Each year crop farmers have the option to enroll in either the Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) programs through their local Farm Service Agency office. These two programs have the potential to produce payments, like an insurance program, should commodity prices dip below a set value. For the 2021 growing season, less is known than in previous years and the programs are functioning more like true insurance rather than selecting the program that will produce a guaranteed payment after yields and prices are announced.
In past years, in-person programs would address the known factors to help producers make an informed decision based on their desired goals for their operation. This year, free webinars will be available on February 25th to discuss Farm Bill issues, including ARC/PLC, and then another one on March 8th to discuss private crop insurance.
Below are three key program differences shared by OSU’s former ag economist, Ben Brown:
- PLC only produces a payment when the Market Year Average falls below the reference price and has no direct connection to yield.
- ARC payments start when revenue drops below 86% of historical revenue compared to PLC’s 100%.
- There’s a 10% cap on ARC-CO payments while PLC’s is the commodity loan rates.
The 2021 PLC caps are as follows: corn at 41%, soybeans at 26%, and wheat at 39%. Commodity reference prices are $3.70 for corn, $8.40 for soybeans, and $5.50 for wheat.
Note: the ARC program has two sub-options. ARC-CO (county based) and ARC-IC (individual farm based).
Ben Brown’s analysis (and that of others) regarding the statistical probability of either program making a payment for corn or soybeans this year is low. Based on reference prices and projected commodity values from previous years, there is only a 30% chance that corn prices will be lower than the $3.70 reference price and just an 11% chance that soybeans will fall below their reference price of $8.40. Prices will have to fall below that to trigger PLC and high prices with average yields will also prevent an ARC payment. Some private analysists (not USDA) have projected the 2021-2022 marketing year prices at $4.00/bushel for corn and $10.25/bushel for soybeans.
The following comments are based on statistical analysis, and of course, have a chance of being incorrect should unforeseeable events unfold. But, if the numbers are correct, the likelihood of receiving a payment for soybeans is higher under the ARC-CO program. Wheat is more likely to produce a payment under PLC. Corn is truly a toss-up, but remember, for all of these, there is also a good chance that there will be no payment this season regardless of the program that you select! This is a risk management program, not a guaranteed payout.
So, what do you do? Ben offered the following 4 suggestions based on your personal preference and management strategies.
- The most conservative risk management strategy is to select PLC and then purchase the maximum amount of SCO (supplemental coverage option).
- The second most conservative risk management option is to diversify if you have multiple farms with FSA base acres. Farms with larger yield variability are better suited for the ARC program and place stable yield farms in PLC.
- If your goal is simply to receive a payment of any amount, ARC-CO is for you. ARC produces payments more frequently than PLC, but the payments are almost always smaller.
- If you only care about a payment if the payout is high, then PLC is a better choice. This is ideal for operations with strong financials who would like some risk protection, but certainly do not rely on it.
I want to finish by noting that while payments may be unlikely for this growing season, that alone may not be enough reason to simply make no selection. For example, we pay for car insurance but certainly wouldn’t want to get a payout every year due to accidents, right?
ARC and PLC are both voluntary, but you must enroll each year with your local FSA office. Your program selection can also be changed each year when contacting FSA. If you re-enroll, but do not specifically request a program change, your program will default to the previous year’s selection. The deadline to contact FSA for enrollment is March 15th. For more detailed information on these programs, call your FSA office and set up an appointment.
Matthew Nussbaum is an OSU Extension Agriculture and Natural Resources Program Assistant and may be reached at 330-264-8722.
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