2019-2020 Farm Program Decision and Fairness across Covered Commodities

The PLC (Price Loss Coverage) program option makes payments only if MYA (marketing year average) price is below ERP.  Thus, a key program decision factor is the relationship between a covered commodity’s expected MYA price and ERP.  Assuming a simple forecast that 2019 MYA price is the currently projected 2018 MYA price, expected 2019 MYA price ranges from 23% under ERP for long-grain rice to 51% above ERP for sesame seed (see Figure 1, Appendix Table 1, and Data Note 1).  Corn, soybean, and wheat MYA price is 4% under, 2% over, and 6% under ERP, respectively, as of March 2018.  Only 1 other covered commodity (dry peas) is within their range of values.  Ten covered commodities have a MYA price that is 13% or more under ERP.  The lower is MYA price compared to ERP, the more likely will a PLC payment be triggered.  As of March 2018, this simple forecast analysis suggests corn, soybeans, and wheat will have a closer program decision than most other covered commodities and that it will be critically impacted by how demand and supply evolve over the 2019 production period.  Small decreases in supply or small increases in demand could eliminate 2019 PLC payments for corn, soybeans, and wheat.  Alternatively, the likelihood of PLC payments will increase if supply and demand changes for these crops lead to lower prices.  Other key program decision factors include that: (1) ARC (Agriculture Risk Coverage) program option, but not PLC, pays on yield variation, (2) PLC pays over a wider, often much wider, range of MYA prices as ARC payments are limited to 10% of its benchmark revenue while PLC payments are bounded by the lower US loan rate, and (3) PLC payments start at 100% of ERP while ARC payments start at 86% of benchmark revenue.