Price Loss Coverage – What is it?
Yesterday, we posted on Agricultural Risk Coverage (ARC). Today we will go over the rules on Price Loss Coverage (PLC). ARC is based upon both a yield and price component, whereas, PCL is based strictly on price. The USDA will determine the average crop price during each marketing year and compare that to the “base” price for that crop. If the actual average price (or national loan rate if higher) is lower than the base price, then the payment per acre will be owed based on the difference between the actual and base price times the APH for that crop year.
When this was first proposed, most farmers assumed that PCL would not be a good option for corn, bean and wheat growers since the base price for these commodities was so low. Now, almost two years later, the base prices are closer than before, but most likely you will need to run the numbers on your farm. Unlike ARC limiting coverage to a 10% band from 86% to 76%, PLC appears to have no limit per acre, other than the overall $125,000/$250,000 (married) limitation.
The producer will need to make an election this year to elect either ARC or PLC on a crop-by-crop basis. If the farmer elects individual farm ARC that is locked in for all crops on the farm. If no choice is made, it defaults to PLC and all producers must make the same election on a farm or risk losing 2014 crop payments.
The base price for major crops covered is wheat, $5.50/bushel; corn, $3.70/bushel; grain sorghum, $3.95/bushel; barley, $4.95/bushel; oats, $2.40/bushel; long grain rice, $14.00/hundredweight (cwt).; medium grain rice, $14.00/cwt.; soybeans, $8.40/bushel; other oilseeds, $20.15/cwt.; peanuts $535.00/ton; dry peas, $11.00/cwt.; lentils, $19.97/cwt.; small chickpeas, $19.04/cwt.; and large chickpeas, $21.54/cwt.
Each farmer will need to run numerous assumptions based on price and yield to determine if PLC or ARC is the better option for them. USDA will be issuing guidelines on how to sign up for this coverage, but remember if you do nothing, you will default to PLC and you may not get a payment for the 2014 crop year.
We will keep you posted.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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