ARC and PLC Decisions

The sign-up period for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) for 2023 ends on March 15, 2023.  On that day election and enrollment will end.  If a farmer previously signed a multi-year contract, no election action is needed unless the farmer wants to change the program election or if there has been a change on the farm (added land, shares, etc.).  Regardless, a new contract enrollment must be completed by the deadline.   

Farmers and landowners can choose between three commodity title alternatives: ARC-CO (payment based on county revenue), ARC-IC (payment based on individual farm revenue), and PLC (payment based on market year average price). ARC- CO and PLC are the most popular of the three programs and are included in this article.

Price Loss Coverage program payments are issued when the effective price of a covered commodity is less than the reference price for that commodity. The effective price equals the higher of the market year average price (MYA) or the national average loan rate for the covered commodity.  If the MYA price results in a PLC payment, the payment rate is multiplied by the PLC yield and the payment acres (85% of base acres). 

The ARC-CO program provides income support tied to historical base acres, not current production, of covered commodities. ARC-CO payments are issued when the actual county crop revenue of a covered commodity is less than the ARC-CO guarantee for the covered commodity.  If a revenue loss occurs, payments are based on 85% of base acres.

Background: Price Loss Coverage

The PLC reference prices for PLC were set by the 2018 Farm Bill.  The corn PLC reference price is $3.70 and the soybean PLC reference price is $8.40.  With the strong corn and soybean prices in recent years, the market year average price has exceeded the reference price for both corn and soybeans.  Here is a look at the last couple years:

Since payments are triggered when the effective price for a crop year is less than the reference price, the prices above did not allow for PLC payments in the years noted.

After the 2022 crop year (Sept. 1, 2022 through August 31, 2023), the marketing year average price will be determined.  At this writing, that price for corn and soybeans cannot be known, but many in the market look to the USDA projected price in the World Outlook Supply and Demand (WASDE) monthly reports for an indication of what that price may be.  As of the February 8 WASDE, the average farm price was projected to be $6.70/bu. for corn and $14.20/bu. for soybeans which makes PLC payments for 2022 unlikely.

Background: Agriculture Risk Coverage - County (ARC-CO)

The ARC-CO benchmark revenue is the 5-year Olympic average MYA price multiplied by the 5-year Olympic average county yield. Benchmark yields and MYA’s will be calculated using the 5 years preceding the year prior to the program year. The ARC-CO guarantee is determined by multiplying the ARC-CO benchmark revenue by 86%. 

The ARC-CO actual crop revenue is determined by multiplying the applicable actual county yield by the MYA price for the program year. The ARC-CO payment is equal to 85% of the base acres of the covered commodity multiplied by the difference between the county guarantee and the actual county crop revenue for the covered commodity.   If the actual county crop revenue is less than the guarantee (86% of the benchmark revenue).

The county benchmark revenue equals the 5-year Olympic county average yield multiplied by the 5-year Olympic average national price. Benchmark yields and MYA prices are calculated using the 5 years preceding the year prior to the program year. For example, for the 2022 calculation, the 5-year period to be used would be 2020-2016.

Since guarantees and payments from ARC-CO are determined by changing variables (county yields, new calculation of prices each year), a county may or may not have had payments in recent years.  Using the marketing year average prices noted earlier for 2021 corn and soybeans ($6.00 and $13.30 respectively), a county yield percentage can be calculated that would trigger an ARC-CO payment:

*From the above table, there would be an ARC-CO payment when the actual county yield is below the county benchmark yield times the percentage.

2023 Reference Price and example trigger yield

The effective reference price can be above the statutory reference price if 86% of the five-year Olympic average of prices is above the statutory reference price.  For 2023, the ARC-CO five-year Olympic average prices are $3.98 for corn and $9.57 for soybeans.  Eighty six percent of each is $3.42 and $8.23.  Since those values are below the statutory price, the 2023 prices used in the calculation will be $3.70 and $8.40.   

For example, using the 2021 Webster county corn yield of 199 bpa as an example and if the MYA price ends up being $6.70, an estimate of the trigger yield can be done:

The table below calculates the trigger yield at various market year average price outcomes for the above example:

Conclusion

For the 2023 farm program decision, with the average farm price projected to be $6.70/bu. for corn and $14.20/bu. for soybeans (February 8 WASDE), payments from PLC or ARC-CO are unlikely.  Those signing up for Supplemental Coverage Option (SCO) crop insurance must be in Price Loss Coverage.  Besides that specific requirement, farmers should match the farm program decision to their own preference.

For more information on these programs, contact your county FSA office and/or see www.fsa.usda.gov/programs-and-services/arcplc_program/index 

Citations:

"PLC and ARC Payment: 2021 Payments and Outlook for 2022 and 2023." farmdoc daily, University of Illinois at Urbana-Champaign, October 25, 2022.

"2023 Commodity Title Choices: ARC-CO and PLC." farmdoc daily, University of Illinois at Urbana-Champaign, January 24, 2023. 

https://cap.unl.edu/policy-legal/farm-program-safety-net-options-arc-and-plc-2023-feb-7-2023-webinar 

https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2022/fsa_arc_plc_factsheet_101922.pdf

Ed Kordick, Education Project Manager, Decision Innovation Solutions on behalf of Iowa Farm Bureau.