Ag Policy Blog

The term you are looking for when it comes to farm programs and the corn market is Agricultural Risk Coverage.

We're going to have to ignore old-crop corn and its $3.55 average cash price. We're talking about new crop corn and the 2014 marketing year. The crop looks great and prices on the futures are dropping to their lowest levels in four years.

Sometime this fall, likely right around the middle of harvest, farmers are going to have to start breaking down the ins and outs on the new farm programs and look at their comfort levels for farm programs over the next five years.

Gary Schnitkey at the University of Illinois wrote Tuesday at farmdocdaily that right now corn is looking at a 2014 market year average somewhere in the range of $3.65 to $4.35 a bushel. Under the new farm programs that will be rolled out later this fall, Schnitkey calculated that such price levels could mean ARC payments for Illinois farmers anywhere in the range of $77 per acre to $10 per acre at those price levels. A 200-bushel county average at $3.65 a bushel market-year average could still generate a $45 per acre payment.

When farmers eventually enroll in farm programs, they will have to decide whether to reallocate base acres. They then will make a one-time, irrevocable decision whether to enroll individual commodities in ARC or the Price Loss Coverage program -- PLC.

The university guys are expected to roll out some calculators soon for farmers to plug in their data, history, etc, and project the best farm programs for them.

As of now, PLC doesn't look as attractive, according to Schnitkey. PLC is like the counter-cyclical program, but pays when the average market year price falls below $3.70 a bushel. "For a typical farm in central Illinois, PLC payments are estimated at $6 per acre at the $3.65 price."

When describing ARC, Schnitkey was focusing on the countywide coverage options. Farmers must decide whether to enroll in countywide coverage on a commodity-by-commodity basis or choose individual coverage that applies to all of the commodities on the farm. Under ARC, 85% of base acres are covered for the county option, but payment acres are set at 65% for the individual coverage.

Payments on the county option occur when actual county revenue for a covered commodity in a crop year is less than the county-revenue trigger a particular commodity. The payment will be lesser of 10% of the benchmark county revenue for a commodity or the difference between the country trigger and the actual county revenue.

The ARC guarantee for a covered commodity in a crop year is 86% of the benchmark revenue and historical yield. In other words, the Olympic average for price and yield are used for benchmarks over the last five years. The high and low years are not used. Effectively, ARC provides a band of revenue protection from 76% to 86% of revenue. Insurance is expected to cover deeper losses.

Farmers who sign up for ARC also are excluded from buying Supplemental Coverage Option insurance because they are similar in effect.

For the Farmdoc article, go to http://farmdocdaily.illinois.edu/…

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