The Decision to Choose ARC or PLC is a Crapshoot for 2020

04:45AM Feb 25, 2020
Farm Bill
The decision to opt for ARC or PLC isn't clear for corn and soybeans in 2020, but it's a different story for wheat and producers faced with 100% prevent plant.
( Lindsey Benne )

2020 is shaping up to be another challenging year. From weather to markets, farmers aren’t just struggling to decide what to plant. Many are also facing another important decision- which risk management coverage option to choose: Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC).

“We're right near the triggers,” explains Scott Brown, an economist with the University of Missouri.  “It's going to make it a difficult decision. It's not as clear cut as when we signed up in 2014.”

Opting for ARC or PLC in the new year isn’t an easy choice. That’s evident in the current number of signups, as Farm Service Agency (FSA) leaders say signups are running extremely slow.

“It is down the crunch time,” explains Jared Singer, District Director for Missouri FSA. “In Missouri we're at about 50 percent enrollment of what we expected it to be. We have a lot of producers that we need to see between now and the deadline.”

The deadline is March 15, 2020. And as producers venture into their local FSA offices to sign up before then, the decision is one that will stick with them for this past crop year, along with the upcoming one.

“Right now for a lot of counties in the in the Corn Belt, it's a crapshoot,” says Paul Neiffer, CPA for CLA. “I mean, just throw the dice. It could be ARC or it could be PLC.”

Should You Choose ARC or PLC? 

The options and decisions aren’t as clear cut and much of derives from current crop prices.

“With the 2014 Farm Bill we had a large ARC price up guarantee,” says Neiffer. “It was like $6 corn, and then corn started dropping. Right now, we're at the flat base of $3.70. The projection can't go below $3.70, corn is projected at $3.85. And you have to have a 14% yield reduction to get any ARC, so you're close enough to the PLC number that I think I'm leaning toward PLC for corn and ARC for soybeans.”

Even Neiffer admits while he’s leaning towards one program for corn and one for soybeans, it’s not an obvious choice this year. Those sentiments are shared by Jim Wiesemeyer, Farm Journal Washington Correspondent, who’s also been analyzing the numbers.   

“It depends on what region of the country you’re in,” says Wiesemeyer when talking about which program is best for producers. “I was just recently in the south, and for the commodities of corn and soybeans, those producers will tend to go with ARC, but I know the CBO just came out with their projections for fiscal year 2020, and they said more PLC as far as the budget goes.”

“It's going to vary for every farm,” adds Neiffer. “It's hard to give any kind of blanket statement about what what's the best option. One needs to get their program yields relative to the county yields, if you're making that choice between PLC in ARC county.”

USDA updated those yields last week, information Neiffer thinks could help drive decisions

“The one advice I could give is if you're pretty comfortable your county had a reduction in yield -  a 15% to 20% reduction in yield -  I would certainly be leaning toward ARC,” says Neiffer. “What I've heard is it seems like corn yields were higher than expected and soybean yields were lower than expected; therefore, I'm probably leaning toward ARC for soybeans and PLC for corn.”

Neiffer says even with current prices, the payment looks minimal for corn with PLC.

“Remember, farmers should be wishing not to get a payment, because the only way they get payment is prices really drop,” he explains. “Let's hope no payment, which means we're getting $4 to $4.50 for corn.”

Wheat Producers Should Opt for PLC

As the coverage decision for corn and soybeans continues to be a tossup, the best option for wheat producers looks to be more clear cut this year.

“Certainly on wheat, it's PLC,” says Neiffer. “We're looking at a 95-cent payment per bushel on PLC and it's going be hard for ARC to match that.

Prevent Plant Options

With relentless wet weather, some farmers are facing possible prevent plant decisions again this year. Brown says the coverage option for those producers is also a clear one.

“For those that are 100% prevent plant in 2019, they need to look at ARC individual coverage,” explains Brown. “That was an option in the 2014 Farm Bill. We didn't see hardly anyone take advantage of it then, but a zero yield, since it's now your farm yields that matter, could certainly make ARC individual coverage look like a good alternative.”

“I would stress if any producer had 100% prevent plant, and it’s important that it’s 100%,” says Wiesemeyer. “It can’t be 15% or 50%, but if it's 100%, go over with your crop insurance agent the possibility of ARC individual coverage, because in most of the sheets that I've looked at, that option pencils out.”

University of Illinois economist Gary Schnitkey is also digging into the numbers, and weighing which option is best for farmers this year.

“If you have a farm that is complete Prevent Plant, I think you are going to want to do ARC-IC,” he says. “If they are yielding at all, you'll probably lean toward PLC for corn, ARC-CO for soybeans and PLC for wheat.”

First Step is to Sign Up 

While the decision is an important one, Singer reminds producers the most important step is signing up, as a producer still has the flexibility in coverage options until the March deadline.

“Something that's important to keep in mind, especially since we're getting down to the deadline, is that you can make an election today, and if you have an epiphany and decide you want to change that program elected, you can do so up until that March 15 deadline.”

Schnitkey says if a farmer is still torn on which program to choose, there are tools online that can help, including one on the University of Illinois’ website.

“The calculators are online,” he explains. “The Gardner ARC/PLC tool will allow you to look at the probabilities of these things making payments. Again, corn is not likely to make payments in 2019. Soybeans similarly. Wheat will make a PLC payment for 2019. So, you can look at the Gardner ARC County / PLC calculator for that.”

He says there is a 2018 Farm Bill Tool available in a Microsoft Excel spreadsheet option. He says it allows producers to look at different prices and yields to see what ARC-County, ARC-IC, and PLC will do in various situations.

 

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