The Farm Bill ARC or PLC Commodity Program Decision
The 2018 Farm Bill provides commodity crop producers with options to choose between enrolling in an Agricultural Risk Coverage (ARC) or a Price Loss Coverage (PLC) program. The farm bill allows commodity producers to make a program election for the 2019 - 2020 years by March 15 of 2019 and then a yearly program election for the following three years of the 2018 Farm Bill. Signup and enrollment in farm bill programs are done through county Farm Service Agency (FSA) offices. Before coming into the FSA office, farmers need to do some homework and consider attending a farm bill meeting to help them make a program choice.
The farm bill commodity crop programs offer the possibility of payments that depend upon a farm having base acres established through the FSA office. Base acres do not necessarily reflect the actual acres in production because farm bills in recent history have not permitted farms to update base acres. In many instances, farms may have more acres in crop production than actual base acres on record. Payments are generated when either crop price or the amount of crop revenue per acre falls below a pre-determined figure. Additionally, these payments are generally only made on a percentage of base acres and in some cases also have a maximum payment rate per acre. Depending upon the program choice, key components are either county yield averages and market year average price, individual yield averages and market year average price or just market year average price.
The Agricultural Risk Coverage or ARC program has a county option and an individual option. Both the ARC-Co and the PLC program allow farmers to make an election on a crop by crop basis. For example, a farm could choose to mix and match between the programs, choosing PLC for corn and wheat and ARC-Co for soybeans or any other combination. Both programs will pay on 85% of base acres when a payment is generated. The ARC-Co program generates a per acre payment when crop revenue falls below 86% of a calculated guaranteed crop revenue value. That revenue guarantee is calculated using a 5-year Olympic average of the county yield and market year average price. The PLC program generates a per acre payment when market year average price falls below a reference price set in the farm bill law. The ARC-IC program is a bit different. It uses the individual farm yields instead of county yield averages to calculate potential payments, it only pays on 65% of base acres and if it is chosen it applies to all base acres for all commodity crops on a given FSA farm unit.
Our market situation is quite a bit different compared to when the 2014 farm bill was written. Crop prices have fallen significantly and since 5-year Olympic averages are used in calculating the guaranteed revenue for the ARC programs, that means that guaranteed revenues have also declined significantly. Various yield and price scenarios demonstrate that unlike the 2014 farm bill, this 2018 farm bill will very likely only make small to moderate per acre payments if payments are triggered at all.
This farm bill is much more of an insurance type of program. Farmers need to ask themselves where they need some insurance protection. Do they think we are in a time of potentially declining yields with moderate prices or do they need protection against low crop prices? The ARC programs are designed to provide some protection against variable prices and variable yields. The PLC program protects against low prices. If prices fall below the reference prices, a payment is generated. Those reference prices are $3.70/bushel for corn, $8.40/bushel for soybeans and $5.50/bushel for wheat. Farmers need to ask how likely are crop prices to fall below those reference prices.
The OSU department of Agricultural, Environmental and Development Economics has a very good farm bill web page that contains lots of information about the 2018 farm bill and considerations in making program elections. There is also a page that contains some decision tools. I recommend the use of two of these tools, an OSU Extension Excel spreadsheet decision tool and a University of Illinois internet-based calculator. All this information as well as the decision tools are available at this web site address: go.osu.edu/farmbill2019.
The following link is a podcast recorded at WQKT radio on the topic of the farm bill ARC and PLC commodity programs: https://podcasts.apple.com/us/podcast/episode-55-the-arc-plc-farm-bill-decision/id1442114973?i=1000461857943