ARC Versus PLC: Don’t Leave Money on the Table

What is the probability of market year average prices for 2019, 2020 and 2021 being less than $3.70 for corn, $5.50 for wheat and $8.40 for soybeans? ( MGN Online )

In the next few weeks, you have an important decision to make. Should you choose Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC)? Your choice lasts through 2021.

Evaluate changes to the programs

For quick review, income support for the ARC-County (CO) program is tied to historical base acres, not current production. ARC-CO payments are issued when the actual county crop revenue is less than the ARC-CO guarantee for the covered commodity.

PLC program payments are issued when the effective price of a covered commodity is less than the respective reference price for that commodity. The effective price equals the higher of the market year average price (MYA) or the national average loan rate for the covered commodity.

ARC-CO yields are taken at a county level, and prices are hovering around triggers for PLC—so both options have pros and cons.

In the 2018 Farm Bill, yield changes were made to the ARC-CO program. You can now use 80% of county T-yields. In addition, the Risk Management Agency sets yield values.

“PLC has the ability to increase the reference price, given where prices are at for the 2019 and 2020 decision,” says Brent Gloy, economist at Agriculture Economic Insights. “Another thing that will be a big deal is the opportunity to update program yields in 2020.”

Review 2014: What did you do? How did it go? What lessons can you glean?

“When we made that 2014 decision, we had really strong prices in the rearview mirror,” says David Widmar, economist at Agriculture Economic Insights. “Those strong prices, which lead to ARC’s high benchmark price in 2014 and 2015, helped influence that decision and we saw producers enroll more than 90% of corn and soybean acres in ARC-CO.”

Wheat received PLC payments nearly every year—and it was the obvious choice for 2014 and 2015. However, corn was trickier because ARC-CO did result in some payments, but many counties saw bigger PLC payments. Soybeans never received a PLC payment.

ARC-CO lost its price appeal—but recent yields could make it appealing for the 2019 and 2020 decision for some farmers. If your county recorded exceptionally high yields the past five years, ARC-CO might be the better choice.

“From a 30,000-foot view, PLC will be more attractive for many farmers,” Widmar says. “CBO [Congressional Budget Office] expects more PLC acres but know that might not be what’s best for your individual farm. Review the past five years.”

Set price expectations for 2019 and 2020.

What is the probability of market year average prices for 2019, 2020 and 2021 being less than $3.70 for corn, $5.50 for wheat and $8.40 for soybeans? For PLC, prices mean everything. For ARC-CO, they’re just an important factor in the equation. Do the math—know what it’ll take to trigger a payment on your fields.

“This is going to be an important decision for farmers in this ag economy,” Gloy says. “It’s critical we all make good decisions and not leave dollars on the table.”

Signup ends March 15, 2020.

Another Option for Flooded Acres

ARC-CO and PLC are the two most common choices—however, ARC-Individual (I) could help farms that have experienced a catastrophe. For example, if you think you might have a second year of prevent plant acres in 2020, ARC-I might be a better option.

If you have 100% prevent plant, you’ll receive a payment, says Scott Gerlt with the University of Missouri Food and Agricultural Research Institute. However, if just a few fields are prevent plant, those fields do not count toward the revenue calculation.

ARC-I only plays 65% of program base, versus 85% in ARC-C and PLC. ARC-I makes a payment if average actual revenue per acre of all covered commodities planted is less than 86% of the ARC-I farm’s average benchmark revenue per acre, according to FarmDoc. For more information about ARC-Individual click here.

“A lot of producers are just trying to take a breath for a minute after what’s been a terribly long year,” says Scott Brown, University of Missouri economist. “But we’re in a situation now where they can start thinking about their decision for 2019 and 2020.”

Comments