Price Loss Coverage or Agricultural Risk Coverage - Part 2

This is the second article in a series that explains the differences in price loss coverage and agricultural risk coverage options. Read the first article here.

Price Loss Coverage (PLC)

What is PLC?

• Similar to traditional counter-cyclical programs


• Is triggered under conditions of low national average prices


• Pays if crop prices fall below set reference prices


• Raises the floor price for all the crops it covers, including corn, soybeans and wheat, so payments will be made much sooner than the previous law

Under PLC, the payment to a producer is triggered when the U.S. marketing year average price falls below a reference price specified in the Farm Bill. The payment, when triggered, will equal the maximum of either the reference price minus the average marketing year price or the reference price minus the loan rate. The payment is on 85 percent of base production (i.e., base acres x program yield) for the particular crop. The accompanying table shows the reference price and loan rate for major AgriBank District crops covered under the program.

CROP	REFERENCE PRICE	LOAN RATE
Corn	$3.70 / bu	$1.95 / bu
Soybeans	$8.40 / bu	$5.00 / bu
Wheat	$5.50 / bu	$2.94 / bu
Rice (long & medium grain)	$14.00 / cwt	$6.50 / cwt
Barley	$4.95 / bu	$1.95 / bu
Oats	$2.40 / bu	$1.33 / bu
Minor Oilseeds	$20.15 / cwt	$10.09 / cwt

EXAMPLE

Suppose a producer has 100 base acres of soybeans with a program yield of 25 bushels per acre. The marketing year average price has fallen to $4.50 per bushel. What would be the total PLC payment for this producer?

First, since the marketing year price is below the loan rate of $5.00/bu, the payment would equal the difference between the reference price and loan rate, or $8.40 - $5.00 = $3.40 per bu. The producer’s base production is 100 base acres x 25 bu program yield = 2,500 bu. The payment rate is 85 percent, or 85 cents on the dollar. Therefore, the total payment would be 0.85 x $3.40 x 2,500, which would equal approximately $7,225.

Suppose instead the marketing year average price for U.S. soybeans was $7.00 per bu. Now the PLC payment would equal the reference price minus the marketing year price, or $8.40 - $7.00 or $1.40 per bu. The producer payment would equal 0.85 x $1.40 x 2,500, or approximately $2,975.

Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.