ARC-CO Can Still Make a Payment for High Yield 2014 Counties

• November 21, 2014
• Paul Neiffer

One of the misconceptions I keep hearing about ARC-CO for this year is that it will not pay anything since my county yield for this year is so much higher than the Olympic average, therefore I want to elect PLC.

I decided to run some numbers on McLean County, Illinois which is one of the better corn counties in Illinois and is likely to have much higher yields this year.  The five-year Olympic average for McLean county is 172 bushels per acre (2012 really brought the yield down with a 125 yield; that will affect the PLC payment yield).  Back in 2009, the yield for this county was 186 and in 2013 the yield was 189.  I ran numbers assuming a farmer has corn base of 1,000 acres and the average county yield for 2014 of 200, 215 and 230 to find out how much PLC and ARC-CO would pay.

For PLC, the yield for the county or farm in 2014 does not matter.  It is simply based on either the old CC yield which I estimated at 135 or the updated payment yield of the 2008-2012 average.  Since 2012 was the drought year, this most likely dropped a farmers payment yield to about 150 (at the most) which is the number I used.  Based on these numbers, the net PLC payment for the 2014 crop year is $25,500.

Now  for ARC-CO, when I ran the numbers for a county yield of 200, we arrive at a 2014 payment of $70,125 which is almost the maximum payment allowed.  At a yield of 215, the payment ends up being exactly the  same as PLC at $25,500.  At a yield of 230, the farmer receives no payment.  The breakeven point for the farmer is 224.  At a county yield below that number, (s)he will start to get an ARC-CO payment.

Now, what is even more important is that assuming prices stay around $4 for the next four years, total ARC-CO payments will exceed $80,000 whereas, unless corn MYA drops below $3.70, the only PLC payment is for 2014.  Even if prices drop below $3.70, ARC-CO will still exceed PLC over the five-year farm bill period.  For example, I assumed that corn prices would be exactly $3.50 for all five years.  At those prices, total PLC payments would be $127,500 and ARC-CO would be about $175,000 and these payments would be front-end loaded into the first three years.

For most corn farmers, even if their yields for 2014 are much higher than the Olympic average, ARC-CO still should pay and in the long-run, it is likely to pay more than PLC.

Paul Neiffer, CPA

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