What is in this article?:
- ARC Farm Program Net Returns
- Net return scenarios
Agricultural Risk Coverage (ARC) is a revenue-based proposed Farm Bill program passed by the Senate Agriculture Committee. In this post, net returns for corn are examined using prices and ARC payments detailed in a May 9, 2012 post. At $4/bu. and below corn prices, ARC will make payments, aiding in cushioning revenue losses. However, ARC payments are not large enough is assure profits, as farmers who cash rent will face losses at prices below $4/bu.
Net Return Calculations
Calculations of net returns are shown in Table 1. These calculations are for an average farm in Champaign County, Illinois, for the years 2013 through 2016. Yields are assumed to be at their trend-line values of 180 bu./acre in 2013, 182 bu. in 2014, 184 bu. in 2015, and 186 bu. in 2016. Net returns are calculated for four price scenario where the price in each year from 2013 through 2016 equals:
- $4.50/bu. This price represents an expected long-run average price for corn.
- $4/bu This scenario represents a below-average, but not unusual, price.
- $3.75/bu. This price is equivalent to prices during the late 1990s given a $4.50/bu. long-run price. Prices during the late 1990s resulted in financial stress on farms.
- $3.55/bu. This price occurred in 2009. A string of years with prices below $3.50/bu. are possible, but unlikely.
For each one of these price scenarios, crop revenues and ARC payments are calculated. Detail on the calculation of ARC payments is given in the Appendix Table 1, with more commentary provided in the May 9 post. In these calculations, it is assumed that the price the farmer receives for corn and the price used to calculate ARC payments are the same.
Net returns equal crop revenue plus ARC payments minus costs. Costs total $767/acre and are assumed to be the same across all years. Costs include:
- $514/acre of non-land costs/acre. These represent direct, power and overhead costs and are taken from March 2012 revenue and cost estimates (pdf) for central Illinois high-productivity farmland.
- $253/acre of cash rent. This is based on a reported average cash rent (pdf) of $233 for 2011. A $20/acre increase was added to account for increases in cash rents in 2012. Given this cash rent, these net returns are representative of average cash rent situations. There are many cash rents above these averages.