Most farmers that grow corn, soybeans or other major crops will be making their decision between Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC).
PLC is a price program that only pays if the final mid-year average price drops below an effective reference price. ARC is a combination of price and county yield similar to Revenue Protection crop insurance. It only pays if the final “revenue” is at least 14% lower than the benchmark revenue.
The 2014 Farm Bill first introduced ARC and PLC with a reference price. The 2018 Farm Bill allowed the reference price to increase by up to 15%. That is why it is now called the effective reference price.
Most of the major crops would still need to see a major increase in cash prices for the reference price to increase. Some other crops such as chickpeas have seen their price increase by up to the 15% maximum.
An Example
We are starting to see some increase in the Olympic average price that is used for benchmark revenue. As an example, the corn Olympic average price for the 2022 crop year was $3.70 which is also the reference price. The Olympic average price cannot drop below the reference price. Olympic average takes the last five years of price and yield and eliminates the high and the low.
Finally, in 2023 we see that the Olympic average price has now increased to $$3.98. If we assume that the final 2022/23 mid-year average price is $6.80 (the current FSA projection), then the benchmark price for 2024 corn will increase to $4.74 (average of $3.70, $4.53 and $6.00). This will likely make it easier to pick ARC-CO for the 2024 crop. However, we are dealing with the 2023 crop signup and that is more problematic.
We would estimate that neither ARC or PLC will make a payment this year for corn and soybeans unless the county has a substantial decrease in yields under ARC-CO.
Neiffer’s Projections
Let’s review how much yields would need to go down in order for ARC-CO to make a payment. Let’s assume the county yield is 200 bpa. Benchmark revenue is equal to $796 (200 X $3.98) and guarantee revenue is 86% of this number or $685 (rounded). FSA is not estimating the 2023 mid-year price yet but let’s assume that it averages the current December 2023 price of $5.86.
In order for final revenue to be less than $685 with a price of $5.86, the final county yield would need to be about 117 bushels. The chance of this happening is slim at best since final yields would need to be 83 bushels less or about a 40% reduction. It can happen, but not likely.
For PLC to pay, the mid-year price would have to drop from “$5.86” to less than $3.70. If that occurred, the last thing you would want is to collect a PLC payment. However, SCO is only allowed if you elect PLC.
Bottom Line
For 2023, if you have multiple farms, it might be wise to hedge your bets and elect PLC on some and ARC-CO on the others. Of if you want SCO, make sure to elect PLC. The chances of either paying this year is remote, at least for corn and soybeans (although almost all of the other crops have the same issue).
