The 2021 ARC-PLC Decision – Factors to Consider – DTN

Flooded soybean field. Photo: Randall Mallette, LSU AgCenter

Starting with the upcoming 2021 crop season, farmers need to make their farm-bill safety net program elections on an annual basis.

University of Illinois economists say it doesn’t look like the Agriculture Risk Coverage program or the Price Loss Coverage program will make payments for the next crop season based on current price forecasts and trend yields for corn and soybeans. Still, the deadline to make elections is fast approaching.

Farmers must choose their program by March 15, but Illinois Farm Services Agency chief program specialist Randy Tillman said they’re encouraging farmers to start the sign-up process now, especially if they need to make any updates to their farm records.

COVID restrictions have limited the number of employees that can be in FSA offices at one time, and that means farmers need to make appointments to complete their paperwork in Illinois. Check with your local FSA office to find out if they have similar requirements.

Tillman said in a FarmDoc webinar that if everyone in Illinois who enrolled in ARC or PLC last year wanted to change their elections, 170,000 contracts would need updating. With less than a month of business days to the deadline, that works out to nearly 6,000 farm updates each day.

“If we wait until the last few weeks, and then we find out you have farm records that you need to have updated before we can do an election, there’s the possibility you’ll miss out,” he said. If ARC/PLC elections aren’t updated by March 15, farmers will be re-enrolled in the same program as the previous year.

He added that farmers can make an election now and change their mind before the 15th. “With all the restrictions that we’re under, it’s going to take a little more planning than what we did last year.”

University of Illinois agricultural economist and associate professor Nick Paulson echoed Tillman’s encouragement to begin the process sooner than later, adding that this year is different than last year in several ways. Last year, farmers made election for the 2019 and 2020 crop at the same time with pretty good information on 2019’s yields and marketing-year average prices to help make a decision, but this year, there’s more uncertainty about both.

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“We’re still six months away from the 2021 marketing year even starting. So, we have much less information about where the prices that will ultimately determine any payment level for these programs might actually end up. On the yield side, it’s very similar to the price situation. … We’re making a decision about a crop year that has just started, a crop that isn’t in the ground yet,” he said.

Another difference from last year is that ARC-Individual will be a less popular option. In 2019, farms that experienced large amounts of prevented planting could get higher payments from the program, but Paulson cautions that ARC-IC is best used in a limited set of circumstances, such as a farm that has a history of total prevented planting or highly variable yields.

In general, corn and soybean farmers will pick between ARC-County and PLC.

PLC pays when the marketing-year average price falls below the reference price, and based on current projections, a payment is unlikely for corn and soybeans. The effective reference price is $3.70 per bushel for corn, $8.40 per bushel for soybeans, but current marketing-year forecasts anticipate an average price of $4 per bushel for corn and $10 per bushel for soybeans.

“We’d need some moderate price declines from what we currently expect to trigger some small PLC payments” in corn, he said. “We’re further away from that reference price for soybeans, though, so bigger price declines would be needed on soybeans to even get, maybe, a relatively small payment.”

ARC-County’s benchmark prices are also lower than the current marketplace — $3.70 for corn and $8.95 for soybeans — and when trendline yields are factored in, it’s unlikely ARC will pay out either.

There are some scenarios where farmers could receive payments. If prices were to dramatically decline while yields hit trendline, it could trigger PLC payments. A major yield loss could trigger ARC-County payments, especially if prices rise. Or there could be a combination of both, with a moderate price decline and below-trend yields, which could trigger either program.

Other university Extension economists around the country also have been conversing with producers about ARC-PLC. Brad Lubben at the University of Nebraska, told DTN that neither program would be expected to pay for corn, but PLC wins in an analysis because it would take a larger percentage in revenue loss to trigger an ARC payment than PLC.

Grain sorghum and wheat also would lean toward PLC. For soybeans, neither would be expected to pay, but PLC may still win most of the analyses, Lubben added.

“However, the gap between the percentage of revenue loss to trigger ARC and the percentage price loss to trigger PLC are much closer than they are with corn,” Lubben stated to DTN. “Some producers could favor ARC even if the percentage chance of a payment is smaller just because the revenue protection could be more thorough than the price protection.”

The analysis suggests more of a split in ARC-County vs. PLC in soybeans, but actually, the sign-up from 2019-2020 still greatly leaned toward ARC-County, so producers could be fighting the inertia of current enrollment in ARC-County to consider shifting to PLC, Lubben stated.

Lubben added, “One important consideration is that producers should be as focused on their crop insurance decision as they are the farm program decision. With current higher prices showing up in new-crop futures that will set the base insurance price, the insurance tools with revenue protection, and thus price risk protection, might provide substantially upgraded protection than either ARC or PLC.”

Producers might also want to look at the Supplemental Coverage Option (SCO) and the new Enhanced Coverage Option (ECO), Lubben noted. SCO covers the gap up to 86% (if you are not in ARC), and ECO can cover the gap between 86% and 90% or 95%.

Both are tied to county results, so the yield protection is less relevant than individual insurance policies, but both effectively ratchet up the embedded price protection much more than the farm programs could and at an attractive cost relative to a currently at-the-money put, Lubben noted.

Paulson encouraged farmers to utilize some of the university’s decision-making tools to help them run scenarios to see when each program could pay based on their farm’s data. Those tools can be found here.

You can view a replay of the FarmDoc webinar here.

DTN Ag Policy Editor Chris Clayton contributed to this report.

Katie Dehlinger can be reached at: katie.dehlinger@dtn.com

Follow her on Twitter @KatieD_DTN

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