PARKER, Colo. (RFD NEWS) — “Sequestration” is becoming a growing topic of discussion among farmers as producers look ahead to commodity program payments and how federal budget reductions could impact their operations.
Farm CPA Paul Neiffer joined us on Friday’s Market Day Report to explain how sequestration affects programs such as the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs.
Neiffer said sequestration refers to an automatic reduction applied to certain USDA-administered programs. For ARC and PLC payments, the current reduction is 5.7 percent.
“So if your normal payment was, let’s say, $10,000, then you would reduce it by 5.7%,” Neiffer explained. “Your final payment would be about $9,430.”
However, he noted that not every USDA program is subject to sequestration, meaning the impact depends on the specific program a producer is receiving.
For farmers collecting ARC or PLC payments this year, Neiffer said the sequestration reduction comes after other payment calculations are completed.
Calculating ALC/PLC Payments with Eligible Base Acres
Neiffer also explained that ARC payments are first calculated based on the producer’s eligible acres and payment rates, then adjusted because payments are made on 85 percent of base acres. After that adjustment, the sequestration reduction is applied.
For example, a producer with a calculated ARC payment of $50 per acre across 1,000 acres would start with a gross payment calculation of $50,000. After the 85 percent base acreage adjustment and the 5.7 percent sequestration reduction, the final payment would be reduced further.
Neiffer also noted that payment limits remain an important consideration. Under current rules, producers who exceed the payment cap after all adjustments are still subject to the established limit.
He said that differs from previous years, when sequestration could have effectively lowered the maximum payment amount. Under current rules, producers will continue to receive the full payment limit if they remain above the cap after sequestration adjustments.
Looking ahead, Neiffer said farmers should expect the same sequestration rules to remain in place next year unless Congress makes changes.
“At some point, perhaps Congress may change the rules,” Neiffer said. “They tend to do that once in a while.”
For now, producers receiving ARC or PLC payments should factor the 5.7 percent reduction into their expectations when planning for commodity program payments.
