1. Farm Bill and the 2015 Outlook
Aug. 29, 2014
Chad Hart
Associate Professor/Crop Markets Specialist 1 1

2. PLC: Corn 2014 Payment Potential
Reference Price = $3.70 per bushel
Payment Yield = 150 bushels per acre
Marketing Year Price ($/bu)
PLC Payment Rate ($/bu)
PLC Payment ($/base acre)
$3.10
$0.60
$76.50
$3.20
$0.50
$63.75
$3.30
$0.40
$51.00
$3.40
$0.30
$38.25
$3.50
$0.20
$25.50
$3.60
$0.10
$12.75
$3.70
$0.00
For PLC, the payment rate is the difference between the reference price and the maximum of either the marketing year average price or the loan rate (if the difference is negative, then the payment rate is zero). Take the payment rate times the payment (or base) yield times 85% to get the PLC payment per base acre.
Notes: PLC payments are made on 85% of base acres.

3. ARC-CO: 2014 Corn Revenue Guarantee
Year
Yield
MYA Price
ARC Price
2009
163.4
$3.55
$3.70
2010
184.1
$5.18
2011
174.2
$6.22
2012
133.2
$6.89
2013
146.3
$4.45
Oly. Ave.
161.3
$5.28
Here’s the 5 years of price and yield data for Howard County, Iowa corn. The gray numbers are the high and low ones that are not used in the Olympic average (remember the Olympic average throws out the high and low). Also, the price used in the average can not be below the reference price specified in the farm bill (in this case, $3.70 for corn). So as the black circle above shows, the price in 2009 was replaced by the reference price. So the 5-year Olympic average yield is bushels per acre. The 5-year Olympic average price is $5.32 per bushel. Combine the two to get the benchmark revenue of $ per acre. The ARC revenue guarantee is 86% of the benchmark, so it’s $ per acre.
Benchmark Revenue = $ per acre
ARC Revenue Guarantee = $ per acre
Notes: Howard County, Iowa actual corn yields. Revenue Guarantee equals 86% of Benchmark.

4. ARC-CO: 2014 Potential Corn Payment
ARC Revenue Guarantee = $ per acre
ARC Max Payment Rate = $85.22 per acre
But ARC-CO is paid on 85% of base acres
and 85% of $85.22 is $72.44
Price: $3.50
$4.00
$4.50
$5.00
Yield: 100
$72.44
125
150
$49.21
$0.00
175
$27.96
200
Let’s say that in 2014, the Howard County, Iowa average corn yield turns out to be exactly the 5-year Olympic average yield (161.3 bushels per acre). Then, if the corn price falls below $4.57 per bushel, ARC will begin to pay. As the table shows, under this scenario, if the corn price falls below $4 per bushel, the ARC payment rate will hit its maximum (based on 10% of the benchmark revenue or $86 in this case). Since ARC-CO is only paid 85% of a farm’s base acres, you can view the ARC payment per base acre as 85% of the ARC payment rate.

5. ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee
Year
Corn Yield
ARC Price
Revenue
Soy Yield
2009
163.4
$3.70
$604.58
43.3
$9.59
$415.25
2010
184.1
$5.18
$953.64
54.5
$11.30
$615.85
2011
174.2
$6.22 $
51.1
$12.50
$638.75
2012
133.2
$6.89
$917.75
45.7
$14.40
$658.08
2013
146.3
$4.45
$651.04
40.1
$13.00
$521.30
Oly. Ave.
$840.81
$591.97
For farm-level ARC (ARC-IC), the 5-year Olympic average is taken over the revenues (as opposed the prices and yields separately, as in ARC-CO). For each covered crop, a benchmark revenue is determined. Here, corn has a benchmark revenue of $846 per acre and soybeans has a benchmark revenue of $593 per acre. Then an overall benchmark revenue is calculated, based on the percentages of planted acres by crop on the farm in the current year. For this example, let’s assume the farm is a 60/40 corn/soybean split. Then the overall ARC benchmark revenue is $745 per acre (= 60%*$ %*$593). The ARC revenue guarantee is 86% of the benchmark, so $641 per acre.
In 2014, if the farm is planted 60% to corn and 40% to soybeans, then
Benchmark Revenue = $ per acre
Revenue Guarantee = $ per acre
Source: Schulte, ISU Extension, June 2014

6. ARC-IC : 2014 Potential Corn & Soybean Combined Payment
Actual 2014 farm yields: Corn 150 bushels per acre
Soy 45 bushels per acre
Marketing year prices: Corn $4.00 per bushel
Soy $10.50 per bushel
Calculated revenues: Corn $ per acre
Soy $ per acre
ARC Revenue: 60%*$ %*$ = $549.00
ARC-IC is paid on 65% of base acres
ARC-IC Payment = $48.18 per acre (65% of $ $549.00)
To calculate the actual revenue, the revenue for each crop is computed and the same percentages of planted acres are applied to create an overall actual revenue for the farm. Here, for example, if corn has an actual revenue of $677 per acre and soybeans has an actual revenue of $502 per acre. Then the overall actual revenue is calculated as $607 per acre (= 60%*$ %*$502). The ARC payment rate would be $34 per acre ($641 - $607) and the ARC payment per base acre would be $22 per acre (= 65%*$34, as ARC-IC is paid on 65% of base acres).
Source: Schulte, ISU Extension, June 2014

7. Supplemental Coverage Option (SCO)
An additional policy to cover “shallow losses”
Shallow loss = part of the deductible on the producer’s underlying crop insurance policy
SCO has a county-level payment trigger
Indemnities are paid when the county experiences losses greater than 14%
Premium subsidy: 65%
Starts in 2015
Can’t have ARC and SCO together
If owner/operators choose PLC, then they are also eligible to purchase SCO in SCO is a county-based crop insurance product that covers yield or revenue losses below 86% of the county guarantee. The SCO coverage sits on top of your other crop insurance (RP, YP, etc.). An example is shown in the following slide.

8. Supplemental Coverage Option (SCO)RP
RPHPE YP
For example, if a producer currently buys 80% RP, then SCO covers county losses between 80-86%. If the producer moves their crop insurance down to 70% RP (click to trigger the animation), then SCO coverage expands to 70-86% for the county.

9. Three Choices PLC + SCO ARC-County ARC-Individual
Price protection with top-up county-level insurance protection
ARC-County
County-level revenue protection based on historical averages
ARC-Individual
Farm-level revenue protection based on historical averages
Choice holds for crop years

10. PLC pays, ARC does not Neither pay Both pay ARC pays, PLC does not
The red line is the ARC-County payment trigger. ARC payments are triggered when the combination of price and yield is below and to the left of the red line.
PLC pays, ARC does not
Neither pay
Both pay
ARC pays, PLC does not
The choice depends on where you expect prices and yields to be over the next 5 years. There are price/yield combinations where PLC pays and ARC does not. There are also price/yield combinations where ARC pays and PLC does not.

11. U.S. Corn Supply and Use 2010 2011 2012 2013 2014 Area Planted
(mil. acres)
88.2
91.9
97.2
95.4
91.6
Yield
(bu./acre)
152.8
147.2
123.4
158.8
167.4
Production
(mil. bu.)
12,447
12,360
10,780
13,925
14,032
Beg. Stocks
1,708
1,128
989
821
1,181
Imports 28 29
162 35 30
Total Supply
14,182
13,517
11,932
14,781
15,243
Feed & Residual
4,795
4,557
4,329
5,175
5,250
Ethanol
5,019
5,000
4,648
5,120
5,075
Food, Seed, & Other
1,407
1,428
1,403
1,385
Exports
1,834
1,543
731
1,920
1,725
Total Use
13,055
12,528
11,111
13,600
13,435
Ending Stocks
1,808
Season-Average Price
($/bu.)
5.18
6.22
6.89
4.45
3.90
Source: USDA-WAOB 11 11

12. U.S. Soybean Supply and Use
2010
2011
2012
2013
2014
Area Planted
(mil. acres)
77.4
75.0
77.2
76.5
84.8
Yield
(bu./acre)
43.5
41.9
39.8
43.3
45.4
Production
(mil. bu.)
3,329
3,094
3,034
3,289
3,816
Beg. Stocks
151
215
169
141
140
Imports 14 16 36 80 15
Total Supply
3,495
3,325
3,239
3,509
3,971
Crush
1,648
1,703
1,689
1,725
1,755
Seed & Residual
130 88 90 5
111
Exports
1,501
1,365
1,320
1,640
1,675
Total Use
3,280
3,155
3,099
3,369
3,541
Ending Stocks
430
Season-Average Price
($/bu.)
11.30
12.50
14.40
13.00
10.35
Source: USDA-WAOB 12 12

13. U.S. Meat Production & Prices
Source: USDA-WAOB 13 13

14. Corn Export Shifts
Source: USDA-FAS

15. Soy Export Shifts
Source: USDA-FAS

16. Corn Grind for Ethanol

17. 2015/16 Crop Price Projections

18. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: