Jim Pease, Professor, Agricultural & Applied Economics, Virginia Tech
April 7 is the final day for farm landowners to reallocate commodity program base acres and update payment yields, and for producers to choose between Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC). According to the March 27 USDA announcement of the new deadline, nearly 98 percent of owners had completed the base acre/payment yield process, and 90 percent of producers had elected either ARC-CO (county-coverage), ARC-IC (farm-coverage), or PLC. For the remaining landowners and producers, it’s time to act, because inaction will cause the following: 1) all program crops on all your FSA farms owned or operated will continue with existing base acre allocations and payment yields, 2) all program crops on all your FSA farms will be assigned to PLC during 2015-2018, and 3) no 2014 ARC or PLC payments will be received. The cost of inaction was described earlier in this blog in “Corn ARC-Co and PLC Forecast Payments: Look Carefully Before Choosing!”
The March USDA, Food and Agricultural Price Research Institute (FAPRI) and Congressional Budget Office (CB)) price forecasts for crop years 2014-2018 appear in graphs below:
All forecasts predict the 2014 MYA corn price between $3.65 and $3.70 per bushel, and $3.70 is the crop reference price that triggers PLC payments. Note that Zulauf and Hershey (2014 Crop Program Decision: March WASDE Price Uncertainty) estimate, based on historical analysis, that this year’s March USDA forecast of final MYA corn price has a 33% confidence interval of falling outside the broad range $3.57-$3.83, so there is a lot of uncertainty remaining for corn price. In future years, FAPRI consistently forecasts higher corn price, USDA is consistently lower, and CBO falls in between. It should be noted that none of the three forecasts are lower than $3.40 or higher than $4.11 for corn MYA price during 2014-2018.
For soybeans, 2014 MYA forecast prices are in the tight range from $10.13 (FAPRI) to $10.20 (CBO and USDA). The latter forecasts are very similar throughout the 2014-2018 period, while the FAPRI forecast is considerably more optimistic. The CBO & USDA forecasts for MYA 2015 are within a few cents of the soybeans reference price that would trigger a PLC payment. Only FAPRI predicts prices rising to the 2014 level by 2018.
The 2014 MYA forecast wheat price ranges from $6.00 (CBO & USDA) to $6.08 (FAPRI). All predict a price drop in subsequent years, with prices reaching as low as $4.65 in 2016 (USDA). A slow price recovery is predicted to occur in subsequent years, but USDA predicts sub-$5 prices through 2018. FAPRI predicts a much higher $5.68 in 2018, but that is still 7% lower than their 2014 forecast price.
Only FAPRI and USDA have forecasted barley MYA prices from 2014-2018 (note that the forecast considers the all-barley price of both malting and feed barley). The 2014 MYA forecast price is $5.28 for FAPRI and $5.35 for USDA. Although these prices are well above the $4.95 reference price, both predict a lower price for 2015, and USDA predicts declining prices (and PLC payments) throughout 2018-2018. FAPRI predicts barley prices will recover in 2016-2018, but PLC payments for barley will be triggered in 4 of the 5 years considered.
As a final note, I would suggest reading the Nate Birt column on “Corn Farmers Should Give PLC A Second Look” at agweb.com. It may not change your mind, but Birt raises some valid points about PLC.