Including ARC/PLC to project operation profit
By: Kaylyn Turland
In our current marketing atmosphere, it is crucial to not base your profitability on market price alone. As we go further into this Black Swan event it is important to use the tools offered to you as a producer to see the bigger picture outside of the current downturn in market prices. Tools such as crop insurance, ARC/PLC and government payments should be used in conjunction with the current market price to project your operations profitability. Highly volatile markets such as the one we are in is the reason programs such as ARC and PLC were created. Corn prices heading into harvest are expected to be near or below the $3.70 Marketing Year Average price that will trigger a payment for producers that have PLC on corn acres. This is an important time to be aware of the revenue that will be generated from these programs for your individual operation.
Details have recently been released regarding the agricultural portion of the CARES Act. The “Coronavirus Food Assistance Program” consists of 16 billion dollars in direct payments to farmers and 3 billion in USDA product purchases for distribution. Of the direct payments, 9.6 billion will be allocated to the livestock industry, 3.9 billion to row crop producers, 2.1 billion to specialty crop producers and 500 million for other crops. More details are to come in the following days and weeks with payments being distributed in late May. These payments are intended to financially assist producers resulting from COVID-19 demand destruction and should be considered just as important as market prices when evaluating financial decisions for your operation. An additional 14 billion dollars have been allocated to replenish the Commodity Credit Corporation and will be available in July to producers who will continue to struggle with virus related market disruptions.
With these safety nets in place to provide income during unpredictable times we are able focus on what we do best, provide a safe and reliable food source to fellow Americans. Sales are advised on a cash flow need basis only.
ARC and PLC Payment Equations
PLC:
- What you need from the producer: Payment Yield
- Effective Price will not be determined until October 1st of the following year
- Effective Reference Price is 3.70
- Calculated as 85% of the last 5 years Marketing Year Average prices
Equation:
(Effective Reference Price- Effective Price) X Payment Yield X 85% X FSA Base acres= Payment
Example:
(3.70 -3.50) X 150bu/acre X 85% X 1,000= $25,500 PLC Payment
ARC-CO:
- What you need from the producer: Actual Yield
- Actual Yield= 2020 County Average Yield
- What you need: Olympic County Average Yield
- 5 yr Olympic Average Price: 3.70
- Effective Price determined October 1st of next year
Equation:
(5 yr Olympic avg county yield X 5 yr Olympic avg price) X 86% – (actual yield X effective price) X 85% X FSA Base Acres=
Example for Lenawee County Corn:
(158 X 3.70) X 86% – (140bu/acre X 3.50) X 85% X 1,000= $10,837.50
For more information, speak to your MAC merchant or your crop insurance agent.