Experts Urge Farmers to Weigh Economics of ARC vs. PLC on Farm-by-Farm Basis
In 2014, the choice between the Agricultural Risk Coverage program and the Price Loss Coverage program was simple. High corn and soybean prices translated to high benchmark revenues, which in turn, front-loaded ARC-County payments in the early years of the program and made it an obvious choice.
Since prices were good, many producers saw program payments as icing on the cake.
“Making this decision now is a totally different mindset than five years ago when we had such good prices,” said Kansas State University Extension associate Robin Reid, who created a spreadsheet tool to help farmers in their decision-making. “These farm program payments could make the difference in the farm making it through another year. It is a very critical piece of the management decisions on the operation.”
It’s a decision that farmers are going to get to make more often under the 2018 farm bill. Instead of one choice covering five years, farmers need to make a choice for the 2019 and 2020 crop years by March 15, and then will make an annual election for the remaining life of the farm bill.
Jim Mintert, director of the Center for Commercial Agriculture at Purdue University, said in a recent webinar that farmers will likely make different choices this time around because the economics have changed. (Click here to watch the webinar: https://ag.purdue.edu/…)
He thinks PLC will be a more popular option for corn and wheat, while ARC-County will make the most sense for soybeans. There are even situations where ARC-Individual may provide the highest payment.
But the first thing he encourages farmers to do is make an appointment with their FSA office. Very few farmers have made their elections already, and he cautions that offices will get busy as the deadline nears.
It’s also a deadline you don’t want to miss, Kaitlin Myers of the Indiana Farm Services Agency said on the webinar. If farmers don’t complete the process by the deadline, their farms will be enrolled by default in their 2014 farm bill choice, and they’ll be ineligible for 2019 payments.
When farmers head to their FSA offices, they’ll also have a one-time opportunity to update their PLC program yield.
“Historically, if you have had a chance to update yields, you just did it,” Mintert said. But between the way it’s calculated and a couple of low-yielding years in the sample period, the adjustment might not be higher than the old PLC yield. He said one producer he spoke with only updated yields on about 10% of his farms.
“You won’t know until you do the calculations. We encourage people to do it on every single farm and crunch through the numbers,” he said.
UNDERSTANDING THE OPTIONS
The PLC program makes payments when the marketing-year average price falls below the reference price, which is $3.70 for corn and $8.40 for soybeans.
Farmers who choose PLC can also elect the Supplemental Coverage Option on their crop insurance, which allows them to buy an additional 11% coverage, although Mintert added that coverage will be based on county, not individual, yields. SCO’s premium is subsidized at 65%.
The ARC-County program uses rolling Olympic averages, which means it excludes the highest and lowest number, of prices and yields to create benchmark revenue. It then pays on 85% of a farm’s base acres when county revenue falls below 86% of the benchmark. Payments are capped at 10% of benchmark revenue.
For ARC-County and PLC, farmers make an election on both a farm and commodity basis.
The ARC-Individual program is different, only allowing one decision per farm even if it’s growing multiple commodities. Its benchmarks are calculated off the farm’s proven yield history, but it only pays out on 65% of base acres instead of the 85% covered by ARC-County.
“That pulls back the attractiveness of the ARC-IC program. However, given what took place in 2019 in the Eastern Corn Belt, that isn’t enough to make it unattractive for everybody,” Mintert said.
The Purdue economists say it’s worth evaluating ARC-IC if the FSA farm had a 20% or more production loss in 2019 due to low yields, high prevented planting acreage or a combination of both. If losses are greater than 25-30%, that could generate a maximum payment for 2019.
“It would be rare for someone to have a lot in ARC-IC, but it might fit one or two or three farms,” Mintert said, adding that the calculations become more complicated the more farms you have enrolled in ARC-IC.
LET CALCULATORS DO THE CRUNCHING
“It’s not quite as complicated as it may seem,” Michael Langemeier, associate director for the Center for Commercial Agriculture at Purdue, said during the webinar. “If you choose one program for corn, you’re most likely going to choose that for corn across all of your farms.”
The reason to go through one by one is that there are exceptions, Reid said.
“I’ve ran into some farms that just have a really poor program yield. Either they hadn’t planted that commodity or had good enough yields to update it, and so their PLC payments are just going to be less than a different farm,” she said. “So, for one farm, you might be better off going ARC-Co.”
There are a number of university resources available that will do the actual math for you, including a spreadsheet made by Reid and colleagues at Kansas State that covers the entire nation and a wide variety of crops. You can find it along with a video explaining how to use it here: https://www.agmanager.info/….
You can find a similar tool from the University of Illinois here: https://ag.purdue.edu/….
“We know a lot about price for this marketing year already,” Reid said, especially for summer crops like wheat where the marketing year started in May and even for fall crops like corn and soybeans.
It’s important to remember the marketing-year average price is a national number determined by a monthly survey of what prices grain elevators are paying. It’s then weighted by the amount of grain sold in that month.
“So our biggest months with these fall crops are December, January and February, and once we get through those, the marketing year is fairly well set as far as that marketing-year average price,” she said.
Kansas State publishes its projections for the marketing-year average price as well as others’ projections here: https://agmanager.info/….
Reid advises looking at the projections and finding the corresponding row in the spreadsheet to see what a PLC payment would be, then you can estimate your county yield to determine what an ARC payment might look like.
In Kansas, good yields on last year’s crop mean an ARC payment is pretty much nil, “But we do know, based on price projections, we’re going to have a very sizable PLC payment, and this chart lays it out really nicely,” Reid said.
Katie Dehlinger can be reached at Katie.firstname.lastname@example.org
Follow her on Twitter @KatieD_DTN
Source: Katie Dehlinger, DTN
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