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Another Strike Against PLC

Published on: 13:45PM Sep 19, 2014

One of the arguments for using PLC instead of ARC is that PLC has unlimited payments (until you hit the overall payment limit of $125,000 per individual). However, one of the drawbacks to using PLC is your payment yield will not likely reflect your actual yields for 2014-2018. The payment yield for PLC purposes is calculated as the greater of your old CC "base" yield or 90% of your average yield from 2008 to 2012. For many farmers in the corn belt, this can present almost a double whammy on your yield calculations.

First, the average corn yield is for the period 2008 to 2012 which includes the drought year of 2012. Also, these yields are not adjusted for average yield increase of around 1.5 bushels per acre that have occurred over these years and finally, the grower is only allowed to use 90% of this average. This will likely result in a much lower payment yield than will be used for ARC purposes (since ARC uses an Olympic average, the 2012 drought year would almost always be thrown out). Most people would assume since ARC does not kick in until 86% of the Olympic average that PLC will always have the higher yield. I don't think so and let's do an example.

Assume we have a corn grower whose county yield over the 2008 to 2011 period was 170. However, the yield in 2012 drops the five-year average to 160. When we multiply this by 90% we get a payment yield of 144 for PLC purposes. This is the yield that will be used for all five years for PLC purposes and will not be increased until perhaps 2019 with a new farm bill. Now for ARC-CO purposes, the actual payment yield will be equal to the county yield for 2014. Assuming a county yield of 170 bushels and multiplying this by 86% we get a "payment" yield of 146.2. This is about 2 bushels higher than PLC. Also, if the actual yield for the county is lower than normal, this actually helps the farmer for ARC purposes.

PLC has its place for many farmers (rice, peanuts, barley, etc.), but for most corn and soybean farmers, the more I look at its structure, the more I lean toward ARC. I will keep you updated.