Wheat Growers to get 61 Cents From 2015 PLC
Art Barnaby of Kansas State University released his latest information on the MYA prices for the major crops for the 2015/16 marketing year. The corn and soybeans marketing year ends August 31, however, wheat (and other cereal grains) ends May 31.
For the 2015 harvested wheat crop, the final MYA price is determined for the period beginning June 1, 2015 and ending May 31, 2016. The final price was $4.89. Since the reference price is $5.50, the final PLC payment per bushel will be 61 cents. Therefore, if you elected PLC for your wheat crop, you will be getting a PLC payment for your 2015 wheat crop and that payment should show up in October of this year. There will be no PLC payment for Barley (final MYA price of $5.52 is 57 cents higher than the reference price) and Oats will get a 28 cents per bushel PLC payment ($2.12 final MYA price versus the $2.40 reference price) Let’s look at an example.
Farmer Jones had 1,000 wheat base acres. His PLC yield was 48 bushels per acre (53 actual average yield times 90%). His payment will be equal to 1,000 (wheat base acres) times 85% (payment acres) times $.61 (payment per bushel) times 48 (PLC yield) or $24,888.
Art Barnaby is estimating the MYA wheat price for the 2016 crop (ending May 31, 2017) to be around $4.66 or a PLC payment of about 84 cents per bushel. However, this is much too early to have any degree of confidence in the final MYA price. By about October, about 50% or more of the wheat crop will be sold and we can get better idea of final estimated MYA price at that time.
For those farmers who elected ARC-CO on their wheat, they are likely to get a decent size payment for the 2015 wheat crop due to the larger $6.70 ARC-CO benchmark wheat price. This price was 10 cents higher than the 2014 benchmark price, so if the county wheat yield stays the same in 2015 vs. 2014, the farmer will get a little higher payment. For 2016 crop, the benchmark price continues to stay the same. For the 2015 calculation, the low price was the 2010/11 MYA price of $5.70. Since we roll forward a year, this price drops off of the calculation and we now eliminate the 2015/16 MYA price of $5.50 (even though the actual price was $4.89, we can’t drop below the reference price in this calculation).
FSA is currently estimating a final 2016/17 MYA price of $4.00. If this is the final price, let’s see how it will affect our farmer above. In this case, his PLC payment will increase from 61 cents to $1.50. Therefore, his final PLC payment will be equal to $61,200 (245% higher than in 2015). His ARC-CO payment will be subject to final yields. Let’s assume that the Olympic average yield for his county is 50 bushels per acre. We multiply this by $6.70 times 86% to arrive at his guarantee of $288.10. His maximum payment is 10% of $335 (50 X $6.70) or $33.50. Since wheat yields appear to be higher in the US this year, let’s assume the final county yield is 57 bushels per acre. This results in “actual” county revenue of $228 (57 X $4.00). This is $60.10 less than the guarantee, so his actual ARC-CO payment will be $33.50 per acre (limited to lessor or $33.50 or $60.10). If we multiply this times 1,000 acres times 85% we arrive at a total payment of $28,475.
The ARC-CO number is lower than the PLC number (assuming a MYA price of $4.00). However, most wheat farmers who elected ARC-CO received about the same payment in 2014, 2015 and 2016 from ARC. In the Farmer Jones example, he would have collected about $87,000 of ARC payments for the 2014-2016 crop years. If he had elected PLC, he would collect no payments in 2014, about $25,000 in 2015 and $61,000 in 2016. This results in total payments of about $86,000. As you can see, whether he elected ARC or PLC in the first three years of the Farm Bill, the difference is about a push.
If prices really stay low for the 2017 and 2018 crop years, then PLC will pay more than ARC-CO. However, the assumption is that ARC-CO will not make any payments and that is likely wrong since the Benchmark Price will stay fairly high. If the final MYA price for all three years is lower than $5.50, the benchmark price for the 2017 crop year will drop to $6.12. and fall to $5.66 in 2018. If county yields stay the same, the farmer will continue to collect maximum ARC-CO payments for all five years of the farm bill. This will likely be less than PLC, however, the farmer would have received an upfront payment in year one and we won’t know the final PLC payments for the 2016-2018 crop years for a few years yet.
Paul Neiffer, CPA