Comparison of 2016 ARC-CO and PLC Payments

link to full farmdocDaily article

The United States Department of Agriculture will issue farm safety net payments this month. Todd Gleason has more on the payments for this year, and projections for next year with University of Illinois Agricultural Economist Gary Schnitkey. You may listen to that conversation.



Schnitkey, his University of Illinois colleagues Nick Paulson & Jonathan Coppess, and Ohio State’s Carl Zulauf also explored how the 2016 ARC County payments would compare to those from its counterpart USDA safety net program, PLC. This exploration is a head to head look at how each program performed.

Check the farmdocDaily website for full details at www.farmdocdaily.illinois.edu.

The four academics compared PLC and ARC-CO payment levels per base acre in 2016. They looked at corn and wheat and then did a simple calculation for each to illustrate which USDA farm safety net program made the largest payments for 2016. They calculated by county, for the whole of the United States, the average county-wide ARC payment and then subtracted from it the calculated average county-wide PLC payment. The differences where mapped.

2016 Corn Payments | ARC-CO minus PLC

For corn, it shows ARC-CO payments per base acre exceed those from PLC in most of the counties in the western, Great Plains, and southeastern regions of the US. In more than 60% of counties where the ARC and PLC programs are available for corn base, the ARC-CO payment is at least $10 per base acre larger than the average PLC payment. The ARC-CO payment per base acre is more than $20 larger than the average PLC payment per base acre in more than 50% of counties.

The exception to this is in the Midwest. Many counties in Illinois, Iowa, Missouri, Wisconsin, Minnesota, and North Dakota would receive larger payments from PLC for the 2016 corn crop. Despite low prices, high yields in this region had an offsetting effect on ARC-CO payments. Average PLC payments exceed ARC-CO payments for corn by more than $10 per base acre in 27% of counties across the United States, and by more than $20 per base acre in 17% of counties. Most of those counties are in the corn belt.

This is not an unexpected outcome as ARC was projected to make much larger payments in the first years of the program, and then to taper off with PLC expected to make larger payments in the closing years of the current farm bill. It did this more evenly across the United States for the 2016 wheat base.

The vast majority of counties trigger larger PLC payments per base acre for 2016 wheat. The average PLC payment is more than $10 larger than the ARC-CO payment in nearly 92% of counties with ARC and PLC programs for wheat base. The average PLC payment is more than $20 per base acre larger than the ARC-CO payment in more than 57% of the counties. This large payment difference of more than $20 per base acre captures the main wheat producing areas of the country.

2016 Wheat Payments | ARC-CO minus PLC

Again, while low wheat prices had the effect of triggering PLC and ARC-CO payments, most wheat producing areas experienced high yield levels, offsetting the price effect for ARC-CO payments. Less than 1% of counties triggered an ARC-CO payment per wheat base acre larger than the average PLC payment.

In summary, the farmdoc team finds low commodity price levels led to PLC payments being triggered for a number of program crops in 2016, including corn and wheat. Their models show the size of PLC payments per base acre vary regionally by the size of PLC program yields for those crops, with larger payments being triggered in areas with larger program yields. This includes the Midwest region for corn, and the Midwest, Great Plains, and Western regions for wheat.

President Trump's Pennsylvania Tax Reform Speech

Last night President Donald Trump made a speech about his administration’s tax reform plan. He addressed truckers in Pennsylvania. Mr. Trump told the truckers his tax reforms will create American jobs by lowering taxes in several ways.

So, to summarize, our plan goes from eight tax brackets down to four, expands the zero tax bracket greatly, expands the child tax credit, repeals the estate tax and special interest tax breaks, cuts the corporate tax rate from much more and equal to 35% tax and brings it all the way down to 20%, and cuts tax breaks for small businesses to the lowest level in more than eight years.

The President also says it will be possible for most Americans to do their taxes on a single sheet of paper.

The particulars of the reform would double the standard deduction so that $12,000 of income for individuals and $24,000 for married couples would be tax-free. It would consolidate the eight existing tax brackets for income to four brackets: zero, 12 percent, 25 percent, and 35 percent. The Child Tax Credit would expand to benefit more middle-income families and eliminate the marriage penalty, although how this will happen isn't outlined. Finally, the reform would create a new $500 tax credit for those caring for an adult dependent.

The President last night also mentioned something not in the official release. It’s unclear if this is related to the Bonus Depreciation tax break, but that’s rather how it sounds.

And that is part of our plan because, companies in order to compete, over the next five-year period in our framework, and within our framework, that you right off 100% of the cost of new equipment in the year you buy it. When have you heard that one? That’s going to be a big one. That’s going to be big.

Bonus Depreciation currently allows businesses of all sizes to depreciate 50 percent of the cost of new equipment acquired and put in service during 2017. It also allows the same deduction for some improvement to non-residential real-estate. It is scheduled to phase down to 40 percent in 2018 and 30 percent in 2019. This particular tax break is targeted to large businesses.

Farmers generally use the related Section 179 Deduction which also accounts for the purchase of used equipment and caps the dollar amount rather than using a percentage.

The President's proposal could seek to replace both by combining them into a single deduction which would sunset in five years.

Exploring Corn & Soybean Stocks

Last week’s Grain Stocks report should reduce the ending stocks for both corn and soybeans this month.

USDA’s quarterly grain stocks estimate suggests there are fewer bushels of corn and soybeans leftover from last year than have been reported so far. University of Illinois Commodity Grain Markets Specialist Todd Hubbs says corn is off by 56 million bushels and soybeans are down 44 million, “I’d say one thing out of the stocks report is the idea that corn and soybean consumption is starting to get stronger as we move through the year. This is especially the case in some areas we didn’t see before like feed. For the soybean ending stocks, USDA adjusted 2016 production. This isn’t a shocker, but it did change the balance sheet.”

I’d say one thing out of the stocks report is the idea that corn and soybean consumption is starting to get stronger as we move through the year. This is especially the case in some areas we didn’t see before like feed.

Having said that, Hubbs admits the 2016/17 projected carryouts for corn and soybeans remain very large. It’s possible to roll forward the September grain stocks report to forward figure the October USDA Supply & Demand table… or at least some of the adjustment. When you do that it shows corn carry out at 2.295 billion bushels and soybean ending stocks at 301 million. It is a matter then, says, Hubbs, of laying off the heavy supply-side against growing consumption - which for the moment is hampered by low river water levels that have been causing transportation problems to the Gulf of Mexico. Hubbs says, “The strong demand, the strong consumption, that we’ve been seeing is a good sign as we move through the next marketing year if we can keep it up. Right now we are suffering under these supply and transportation issues.”

It’s not to say a bullish market is around the corner, but that demand should provide a series of marketing opportunities over the coming months.

Friday’s USDA Grain Stocks Unlikely to Change Corn Market

Friday the United States Department of Agriculture will close out last fall’s harvest and marketing year with the release of the fourth quarter Grain Stocks report. Todd Gleason reports it is not expected to impact the price of corn.