ARC Versus PLC – Best Choice In A Low-Price Environment? – DTN

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A vast majority of corn and soybean farmers elected the Agriculture Risk Coverage (ARC) program under the 2014 Farm Bill, but University of Illinois economists say growers are more likely to choose the Price Loss Coverage (PLC) program for 2019 and 2020 crops.

“The higher the prices, the more you look at ARC-County. The lower the prices, the more it’s going to favor PLC,” University of Illinois agriculture economist Gary Schnitkey said in a Farmdoc webinar.

Schnitkey and University of Illinois professor Jonathan Coppess explained a number of changes the 2018 farm bill made to the PLC and ARC-County programs and how they could affect farmers’ decision, but added that low commodity prices make the PLC program the most likely choice.

A separate webinar exploring under what circumstances a farmer would consider using the ARC-Individual farm program will be held at a later date.

One of the most important changes is farmers will be able to make more frequent elections of which farm safety net program they’d like to participate in, instead of making one decision to cover five crop years.

Farmers need to make a choice between PLC, ARC-County and ARC-Individual by March 15, 2020, for crops grown in 2019 and 2020. They’ll make an annual election in 2021, 2022 and 2023.

Reasons To Hold Off On Decision

Schnitkey said there are advantages to waiting until closer to the deadline before making a decision.

“March 15, 2020, is halfway through the marketing year for 2019, and we should have a good idea of what county yields are at that point in time, so at least the 2019 choices will be in pretty clear focus,” he said.

ARC, PLC Payment Calculator Available

The 2018 Farm Bill also allows farmers to update their yield history for the PLC program, and that’s something farmers can begin doing at any time. Schnitkey recommends using crop insurance history to do so, if it’s advantageous.

“Decisions will be on a crop and a farm basis. So you could update corn yields on one FSA farm and not update soybean yields,” he said. “The decision is simple: Pick the higher number.”

While the most recent farm bill includes a mechanism that allows PLC reference prices to rise, Coppess said it won’t come into play for the 2019 or 2020 crop years, leaving the statutory reference prices at $3.70 per bushel for corn and $8.40 per bushel for soybeans.

The PLC program makes payments when the marketing year average price falls below the reference price.

The ARC program incorporates yields as well as price, which makes its calculations more complicated. It uses a rolling Olympic average, which means it excludes the highest and lowest number, of prices and yields to create benchmark revenue. It then pays when county revenue falls below 86% of the benchmark.

Low-Yield Versus Low-Price Scenarios

ARC tends to pay better in low-yield scenarios, while PLC tends to pay better in low-price scenarios.

Congress made a number of tweaks and changes to the ARC program that could play a bigger role long term, but Coppess said those changes are unlikely to sway this round of decision making.

Among those changes, ARC will now use Risk Management Agency data instead National Agricultural Statistics Service data to determine county yields and will make payments based on the actual county the farm in located in, instead of the county where the farm’s main administration takes place. Yields in the calculations are also one year in arrears, meaning 2019’s benchmarks will be based on figures from 2013 to 2017.

More substantially, the program uses trend-adjusted yields in its benchmark revenue calculations, which Coppess said acknowledges that yields are expected to improve over time.

“Prices move up and down, and Olympic averages are meant to smooth out volatility,” he said. “Yields operate differently. We don’t expect them to move up and down in the same sort of volatile nature. And so when you’re designing a revenue program, you want yields that reflect what the expectation is for that farm and that county.”

Coppess and Schnitkey gave examples of how those yields will be calculated, even though farmers won’t have to do them. The Farm Service Agency calculates the benchmarks.

For 2019’s ARC calculations, the benchmark price for corn will be $3.70, and Coppess said that’s a stark reminder of how different ARC looks than the last time farmers signed up in 2014.

“We went into 2014’s decision at a $5.29 benchmark price for corn, so we were at a much higher level. When we talk about why PLC looks like the more favorable decision, this is a big part of it. This ARC program adjusts over time, and it has adjusted down to this lower price level,” he said.

Other Factors Favoring PLC

Schnitkey said there are two other factors that make PLC more favorable this year.

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“These payments will often get capped. So just remember that there is a cap on ARC-County payments and it’s 10% of our benchmark revenue,” Schnitkey said. Farmers that choose PLC can also elect the Supplemental Coverage Option on their crop insurance, which allows then to buy an additional 11% coverage.

SCO insurance also has some protection advantages with the federal government covering 65% of the premium cost.

Coppess and Schnitkey also demonstrated a new calculator designed to help farmers make decisions. It shows the probability that ARC or PLC will make a payment under a variety of different scenarios. Coppess said the model that powers the calculator will become more accurate over time.

“We will know a whole lot more about the price scenario for this as we go into the new year,” he said. “So the timing for this decision, you really want to wait this out and see what things look like.”

The full version of the calculator is expected to be live in early October. You can find an early release here: https://fd-tools.ncsa.illinois.edu/….

If you’re interested in more details about the changes to ARC and PLC, you can watch a rebroadcast of the “Updates on Farm Bill ARC and PLC Programs” webinar.

  • Katie Dehlinger can be reached at Katie.dehlinger@dtn.com
  • Follow her on Twitter @KatieD_DTN

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