With rice prices continuing to be soft, we asked Tim Kelleher to review the PLC and ARC programs and provide some guidance on the level of potential payments for the 2016 crop.
Here is what he had to say:
When the 2014 Farm Bill was passed, it eliminated direct payments on covered crops, including rice, and replaced them with programs that made payments only when producers were projected to suffer losses on their annual crop production. There are two programs:
(1) The Price Loss Coverage (PLC) program that provides for payments when the commodity’s marketing year average (MYA) falls below the crop’s statutory reference price, and
(2) The Agricultural Risk Coverage (ARC) program that provides for payment when the commodity’s yield and price drops below 86% of the historical average. The ARC Program can be either on an individual basis (ARC-IC) or county basis (ARC-CO).
Both programs incorporate the farm’s historical base acres (“BA”), and payments are made on 85% of those acres. The PLC program payments are based on the farm’s historical yield (possibly updated), which is the Payment Yield (“PY”). The ARC program bases payments on historical yields and prices, which establish an average (Benchmark) against which the current year’s yield and price is compared.
The PLC program is simple: if the MYA for Temperate Japonica Rice (California medium/short grain) is less than the Reference Price (“RP”), which is $16.10/cwt, the producer’s potential payment will equal:
(RP – MYA) x PY x BA x 85%
e.g. ($16.10 – $14.00) x 82 cwt x 1 acre x 85% = $146.37
The ARC program is more complicated. ARC-CO takes the Olympic average of the prior five (5) years county yields (“YOA”) and multiplies it by the Olympic average of the prior five (5) years MYA (“POA”). This computation produces a Benchmark Revenue. This product is then multiplied by 86% to generate the Revenue Guarantee. If the current year’s price multiplied by the county yield is less than the guarantee, the difference, (NOT TO EXCEED 10% OF GUARANTEE) is multiplied by the farm’s base acres times 85% to calculate the payment.
([YOA x POA x .86] – (current MYA x current county yield) x BA x 85%
e.g. ([85 x $19.17 x .86] – [$14.00 x 85 cwt x 1]) x 85%
$1,385.03 – $1,190.00 = $195.03, limited to $162.95 x 1 acre x .85 = $138.50
AFC-IC takes the Olympic average of the prior five (5) years’ price times yield to calculate the guarantee and then subtracts the current year’s price and yield, multiplies that difference by the base acres time 85% to calculate the producer’s payment.