Should You Choose ARC or PLC?

05:01PM Sep 18, 2019
Crop Tour 2018
You can make a new selection after Sept. 1 for the 2019 and 2020 growing seasons.
( Farm Journal )

Later this year, you have a big decision to make. The 2018 farm bill allows farmers to reassess their selections for the Agriculture Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs. You can make a new selection after Sept. 1 for the 2019 and 2020 growing seasons. Some changes to the programs and the current rally in grain prices present producers a challenge in determining the best fit for them. “For a quick rule of thumb, I recommend looking at if current prices for the crop are below the reference prices,” explains Scott Gerlt, crop analyst at the University of Missouri Food and Agriculture Policy Research Institute. “If they’re below the reference prices, PLC is probably going to be more attractive. If it’s above the reference price, ARC is going to look more attractive.”

Do The Math. The statutory reference prices for covered crops are close to the ones in the 2014 farm bill: $3.70 per bushel for corn and $8.40 per bushel for soybeans. “The new bill, however, includes an escalator known as the effective reference price,” says Steve Johnson, Iowa State University Extension economist. “The effective reference price permits the statutory reference price to increase up to 115% of the statutory reference price. It’s calculated as 85% of the five-year Olympic moving average of the national marketing year average prices.” One of the significant differences between the two programs is that PLC is a price-based program, so itonly considers changes in prices. “Your yields are fixed for 2019, but there’s a chance to update them in 2020,” Gerlt says. After that, you’re locked in on those [for the remainder of the farm bill].”

On the other hand, ARC county (ARC-CO) is a revenue-based program and factors in both yield and prices. “In some ways that can provide a little more opportunity to trigger payments,” Gerlt explains. “The downside of ARC is there’s a 10% cap on payments. So, the payment rate can’t be higher than 10% of the county benchmark.” So while you might trigger payments more frequently if your price is above the reference price, you’ll also max out on total payments sooner. Despite the wacky growing season 2019 is turning out to be, Gerlt encourages producers to focus on what makes sense this year, instead of trying to guess what would also be best next year. “If you can choose a program you know is going to pay well this year, there’s a lot of value in that,” he says. “Definitely consider 2020, but if you can all but guarantee payments this year, that’s worth a lot.”

Gerlt encourages farmers to talk the decision over with their local FSA office staff. “You have some time to make the decision. FSA is extending the enrollment period so there’s no immediate rush. There’s time to see what yields and prices are looking like for 2019.”