Market Prices and PLC Payments

OMAHA (DTN) -- Corn farmers enrolled in the Price Loss Coverage program should receive a payment rate of 34 cents per bushel on last year's crop while wheat farmers should receive $1.61 per bushel.

USDA released the final Market Year Average price for some key commodities on Thursday, which helps determine Price Loss Coverage payments for the 2016-17 market year.

The Farm Service Agency should release final National Agricultural Statistics Service county yields for the 2016-17 crop next week, which would then generate the formula for ARC-County payments nationally. Farm program payments for the old crop will be delivered later in October.

For corn, a $3.36-per-bushel final Market Year Average (MYA) price means farmers who enrolled in Price Loss Coverage would have a payment rate of 34 cents per bushel on their base acres. That's based on the $3.70 floor reference price for corn written into the 2014 farm bill. PLC, though, was the program of choice on 6.39 million base acres nationally because more than 90 million acres are enrolled in Agricultural Risk Coverage-County.

Wheat farmers enrolled in PLC have a payment rate of $1.61 per bushel due to a MYA of $3.89 per bushel subtracted from a $5.50-per-bushel reference price. Roughly 27 million wheat base acres are enrolled in PLC while 35.4 million acres are enrolled in ARC-County.

Sorghum producers enrolled in PLC would see a payment rate of $1.16 per bushel based on a $2.79 MYA price subtracted from a $3.95-per-bushel reference price. Farmers enrolled 5.97 million acres in PLC for sorghum, compared with just under 3 million acres enrolled in ARC-County.

"The payments for sorghum and wheat are pretty sizable this year under PLC," said Art Barnaby, an agricultural economics professor at Kansas State University.

Soybean farmers will not collect a PLC payment due to an MYA price of $9.47 per bushel, which is higher than the $8.40 reference price.

The ARC payment relies on the final NASS county yield to complete the formula for ARC payments. ARC-County uses five-year Olympic averages for county yield and MYA prices to determine a revenue benchmark and guarantee.

Barnaby put together analysis of the PLC payments and possible ARC payments. Barnaby also told DTN that farmers could better work with banks on operating loans if USDA would release county yields for ARC earlier in the year. Bankers wouldn't know the exact amount of any ARC payment, but given the weighted average of the Market Year Average price, a banker and farmer would have a better ballpark figure to help evaluate operating loans.

"From a lender's standpoint, I get more calls from lenders than from farmers, and the big issue is they want to know what the payment is going to look like in the fall, and of course they are asking back in the spring," Barnaby said. "One of the things that would really help is if (NASS) would simply announce that yield earlier rather than wait until the payment time ... You won't get paid any quicker, but you could estimate what the payments will look like."

Without knowing the final county yields, Barnaby said that, based on final 2016-17 prices, corn would need a 2016 county yield that is 22.7% above the county average to eliminate any ARC-County payment. Wheat base would need a county yield of 48.1% to eliminate any ARC payment. Sorghum would need yields at 46.9% above average to stop any ARC payment, and soybeans would need yields to be 7.8% above the county average to eliminate any ARC payments.

As Barnaby also noted, farm program payments, both ARC and PLC, will also be subject to a 6.8% sequestration cut dating back to federal budget programs put in place in 2013.

Barnaby's report can be found at https://goo.gl/…

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

Follow him on Twitter @ChrisClaytonDTN

(CZ/AG)

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