Will PLC Have Payment Cap in Next Farm Bill?
The Farm Doc Daily out of the University of Illinois last Friday had a post on how much the current Farm Bill has been affected by the lack of a payment cap on PLC payments (especially for peanuts and rice). As most know, ARC payments have a maximum 10% of gross benchmark revenue. If the calculated loss amount exceeds this amount, the payment is capped.
For example, assume DeKalb county in Illinois has benchmark revenue of $800. The maximum ARC payment is $80 (then times 85% times any sequestering reduction). However, if the farmer had elected PLC, then there is no payment limit. Assume his yield is 190 bushels per acre and the corn MYA price ends up at $2.80. In this case, he would be paid 190 X $.9 or $171 more than double the ARC payment.
Most corn and soybean farmers have received ARC payments well in excess of PLC payments from the 2014-2016 crop years, however, peanut and rice farmers have gotten fairly good size PLC payments and it is expected that many wheat farmers will receive a large PLC payment in October of this year.
FarmDoc Daily estimated that if there was a PLC 10% cap on payments, about $1 billion in savings would have resulted so far in this Farm Bill. With the large wheat pay-out in October, I would guess this amount may more than double for the 2016 crop year. However, if the 10% payment cap was eliminated for ARC, then the estimated ARC payments for the 2014 and 2015 crop years would have been substantially higher. They did not estimate this amount, but I would guess it would be well in excess of $1 billion (could be as high as $5 billion).
I am certain that the Farm Bill writers will be debating this topic and the worst case would be if a payment cap is applied to all forms of payments. We will keep you posted.
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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