CBO Ag Projections: PLC Payouts to Exceed ARC Through 2024

April 14, 2014 09:51 AM
 

ARC participation seen at 40.6% of corn base, 49.1% of soybean base and 27.5% of wheat base.


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Projected payouts under the Price Loss Coverage (PLC) farm program option are forecast to total $15.915 billion over Fiscal 2016 through 2024 while Ag Risk Coverage (ARC) county payments are to total $6.299 billion and individual ARC payments are forecast to total $4.365 billion, according to the Congressional Budget Office (CBO). Link to the report.

Under the CBO projections, they assume 40.6 percent of corn base acres will be enrolled in the ARC program options, 49.1 percent of soybean base acres and 27.5 percent of wheat base acres will be enrolled. Those percentages are also calculated off of updated base acres:

Crop

2014 Base Acres
(million)

2013 Base Acres
(million)

Corn

90.9

84.1

Soybeans

76.8

50.1

Wheat

57.4

73.8

 

CORN

PLC: Total payouts projected at $5.567 billion over FISCAL 2016-2024. Payments projected for corn PLC are at $1.117 billion for Fiscal 2016 (2015 crop year) with another 981 million in Fiscal 2017, $734 million for FiscalL 2018 and $577 million for Fiscal 2019 (2018 crop year, the final year covered by the farm bill), with payouts forecast at between $419 million and $494 million for Fiscal 2020-2024.

ARC County: Total payouts projected at $3.257 billion over Fiscal 2016-2024.  Payouts are projected at $835 million in Fiscal 2016, $741 million in Fiscal 2017, $487 million in Fiscal 2018 and $195 million in Fiscal 2019. For the Fiscal 2020 through 2024 period, payments range between $149 million and $256 million.

SOYBEANS:

PLC: Total payouts are projected at $1.833 billion over Fiscal 2016-2024. Payouts are projected at $304 million in Fiscal 2016, $296 million in Fiscal 2017, $226 million for Fiscal 2018 and $191 million for Fiscal 2019. Over the Fiscal 2020-2024 period, payouts range from $156 million to $173 million.

ARC County: Total payouts are projected at $2.223 billion over Fiscal 2016-2024. Payouts are projected at $462 million in Fiscal 2016, $440 million in Fiscal 2017, $346 million in Fiscal 2018 and $216 million in Fiscal 2019. Over Fiscal 2020-2024, payouts range from $123 to $195 million.

WHEAT:

PLC: Total payouts are projected at $4.182 billion over FY 2016-2024. Payouts are projected at $655 million in Fiscal 2016, $549 million in Fiscal 2017, $513 million in Fiscal 2018 and $504 million in Fiscal 2019. Over the Fiscal 2020-2024 period, payouts range from $335 million to $403 million.

ARC County: Total payouts are projected at $540 million over Fiscal 2016-2024. Payouts are projected at $94 million in Fiscal 2016, $85 million in Fiscal 2017, $86 million in Fiscal 2018 and $66 million in Fiscal 2019. Over the FY 2020-2014 period, payouts range from $38 million to $42 million.

As for individual ARC payments, CBO did not break them by commodity, noting "These payments are based on all covered drops grown on the farm and, hence, cannot be readily assigned to individual crops." The total ARC Individual payments projected over Fiscal 2016-2024 are $4.365 billion, ranging from $674 million in Fiscal 2016 to $374 million in Fiscal 2022.

While the Supply/Demand projections CBO used to base their estimates on do not contain a season average price forecast for corn below $3.90 per bushel, they still are projecting PLC payments. PLC payments are to be made based on difference between the reference price and the higher of the season average price or the loan rate for the covered crop.

As for why there are PLC payments projected even though the CBO Supply/Demand forecasts on corn, for example, do not contain a season average price forecast under the $3.70 reference price, CBO noted their estimates "incorporate probability scoring in which we estimate the cost using a probability distribution of prices and yields.  Hence, we run 500 iterations, each one with a random pick of a combination of prices and yields. The final cost is an average of the 500 runs. So, even though the point estimate for price is higher than the reference price, there will be instances among the 500 runs where prices will be below, which would generate a cost."

PERSPECTIVE: The estimates may be greeted with some surprise given that some have given a heavier weighting to ARC compared to PLC in terms of generating a payment relative to corn and soybeans in particular. Of course these are projections and rely on the Supply/Demand conditions calculated being the actual outcome for any given crop year. As we have seen in the past, weather in particular can alter and potentially dramatically alter the actual results.

Meanwhile, CBO also released its baseline for the food stamp/SNAP program as follows:

 

SNAP CBO

 

Click here to download the SNAP report.

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