Don’t automatically make the same ARC and PLC coverage decisions as five years ago. Consider the change in benchmark prices and length of program commitment.
The Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs were introduced with the 2014 Farm Bill, providing economic support for producers of a variety of crops. With the 2018 Farm Bill and a new round of signups, there are a few important things to consider.
At no cost to producers, different types of coverage (ARC-CO or PLC) can be selected for each farm and each commodity. For example, a producer can cover corn and wheat acres with PLC and soybean acres with ARC-CO. A third option, ARC-IC, covers all of a farm’s commodities together, but it only rarely shows as much payment potential as the other options because of 20% less acre coverage.
ARC-CO provides payments when the county revenue calculation in a particular year drops below a guaranteed level. It uses a county-specific benchmark yield multiplied by a national benchmark price to calculate a guaranteed revenue. The benchmarks are Olympic averages from a previous five-year period.
PLC provides payments when the average commodity price over the span of the crop year is below an established reference price. County yield numbers are not a factor. Rather, a PLC yield value specific to each individual farm is multiplied by the price difference to calculate payments.
Rather than stick with the same decisions that were made five years ago when the program details and farm economy were different, there are two important reasons a producer might want to rethink the choices:
1. For ARC-CO, the benchmark values have changed significantly, especially several of the benchmark prices for common crops (see table). Benchmark prices represent average prices from several preceding years, which were higher in the first half of the decade than the second half. In 2014, many producers chose ARC-CO to cover some of the common crops, and it performed well in comparison to PLC. But with the changed benchmarks, expectations are now different. In general, when commodity prices are high, ARC-CO tends to be more favorable. When commodity prices are low, PLC offers more.
|Crop||Benchmark Price 2014||Benchmark Price 2019|
|Barley||$5.45 / bu||-$0.19||$5.26 / bu|
|Corn||$5.29 / bu||-$1.59||$3.70 / bu|
|Grain sorghum||$5.10 / bu||-$1.12||$3.98 / bu|
|Oats||$3.25 / bu||-$0.52||$2.73 / bu|
|Soybeans||$12.27 / bu||-$2.64||$9.63 / bu|
|Wheat||$6.60 / bu||-$0.94||$5.66 / bu|
2. Previously, signing up for coverage was a five-year commitment. That has changed. The initial commitment at enrollment now will be for two years, covering the 2019 and 2020 crop years. After that, it will be an annual decision, with opportunity to change coverage each year.
With a lot of variables to consider when making coverage decisions, there are some helpful tools available:
- A simple online calculator developed by the University of Illinois
- A downloadable set of calculators and comparison tools developed by the University of Illinois
- A downloadable spreadsheet that shows the tradeoff between ARC-CO and PLC, developed at Kansas State University
- Another online calculator, developed by Texas A&M
The deadline for 2019 enrollment is March 16. For the 2020 crop year, the enrollment deadline isn’t until June 30, but it can be completed at the same time as 2019 enrollment, if desired. Lastly, if documentable yields from the past few years are high enough, there is opportunity to increase a farm’s official PLC yield, which will impact potential payment amounts for the next several years.
For more information, visit your local Farm Service Agency office or their website.