ARC vs PLC + SCO

2024 Decision - Overview & Key Points

• The DECISION is more CHALLENGING this year as PRICES for all 3 programs have changed.

  • While you are deciding between ARC & PLC at FSA, what you REALLY are deciding between is ARC vs PLC + SCO.

    • The reason for this is:

      • if you elect ARC, then you CANNOT add SCO.

      • if you elect PLC, then you CAN add SCO.

      • The reason for this is both ARC & SCO provide 86% guarantees tied to county yields, but that is pretty much where the similarity stops. On most if not all other aspects of the two programs, SCO is better as you will see below.

  • While ARC seems to be the better option when compared to PLC, when you thoroughly compare ARC to PLC + SCO, I think in many situations PLC + SCO is the best option / provides more coverage and in the below table and analysis, I will try to show why.

  • SCO can look even more attractive when you consider that it gives you the option to add FMH’s SCO+ that provides individual OU yield guarantees up to 86% of your APH for a reasonable cost (as low as $3-5 /ac).

  • Since SCO provides a band of coverage from 86% down to your MPCI coverage level, SCO provides more coverage as your MPCI coverage level is lowered.

    • 70% MPCI + 16% SCO band up to 86%

    • 75% MPCI + 11% SCO band up to 86%

    • 80% MPCI + 6% SCO band up to 86%

    • 85% MPCI + 1% SCO band up to 86%

    • ARC is always a 10% band of coverage from 86% down to 76%

• ARC - Agriculture Risk Coverage (FSA program)

• PLC - Price Loss Coverage (FSA program)

• SCO - Supplemental Coverage Option

  • Crop Insurance endorsement that can be added to your MPCI - both of which are provided & subsidized by the federal government.

  • MPCI - Muti-Peril Crop Insurance

• Sign-up period - NOW:

  • Deadline: March 15th, 2024

  • If you fail to sign-up by the deadline, you may be INELIGIBLE for a 2024 payment.

  • Sign-up for ARC & PLC is done through your FSA office (by crop, by FSN).

  • Sign-up for SCO is done with your crop insurance on your MPCI application (by crop, by county).

Below is a KEY SUMMARY TABLE

• I put this table together to try to summarize and compare the key points and key differences between ARC, PLC, and SCO.

• After the table is more info & explanation of the key points to consider.

• PLEASE REVIEW & let me know if you have any questions.

  • This table has some numbers specific to Saunders county NI (non-irrigated) and it assumes you have a crop insurance APHs of 200 Corn & 60 Soybeans, but the numbers and the relationships between them are fairly constant between counties.

  • The ARC prices have been set at $4.85 Corn & $11.12 Beans

  • The PLC prices have been set at $4.01 Corn & $9.26 Beans

  • The SCO prices used for this comparison are $4.80 Corn* & $12.00 Beans*

    • *TBD - ESTIMATED using approx. current futures prices at time of this writing

    • The SCO Prices have been NOT been set yet, they will be set during the month of February (they are the same prices as your MPCI policy).

• Prices - Spring / Expected:

  • For 2024, the crop prices for ARC and PLC have increased, while unfortunately the new crop futures prices used for crop insurance & SCO have decreased.

    • Last year in 2023, the MPCI & SCO prices were much better than both the ARC & PLC prices by about $2 on corn and $4 on beans, so the decision in 2023 was fairly easy that SCO was the best option.

  • Corn prices - 2024:

    • $4.85 ARC

    • $4.66 SCO / MPCI

    • $4.01 PLC

  • Soybean prices - 2024:

    • $11.55 SCO / MPCI

    • $11.12 ARC

    • $9.26 PLC

  • * MPCI & SCO crop insurance prices will be set during month of February

    • Corn uses December futures

    • Soybeans use November futures

• Acres:

  • While the prices may have improved for ARC & PLC, they both only provide coverage on 85% of your BASE acres at FSA.

  • SCO provides coverage on 100% of your ACTUAL PLANTED & insured acres.

• Coverage / Max Payment Amounts:

  • For SCO, your coverage is a function of your crop ins. APHs (approved yields)

  • SCO coverage = APH x Price x SCO coverage band x Coverage Factor

    • Price = higher of spring or harvest price (IF you have RP)

    • SCO coverage band = 86% - (Your MPCI coverage level)

      • Ex. If you have 75% MPCI, then SCO coverage band is 11% (86% - 75%).

    • Coverage Factor: you can select from 50% to 100% to scale up or down the dollar amount of insurance & premium to suit your needs / preference.

  • As a result of the 85% factor on ARC and the fact that SCO coverage is based on your APHs which are often higher, you can have more coverage under SCO than ARC, even after you subtract out the SCO premium

• Guarantees:

  • ARC is revenue ONLY

  • PLC is price ONLY

  • SCO can provide both Yield & Revenue guarantees

    • You also have a Price guarantee when you couple SCO with PLC

    • SCO coverage type follows your underlying plan of MPCI insurance

      • Ex. If you have RP MPCI, then your SCO coverage would be RP as well

    • RP provides BOTH revenue & yield guarantees

    • RP calculates your revenue guarantee using the higher of the spring or harvest price.

  • ARC is revenue ONLY

    • So if prices go HIGHER, the effective ARC trigger yield goes DOWN (proportionately to keep the revenue only guarantee the same).

• Prices - Harvest / Final:

  • SCO - uses the same harvest prices as MPCI

    • the pricing period is during the month of October 2024

  • ARC - uses the National MYA (Marketing Year Avg) price as determined by NASS

    • the pricing period runs from Sep 1, 2024 to Aug 31, 2025

SCO: What Happens If I add SCO but I am still signed up for ARC at FSA?

• You can NOT have SCO coverage if you are enrolled in ARC at FSA (by FSN, by crop)

• If you add SCO but still have ARC on one or more FSNs, then the SCO coverage will be removed from those acres tied to those particular FSNs on your crop insurance policy

• To have SCO coverage, you need to be signed up for PLC at FSA

• If you do not report acres that are covered by ARC on your acreage report, those acres will be ineligible for an SCO payment and you may still owe 60 percent of your SCO premium on those acres to cover administrative expenses. However, your underlying policy will still be in effect.

SCO - Other Key Points:

• SCO was first made available in 2015

• Subsidized

  • SCO - 65% subsidy

  • BFR additional subsidy benefit applies to SCO as well

• Loss Payments

  • Area Plan - based on COUNTY yields

  • SCO - a loss is triggered once the county yield OR the county revenue drops below 86%, and the max SCO loss is reached once the county yield OR the county revenue drops below your MPCI coverage level

  • If there is a loss, it will be paid out the following summer (approx. mid June)

    • The reason for the delay is the actual county yield is based on crop insurance data and it is not finalized until mid May

  • Loss payments are automatically calculated and paid out since not based on your yields or prices - no adjuster or claim submission necessary

  • If you have RP (Revenue Protection), you are more likely to trigger a loss if one or both of the following happen:

    • The harvest price decreases (Dec. futures for Corn / Nov. futures for Soybeans)

    • The harvest yield decreases (actual county yield)

• County Yields

  • Expected & Actual County yields are based on RMA data collected through the federal crop insurance programs

ARC & PLC - Other Key Points:

• ARC & PLC both use prices based on a two year lagging 5 year olympic average (2018-2022 for 2024 CY), but they calculate the final price differently so their prices vary. Below are tables that show how the prices are calculated if you are interested.

  • 2024 ARC: $4.85 corn, $11.12 soybeans

  • 2024 PLC: $4.01 corn, $9.26 soybeans

  • -

  • 2023 ARC: $3.98 corn, $9.57 soybeans

  • 2024 PLC: $3.70 corn, $8.40 soybeans

• Base Acres:

  • Payments for a given CY, if any, are based on a farm’s BASE acres listed at FSA, NOT your actual planted acres.

  • So you may have base acres for grain sorghum or wheat on some of your farms and could be eligible for payments on those crop, even if you currently plant only corn and soybeans.

  • Base acres are NOT being changed / updated at this time.

• ARC-CO provides revenue loss coverage at the county level.

  • Since it is revenue based, the coverage is a function of both county yields and price.

  • When both decline, the possibility of a payment is greater.

  • A payment is triggered when the ARC-CO actual revenue falls below the ARC-CO revenue guarantee

• PLC possible payments are dependent on price declines alone (NO yield component).

• Timing of Payments:

  • Payments for a given CY, if any, are paid out the following FALL, usually in October. So for instance, if any payment is due for the 2024 CY, it will not be paid until fall of 2025. The reason for the delay is to allow actual county yields and the MYA (marketing year average) prices to be finalized.

• MYA Price - Marketing Year Average Price:

  • A price calculated by NASS that is represents the national average cash price received by producers during the 12-month marketing year.

  • The Corn & Soybeans 2024 CY MYA 12-month time period is from Sep. 1st, 2024 to Aug. 31st, 2025. These MYA Prices will then be published around the end of Sept. 2025.

ARC-CO payment calculation details:

• The ARC-CO revenue guarantee = 86% x (ARC-CO benchmark revenue)

• ARC-CO benchmark revenue = (ARC-CO benchmark price) x (ARC-CO benchmark yield)

  • ARC-CO benchmark price = 5 yr. olympic (drop high and low) avg. of the 5 most recent annual benchmark prices

    • annual benchmark prices = higher of : effective reference price -OR- the respective MYA price

  • ARC-CO benchmark yield = 5 yr. olympic (drop high and low) avg. of previous ARC-CO county yields (2 year lag and now trend adjusted up as mentioned above, and each year is capped at )

• ARC-CO actual revenue = (ARC-CO actual price) x (ARC-CO actual county yield)

  • 2024 ARC-CO actual price = higher of : 2024-25 MYA price -OR- 2024 national avg. loan rate

  • ARC-CO actual county yield = actual average yield for the county based on RMA yields that are received through crop insurance production reporting (MPCI).

    • This was NEW for the 2019 CY. In the past, the county yield was based on NASS survey data.

• ARC-CO payment rate = lesser of

  • (ARC-CO revenue guarantee) - (ARC-CO actual revenue)

  • 10% of the ARC-CO benchmark revenue

• YOUR FARM’S PAYMENT = (applicable payment rate)  x (your farm’s base acres) x 85%

PLC payment calculation details:

• IF MYA price comes in LESS THAN the PLC reference price, then there is a payment:

• PLC ERP (Effective Reference Price) = higher of:

  • base Reference Price - $3.70 Corn, $8.40 Soybeans

    • -OR-

  • 85% of the 5yr Olympic MYA price for the previous 5 crop years given a 2 year lag (so for 2024, it looks at the MYA prices for 2018-2022).

    • i.e. take out the high and low prices for last 5 yrs & discount by 15%

    • For the 2024 CY, for the first time ERPs have moved higher for corn and beans because their 5yr Olympic MYA prices x 85% is higher than the base ref prices.

    • 2024 PLC prices: $4.01 corn and $9.26 beans.

• The PLC ERP is capped at 115% of the Reference Prices = $4.26 corn and $9.66 beans.

  • In other words, the PLC reference prices can NOT increase by more than 15%.

• YOUR FARM’S PAYMENT = (ERP - MYA price)  x (your farm’s PLC yield) x (your farm’s base acres) x 85%

  • Max PLC payment rate is equal to the crops ERP minus it’s loan rate

    • Corn: $4.01 - $2.20 = $1.81 max PLC payment rate

    • Beans: $9.26 - $6.60 = $2.66 max PLC payment rate

Links to key websites / documents:

Last Updated: 1-22-2024

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