Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) program payments under the 2014 Farm Bill have been substantial in Nebraska, adding more than $600 million to cash flows for producers this past October for the third year in a row. However, this could be the last year of such large payments, as early estimates for 2017 crop payments to be paid in the fall of 2018 drop to around $200 million and 2018 crop payments in 2019 fall to less than $50 million.

Farm program payments and estimates start with national marketing year average prices given in Table 1 for the primary Nebraska crops for the 2014-2018 crop marketing years covered by the 2014 Farm Bill.

Payment and Projections

PLC payment rates are directly tied to the difference between the legislated reference price and the national marketing year average price. As prices have fallen, PLC payment rates have substantially increased. Table 2 presents average PLC payment rates or projections per base acre for the 2014-2018 crop years, based on average program yield levels across the state.

While the PLC program started small, it is becoming more significant over the life of the 2014 Farm Bill. Conversely, the ARC program started off with substantial payments, but is expected to shrink quickly through 2018. Payments in the ARC-CO (county-level) program are tied to revenue (price times yield) results for the crop year compared to a guarantee equal to 86% of a benchmark revenue based on the five-year Olympic average price and yield. ARC-IC (for individual farm-level coverage) is calculated similarly, but on farm-level yield averages and results.

As Table 3 illustrates, average ARC-CO payment rates per base acre were large in the first years of the 2014 Farm Bill, but are falling as lower prices work into the average in the benchmark and lower guarantees translate into lower projected payments even as prices do not substantially rebound higher.

Outlook

Beyond 2018, producers can look to potential changes in farm programs under a new or extended farm bill. While there are substantial budget challenges and program questions up for debate, there are widespread expectations that the commodity programs will maintain the current portfolio of ARC and PLC programs. Whether a new farm bill is completed on time or the current legislation is simply extended, the widespread expectation is also that producers will have a new decision between ARC and PLC that could be substantially different than in 2014 given the changing price outlook and expectations for support.

In summary, farm program payments have helped crop producers withstand the dramatic drop in prices thus far, but the support is projected to fall sharply by 2018. Even recognizing the limitations of commodity programs, it is obvious that ARC and PLC have been important parts of a producer's risk management strategy and bottom line. It is just as important to remember other production, insurance, and marketing decisions that all contribute to a portfolio approach to risk management.

Endnotes

Adapted from the October 25, 2017 Cornhusker Economics newsletter article available at https://agecon.unl.edu/cornhusker-economics/2017/nebraska-farm-program-payments-projections.

Updated information, detail, and analysis is available at http://farmbill.unl.edu.