When Does $115,875 Equal $125,000?
The 2014 Farm Bill allows for a maximum payment of $125,000 for ARC/PLC, however, it appears that any program payments are subject to sequestering which will cut scheduled payments by up to 7.3%. Sequestering is the reduction of program outlays (not just USDA) by an automatic percentage for each government fiscal year-end (ending September 30). The percentage reductions are 7.2% for FY 14; 7.3% for FY 15; and 6.8% for FY 16.
It appears that program payments for crop years 2014 and 2015 will be subject to the 7.3% reduction and crop years 2016 will be subject to a 6.8% reduction. When a producer signs up for the program determines the percentage reduction. The 2014 and 2015 crop year sign-up actually occurred in FY 15, therefore the 7.3% reduction. This reduction also applies to other program payments such as Dairy Margin Protection Payments. Conservation Reserve Program payments are specifically exempt from any sequester reduction.
The reduction appears to apply to the cap, not just calculated payments. For example, if a producer’s calculated payments are $150,000, a 7.3% reduction would reduce it to $139,050 which would be greater than $125,000 and thus the producer would still be entitled to the maximum $125,000 payment amount. However, this is not how it works. The 7.3% reduction is applied to the $125,000 maximum amount, therefore the maximum ARC/PLC payment per producer for 2014 and 2015 crop could be $115,875. There is still discussion with FSA and OMB on what rate will be applied, but, unless Congress changes the rules in the next 30 days or so, payments made in October will be about 7% lower than originally thought.
USDA had communicated payment reduction information for 2013 crop year payments back in November, 2013 and the ARC/PLC contract on page 9 in Section U details that sequestering may result in a reduction of payments, but no other formal communication from FSA has been received. Once we know the final percentage reduction, we will pass that information on.
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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