CO and ARC-IC program payments will also be impacted, respectively, by the final level of 2014 county and farm-level yields. Following is an analysis of potential farm program payments for the 2014 crop year:

PLC: Based on the most recent USDA supply and demand report, USDA estimates the average 2014 MYA price at $3.65 per bushel for corn, and $10.20 for soybeans. Based on these price levels, there would be a 5¢ per bushel payment for corn, and no payment for soybeans for the 2014 crop year. Based on the current market trends, it would appear that we may get a very small 2014 PLC payment for corn, if any, and no PLC payment for soybeans.

ARC-CO: Based on the $3.65 per bushel price 2014 MYA price estimate for corn, most producers in the ARC-CO program will receive the maximum ARC-CO payment level for 2014 (approx. $50-80 per corn base acre in most MN counties). If the 2014 MYA price ends at $4 per bushel or lower, producers will likely receive the maximum ARC-CO payment amount, with 2014 county average yield levels that are at or below the county benchmark yield. If the final MYA price level is between $4 and $4.50 per bushel, ARC-CO payments would still occur, but at a gradually reduced basis. There would be very limited corn ARC-CO payments likely at MYA prices beyond $4.50 per bushel. If 2014 county yields are below the benchmark average yield, the price thresholds for ARC-CO payments would be increased slightly, and vice-versa with higher yields in 2014.

Based on the $10.20 per bushel price 2014 MYA price estimate for soybeans, most producers in the ARC-CO program will receive a partial ARC-CO payment level for 2014 (approx. $8-15 per soybean base acre in most MN counties). If the 2014 MYA price ends at $9.30 per bushel or lower, producers will likely receive the maximum ARC-CO payment amount, with 2014 county average yield levels that are at or below the county benchmark yield. There would be very limited corn ARC-CO payments likely at MYA prices beyond $10.50 per bushel. If 2014 county yields are below the benchmark average yield, the price thresholds for ARC-CO payments would be increased slightly, and vice-versa with higher yields in 2014.

ARC-IC: These payment calculations are harder to estimate because they involve farm average yields, and are based on annual planted acres; however, ARC-IC payments do utilize the same MYA prices as the other programs. A good estimate for ARC-IC payments is to take the ARC-CO payment estimates at the same yield level and to reduce them by 25%, and then to prorate the ARC-IC payments based on the percentage of planted acres in a given year. The 25% reduction is due to the ARC-IC payments only being made on 65% of crop base acres, rather than on 85%.

TAGS: Soybeans
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish