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Don’t Agonize: Here’s help on deciding between ARC or PLC programs.
Here we go again! You can add the new farm bill sign-up to your winter financial chores of income taxes. The deadline to choose between the farm bill’s Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) is March 15.
The 2018 Farm Bill made changes to those two programs introduced in the 2014 Farm Bill.
One of the biggest is that this time you must choose between ARC or PLC for only two years – 2019 and 2020 – not five, as required by the 2014 law. You can pick ARC or PLC annually for 2021, 2022, and 2023. At sign-up, you still can opt for ARC or PLC on each historical crop “base acre” on each Farm Service Agency farm number.
(ARC in this article refers to the county-level program, ARC-CO. There is another ARC-IC program for individual whole farms. It pays on a smaller share of base acres and hasn’t been widely used.)
Five years ago, ARC was popular. More than 90% of corn and soybean base acres were enrolled nationwide. Under ARC, if revenue falls below a guarantee derived from a rolling average of county yields and national cash prices, farmers in that county collect payments.
ARC was like a financial parachute, designed to protect farmers as prices fell from high levels. Like a parachute on the ground, it’s not useful following several years of rock-bottom prices. One feature of ARC, an Olympic average that tosses out the high and low price years of 2013 through 2017, helps lock in those lower prices.
“It worked for you in the 2014 Farm Bill. It’s not going to work for you in the 2018 Farm Bill,” says agricultural economist Gary Schnitkey at the University of Illinois.
Betting on PLC
This year, the smart money is on PLC, a simpler program. It pays if cash prices fall below a reference price set in the farm bill. For corn, that price is $3.70 a bushel. For soybeans, it’s $8.40.
“It really does look like PLC is the choice,” says Joe Outlaw, an agricultural economist at Texas A&M University. “However, the big caveat is, if ARC-CO will trigger a maximum payment in 2019, it will be very hard to make that up with PLC over two years.”
Because ARC is based on revenue, not just price, a county with very low yields in 2019 could hit that maximum payment (which is 10% of benchmark revenue in a county).
Outlaw says Texas could have counties in that situation. The state’s 2019 yields vary a lot. “Some are almost records, and some are getting plowed up,” he says.
The potential for a maximum payment is shown in an October 1 farmdoc daily University of Illinois online article, “Choosing Between ARC-CO and PLC,” co-authored by Schnitkey.
In Champaign County, Illinois, a maximum payment of $81 an acre for corn is triggered under ARC if this year’s county yield averages 170 bushels an acre or lower and the marketing year average price is $3.60. If the price averages $3.80, the yield average has to fall to 160 bushels or lower.
Schnitkey believes some counties in the eastern Corn Belt might have yields low enough to trigger an ARC payment.
“If I’m in the western Corn Belt, it seems like the decision is going to be easier to take PLC,” he tells Successful Farming magazine.
Earlier this year, a small PLC payment seemed possible for corn and less likely for soybeans. If corn prices average $3.60 a bushel during the current marketing year (which began September 1), then farmers would have a dime-per-bushel payment rate (10¢ under the $3.70 reference price). That rate is multiplied by a farm’s PLC yield, which isn’t a current yield. (It uses a farm’s older yields. It can be updated now for the 2020 PLC program payment but not for 2019.)
In a farmdoc daily article about PLC, the authors used a 150-bushel PLC yield on their hypothetical Champaign County farm. The payment for that farm at a $3.60 marketing year average price was $12.75 per base acre (10¢ × 150 × .85) because PLC pays on 85% of base acres.
Iowa State University (ISU) Extension farm management specialist Steve Johnson estimates similar PLC payments for his state. “I think farmers are chasing $5 to $15 an acre” for the 2019 crop, he says.
That’s far less than $70-an-acre ARC payments some received for a few years after the 2014 Farm Bill.
Johnson worries that some farmers will get bogged down in ARC/PLC details this winter. They could recoup a similar amount by eliminating the cost of one tractor pass over a field for tillage or spraying, he says. They might make more by focusing on merchandising grain.
“What are you going to do with your unpriced old-crop bushels, and what price do you need for your 2020 crop?” he asks.
Smoothing Out Uncertainty
Johnson suggests seven steps to making your ARC vs. PLC decision (see section at the bottom). The hardest could be steps 2 and 3: estimating county yields and projecting marketing year average national cash prices.
USDA’s Farm Service Agency released county yields for 2018 crops last October. Yields for the 2019 crops will have a similar delay, says economist Outlaw at Texas A&M.
“You’ll be making your decision without that information,” Outlaw says.
Prices are also delayed. Useful hints for 2019 are projected in USDA’s monthly World Agricultural Supply and Demand Estimates. You’ll find 2020 crop price projections from the Food and Agricultural Policy Research Institute (FAPRI-MU) Baseline Update.
Fortunately, Texas A&M and the University of Illinois have excellent online calculators (see section at the bottom) that are preloaded with the most up-to-date estimates from economists. The Texas calculator has data for all program crops and counties. Illinois focuses on Midwestern counties.
The University of Illinois Gardner Payment Program Calculator runs 1,000 estimates for each county and year, giving an average ARC and PLC payment and likelihood of payment. Last fall, it gave a 56% chance of a 2019 ARC payment in Champaign County, Illinois.
Texas even offers call-in help with its calculator, provided by staff and grad students (979/845-5913).
“We’ve got an army of people who know how to do this,” Outlaw says. But don’t wait too long. “The closer to March 15, the less time you’ll have for individual help,” he says.
Johnson suggests a January 10 goal to begin reaching your final ARC/PLC decision for the 2019 and 2020 crops. WASDE’s monthly 2019 crop price projections come out then, and the USDA National Agricultural Statistics Service releases state and area-level crop yields.
“Get ’er done in January or early February. Check the box,” Johnson says.
7 Steps to Sign-Up Sanity
Iowa State University Extension farm management specialist Steve Johnson offers seven steps to ARC/PLC program sign-up decisions.
1. Find your farm’s base acres and old PLC yield. (Ask your FSA office for your FSA 156-EZ forms.)
2. Estimate your county yields for both 2019 and 2020 crops.
3. Project the marketing year average (MYA) national cash prices for both the 2019-2020 and 2020-2021 marketing years.
4. Place this information into an ARC/PLC Payment Calculator.
5. Compare by crop, by farm number the potential ARC payments for both 2019 and 2020.
6. Compare by crop, by farm number the potential PLC payments for both 2019 and 2020.
7. Consider updating to a new PLC yield for 2020 using 2013 through 2017 crop production evidence.
Several universities offer online ARC/PLC payment calculators. Here are two of the most complete for most counties: