Told to choose between traditional subsidies and a new-era revenue subsidy, corn and soybean farmers overwhelming opted for the revenue plan, the government announced. Growers were expected to choose the Agriculture Risk Coverage plan, analysts said, because it will provide larger payments than traditional subsidies triggered by low prices over the life of the 2014 farm law. Nationwide, 96 percent of soybean growers and 91 percent of corn farmers opted for ARC, a far larger proportion than expected.
More startling, 66 percent of wheat growers chose ARC, when many analysts expected a landslide for the traditionally structured Price Loss Coverage program because season-average prices are forecast below the PLC trigger for four of the five years covered by the new farm law. The USDA said 99 percent of peanut and long-grain rice growers and 94 percent of medium-grain rice growers chose PLC, in line with analysts’ expectations.
The USDA released data for ARC and PLC selection as part of announcing that enrollment in the crop subsidy programs will open on Thursday and end on Sept. 30. The 2014 law required farmers to make a one-time choice between ARC and PLC; the selection period ended in late winter. Some 1.76 million growers made a selection, slightly more than the 1.7 million enrolled under the 2008 farm law. The 2014 farm law allows growers to enroll one crop in ARC and another in PLC.
A defining question for lawmakers in writing the new farm law was whether to switch crop support entirely to the insurance-like ARC, which shields growers from low prices and yields, or stick with traditional subsidies, using a reference price, such as PLC. The argument pitted wheat, rice and peanut and growers, who preferred PLC, against corn and soybean growers who wanted ARC. It also was a regional dispute – the South and the Plains against the Midwest. In the end, lawmakers decided to offer both approaches.
Although commodity prices have cooled from the fever of the agricultural boom that ran from 2006-13, corn, soybean and wheat prices remain historically high. Advocates of ARC say volatile markets and high production costs make it vital for farmers to be assured of enough revenue to survive. Growers receive a payment when revenue from a crop is at least 16 percent below average. The five-year average is re-calculated each year.
Corn and soybean prices were at record highs in 2012, so ARC payments will be high at first but decline as low prices persist. As an illustration, the think tank Food and Agricultural Policy Research Institute estimated in March that ARC would generate payments for corn crops in 2014, 2015 and 2016 but not in 2017 or 2018. ARC would out-pay PLC for soybeans in all five years, said FAPRI. For other major U.S. crops, including wheat, PLC would provide larger per-acre payments over the five crop years.
PLC is a less complicated program than ARC, and its fixed reference makes it easier for farmers to predict if they will get a payment and how large it would be. If they wanted, growers could opt for PLC and pair it with the Supplemental Coverage Option, which is similar to ARC, as a hedge against a long-running bearish market.
FAPRI director Pat Westhoff said, “The very heavy ARC elections were consistent with our projections of expected payments” for corn and soybeans. Some wheat growers may have chosen ARC, Westhoff said, because it was apparent during the winter that wheat prices were too high for a PLC payment on the 2014 crop, but an ARC payment was still possible. “Also, not everyone is as bearish about future wheat prices as we and USDA are,” said Westhoff, meaning some growers expect wheat prices to recover.
ARC and PLC are offered on some two dozen crops. The USDA said PLC was chosen by 57 percent of barley farms, 54 percent of sorghum farms and 93 percent of canola farms, while ARC was the choice of 76 percent of oats and 51 percent of sunflower growers. Reflecting the prominence of corn, soybeans and wheat as the three most widely grown crops, 77 percent of “base” acres were put into ARC.