Split ARC and PLC to Maximize Payments
Aug 10, 2014
Under the 2014 Farm Bill, a farm will need to decide between ARC and PLC on a covered crop-by-crop basis. However, many farmers have multiple farms registered with the FSA office(s). These farms may be composed of operations in multiple counties or states; multiple entity ownership; or for a number of other reasons.
Since the election is by the farm and not the individual operator, this gives the farmer much greater flexibility in maximizing their options. There is an overall $125,000 limit per individual (whether in multiple entities or not) for combined ARC and PLC payments. Therefore, if a farmer has multiple farms, it will make sense to consider signing up for both ARC and PLC. We are fairly certain that ARC will make payments for 2014 and 2015 crop years if the price stays below $4 for corn. However, if the price does not drop below $3.70, there will be no PLC payment.
In 2016-2018, if prices stay low (under $3.70), then PLC will start to make a payment and ARC perhaps will not make a payment. If the farmer has multiple "farms", they should consider having enough farms elect ARC to maximize their payment for 2014 - 2016 and elect PLC on the remaining farms just in case prices remain low in 2016-2018. Here is an example:
Farmer Stevens and her husband farm 6,000 acres in Iowa that has been primarily corn-on-corn for many years. Due to farming in multiple counties and with multiple farm entities, the Stevens have 10 farms registered with the FSA and on average each farm has about 600 acres in it. Assuming prices remain below $4 for 2014-2018 and the Stevens elected ARC on all 10 farms, they would maximize their 2014 - 2016 payments at $250,000 (they would need about a $49 per acre payment to maximize and 2016 might not quite get to the maximum level).
However, if prices dropped under $3.70 in 2016-2018, they would most likely receive an ARC payment for 2016, but little or nothing for 2017-2018. Now, if they elect PLC on all of their acres, they would only receive a payment in those years where prices drop below $3.70. Now, if they elect ARC-CO on half of their farms and PLC on the other half, they will still get close to a maximum payment for 2014 and 2015 assuming prices remain around $4 for each year (3,000 base acres times 85% times $90 per acre equals $229,500) and if prices continue to soften to below $3.70 for 2016-2018, they will get payments for the years where ARC-CO does not make a payment. Let's assume their payment yield is 185 bpa and the price for 2017 and 2018 averages $3.25. At that price, ARC-CO may pay a little bit (could be as high as $40 per acre depending on pricing for 2014-2016), however, PLC will pay 45 cents a bushel on 3,000 base acres times 185 bpa times 85% or about $212,000. This amount plus the related ARC-CO payment should hit their maximum payment limitation of $250,000.
As you can see, if the farmer elects ARC on all of their acres, there is a very good chance that little or no payments will be made in 2017 and 2018. However, by electing ARC-CO on those farms to maximize their payments for 2014-2016 and electing PLC on the remaining farms, a farmer should be able to hit their maximum payment level for all five years of the farm bill assuming prices stay low. If prices exceed $4 for all five years, then only ARC-CO will make a payment, but farmers will most likely be better off than relying on a program payment.