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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

Price Loss Coverage - What is it?

Jan 30, 2014

Yesterday, we posted on Agricultural Risk Coverage (ARC). Today we will go over the rules on Price Loss Coverage (PLC). ARC is based upon both a yield and price component, whereas, PCL is based strictly on price. The USDA will determine the average crop price during each marketing year and compare that to the "base" price for that crop. If the actual average price (or national loan rate if higher) is lower than the base price, then the payment per acre will be owed based on the difference between the actual and base price times the APH for that crop year.

When this was first proposed, most farmers assumed that PCL would not be a good option for corn, bean and wheat growers since the base price for these commodities was so low. Now, almost two years later, the base prices are closer than before, but most likely you will need to run the numbers on your farm. Unlike ARC limiting coverage to a 10% band from 86% to 76%, PLC appears to have no limit per acre, other than the overall $125,000/$250,000 (married) limitation.

The producer will need to make an election this year to elect either ARC or PLC on a crop-by-crop basis. If the farmer elects individual farm ARC that is locked in for all crops on the farm. If no choice is made, it defaults to PLC and all producers must make the same election on a farm or risk losing 2014 crop payments.

The base price for major crops covered is wheat, $5.50/bushel; corn, $3.70/bushel; grain sorghum, $3.95/bushel; barley, $4.95/bushel; oats, $2.40/bushel; long grain rice, $14.00/hundredweight (cwt).; medium grain rice, $14.00/cwt.; soybeans, $8.40/bushel; other oilseeds, $20.15/cwt.; peanuts $535.00/ton; dry peas, $11.00/cwt.; lentils, $19.97/cwt.; small chickpeas, $19.04/cwt.; and large chickpeas, $21.54/cwt.

Each farmer will need to run numerous assumptions based on price and yield to determine if PLC or ARC is the better option for them. USDA will be issuing guidelines on how to sign up for this coverage, but remember if you do nothing, you will default to PLC and you may not get a payment for the 2014 crop year.

We will keep you posted.

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