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Evaluate ARC, PLC Options     01/24 16:40

   Experts Urge Farmers to Weigh Economics of ARC vs. PLC on Farm-by-Farm Basis

   The economics have changed since ARC and PLC were created in the 2014 farm 
bill, and experts say it's important to evaluate all the options, including 
ARC-Individual in some cases, on farm-by-farm basis. 

By Katie Dehlinger
DTN Farm Business Editor

   MOUNT JULIET, Tenn. (DTN) -- In 2014, the choice between the Agricultural 
Risk Coverage program and the Price Loss Coverage program was simple. High corn 
and soybean prices translated to high benchmark revenues, which in turn, 
front-loaded ARC-County payments in the early years of the program and made it 
an obvious choice.

   Since prices were good, many producers saw program payments as icing on the 
cake.

   "Making this decision now is a totally different mindset than five years ago 
when we had such good prices," said Kansas State University Extension associate 
Robin Reid, who created a spreadsheet tool to help farmers in their 
decision-making. "These farm program payments could make the difference in the 
farm making it through another year. It is a very critical piece of the 
management decisions on the operation."

   It's a decision that farmers are going to get to make more often under the 
2018 farm bill. Instead of one choice covering five years, farmers need to make 
a choice for the 2019 and 2020 crop years by March 15, and then will make an 
annual election for the remaining life of the farm bill.  

   Jim Mintert, director of the Center for Commercial Agriculture at Purdue 
University, said in a recent webinar that farmers will likely make different 
choices this time around because the economics have changed. (Click here to 
watch the webinar: 
https://ag.purdue.edu/commercialag/home/resource/2020/01/farm-bill-2020-decision
-making/)

   He thinks PLC will be a more popular option for corn and wheat, while 
ARC-County will make the most sense for soybeans. There are even situations 
where ARC-Individual may provide the highest payment.

   But the first thing he encourages farmers to do is make an appointment with 
their FSA office. Very few farmers have made their elections already, and he 
cautions that offices will get busy as the deadline nears.

   It's also a deadline you don't want to miss, Kaitlin Myers of the Indiana 
Farm Services Agency said on the webinar. If farmers don't complete the process 
by the deadline, their farms will be enrolled by default in their 2014 farm 
bill choice, and they'll be ineligible for 2019 payments.

   When farmers head to their FSA offices, they'll also have a one-time 
opportunity to update their PLC program yield.

   "Historically, if you have had a chance to update yields, you just did it," 
Mintert said. But between the way it's calculated and a couple of low-yielding 
years in the sample period, the adjustment might not be higher than the old PLC 
yield. He said one producer he spoke with only updated yields on about 10% of 
his farms.

   "You won't know until you do the calculations. We encourage people to do it 
on every single farm and crunch through the numbers," he said.

   UNDERSTANDING THE OPTIONS

   The PLC program makes payments when the marketing-year average price falls 
below the reference price, which is $3.70 for corn and $8.40 for soybeans.

   Farmers who choose PLC can also elect the Supplemental Coverage Option on 
their crop insurance, which allows them to buy an additional 11% coverage, 
although Mintert added that coverage will be based on county, not individual, 
yields. SCO's premium is subsidized at 65%.

   The ARC-County program uses rolling Olympic averages, which means it 
excludes the highest and lowest number, of prices and yields to create 
benchmark revenue. It then pays on 85% of a farm's base acres when county 
revenue falls below 86% of the benchmark. Payments are capped at 10% of 
benchmark revenue.

   For ARC-County and PLC, farmers make an election on both a farm and 
commodity basis.

   The ARC-Individual program is different, only allowing one decision per farm 
even if it's growing multiple commodities. Its benchmarks are calculated off 
the farm's proven yield history, but it only pays out on 65% of base acres 
instead of the 85% covered by ARC-County.

   "That pulls back the attractiveness of the ARC-IC program. However, given 
what took place in 2019 in the Eastern Corn Belt, that isn't enough to make it 
unattractive for everybody," Mintert said.

   The Purdue economists say it's worth evaluating ARC-IC if the FSA farm had a 
20% or more production loss in 2019 due to low yields, high prevented planting 
acreage or a combination of both. If losses are greater than 25-30%, that could 
generate a maximum payment for 2019.

   "It would be rare for someone to have a lot in ARC-IC, but it might fit one 
or two or three farms," Mintert said, adding that the calculations become more 
complicated the more farms you have enrolled in ARC-IC.

   LET CALCULATORS DO THE CRUNCHING

   "It's not quite as complicated as it may seem," Michael Langemeier, 
associate director for the Center for Commercial Agriculture at Purdue, said 
during the webinar. "If you choose one program for corn, you're most likely 
going to choose that for corn across all of your farms."

   The reason to go through one by one is that there are exceptions, Reid said.

   "I've ran into some farms that just have a really poor program yield. Either 
they hadn't planted that commodity or had good enough yields to update it, and 
so their PLC payments are just going to be less than a different farm," she 
said. "So, for one farm, you might be better off going ARC-Co."

   There are a number of university resources available that will do the actual 
math for you, including a spreadsheet made by Reid and colleagues at Kansas 
State that covers the entire nation and a wide variety of crops. You can find 
it along with a video explaining how to use it here: 
https://www.agmanager.info/ag-policy/2018-farm-bill/tradeoff-between-20192020-ar
c-and-plc.

   You can find a similar tool from the University of Illinois here: 
https://ag.purdue.edu/commercialag/home/resource/2020/01/2018-farm-bill-what-if-
tool/.

   "We know a lot about price for this marketing year already," Reid said, 
especially for summer crops like wheat where the marketing year started in May 
and even for fall crops like corn and soybeans.

   It's important to remember the marketing-year average price is a national 
number determined by a monthly survey of what prices grain elevators are 
paying. It's then weighted by the amount of grain sold in that month.

   "So our biggest months with these fall crops are December, January and 
February, and once we get through those, the marketing year is fairly well set 
as far as that marketing-year average price," she said.

   Kansas State publishes its projections for the marketing-year average price 
as well as others' projections here: 
https://agmanager.info/crop-insurance/risk-management-strategies/projections-and
-sources-mya-prices-arc-and-plc-commodity.

   Reid advises looking at the projections and finding the corresponding row in 
the spreadsheet to see what a PLC payment would be, then you can estimate your 
county yield to determine what an ARC payment might look like.

   In Kansas, good yields on last year's crop mean an ARC payment is pretty 
much nil, "But we do know, based on price projections, we're going to have a 
very sizable PLC payment, and this chart lays it out really nicely," Reid said.

   Katie Dehlinger can be reached at Katie.dehlinger@dtn.com

   Follow her on Twitter @KatieD_DTN


(AG/ES)

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