The 2019 Farm Bill has a new "effective reference price" provision. The effective reference price will be used to calculate the ARC or PLC payments. This price is equal to lesser of:
- 115% of the current reference price, or
- The greater of:
- the current reference price, or
- 85% of the Olympic Average of the prior five year marketing year average (MYA) price.
For corn, the current reference price is $3.70. This means during the term of the 2019 Farm Bill, the effective reference price can't be lower than $3.70 or higher than $4.26 (115% of $3.70).
FSA is estimating that the 2018/19 MYA price of corn will be $3.55. Based on this price, the current Olympic MYA price will be $3.51. 85% of this number is $2.98 which is 72 cents below the current reference price.
I ran some numbers to see how much the MYA price would have to increase over the next five years for the effective reference price to get above $3.70.
First, I assumed that the 2019 MYA would be $4.00. I then added 50 cents to the price per bushel for each year. In this case, the effective reference price would finally hit $3.83 in the last year of the Farm Bill (2023) with a MYA price of $5.50 in 2022 (2023 is based on five year average ending in 2022).
Second, I assumed the same starting point, but added 75 cents per year. We still need to wait until 2023 before the price gets above $3.70 when it finally hits $4.04 (the MYA would be $6.25 in 2022).
Last, I assumed the same starting point, but add a $1 each year. We still have to wait to the final year to get an effective reference price of $4.25 (which is a penny less than the maximum). Note this requires an MYA price of $7.00 in 2022.
The bottom line is that it will be highly unlikely that you will ever see an effective reference price greater than the current reference price of $3.70. Also, even if you do see this type of pricing, it would be highly unlikely that you will see an ARC or PLC payment since prices would be rising dramatically during these five years.
About the only crops that I see an effective reference price greater than the current reference price are the pulse crops. There may be others, but none of the major crops are likely to have an effective reference price greater than the current reference price unless prices SUBSTANTIALLY increase over the next five years.