ARC vs PLC - overview
Sign-up period - NOW:
Deadline: March 15th, 2021
If you fail to sign-up by the deadline, you MAY NOT be eligible for a 2021 payment.
Sign up is done through your FSA office
ARC vs PLC - which one will be the better choice?
To save you a bunch of reading and scrolling, I decided to put my summary first. If you want more detail, prices, and examples, keep scrolling on down after reading the below summary.
Hopefully, neither one will pay!
Meaning hopefully we have great yields & prices.
Even if we have just average yields and prices, it looks like there will not be a payment on either corn or soybean base acres.
If we have below average yields but higher prices like we are seeing now, we could still have average or above revenue and have no payment under ARC or PLC.
Why choose ARC-CO?
If you are more concerned about low yields, or worse yet low yields and low prices, ARC-CO would be the way to go.
Why choose PLC?
If you are more concerned about low prices and want price floors of $3.70 on corn and $8.40 on soybeans, then PLC would be your choice.
IRR (Irrigated) - If you have primarily IRR acres, you may decide to chose PLC because the chance of county wide low yields on IRR is not as likely.
If you have wheat base acres, PLC looks to be a good way to go.
Additional thoughts:
The nice thing about ARC-CO is it is revenue based, so if yields were to be less this year, then we could trigger a payment that way rather than relying on price alone which is the case under PLC.
With that said, ARC-CO may also not pay if the higher prices offset the lower yields (i.e. the revenue is still at or above the ARC-CO guarantee).
The ARC & PLC elections can be done by crop, so could choose PLC for corn and ARC-CO for soybeans, or vice versa. The decision can also be varied by FSA Farm Number (FSN). One reason you may choose to do that is based on IRR and NI acres for a particular FSN.
More Overview Info:
PLC - Price Loss Coverage
ARC - Agriculture Risk Coverage
ARC-CO - ARC County - yields and coverage are on a county by county basis, this was the most common choice under the 2014 FB (about 95% of farms in this area where signed up under ARC-CO).
ARC-IC - ARC Individual - there is an individual option as well, but not very commonly used
The decision you are making NOW is just for the 2021 Crop Year (CY).
The decision you made LAST winter was for the 2019 and 2020 CYs.
For the 2021 CY, actual yields and prices are still completely unknown. For corn and soybeans, the yields are for the crops that we will plant this spring, but the pricing period actually doesn’t start until this coming fall on Sep. 1st and then runs until Aug. 31st of 2022 - that is why any possible payments are always a year after the growing season.
The ARC vs PLC choice is now an annual election, so we will be making this decision again for the 2022 and 2023 CYs.
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.
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 2021 CY, it will not be paid until fall of 2022. 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 2021 CY MYA 12-month time period is from Sep. 1st, 2021 to Aug. 31st, 2022. These MYA Prices will then be published around the end of Sept. 2022.
The 2020-21 (2020 CY) projected (estimated) MYA price for each crop is shown below along with the prices from previous years. The 2020-21 projections are taken from the USDA WASDE (Supply & Demand) report published earlier this week.
ARC-CO - key points & changes
The ARC-CO program 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
The ARC-CO revenue guarantee = 86% x (ARC-CO benchmark revenue)
So there is effectively a ‘14% deductible’ - see below table for the “effective” ARC-CO price (in column B)
The table below shows the 2020 and 2021 ARC prices and what 86% of those prices are to look at a ‘price loss only’ scenario and to allow a comparison to PLC.
As you can see, given the low ARC-CO benchmark prices and our now higher grain prices, the chances of a ‘price only loss’ is low.
Election and coverage are based on the county where the farm is located, NOT on the admin county where you enroll.
Actual ARC-CO yields are based on data from the RMA (Risk Management Agency). RMA gets their yield data directly from the yields we report through your federal crop insurance - MPCI.
Benchmark yield & prices
History used lags 2 years from current year – so the 2021 benchmark yields & prices is based on 2015-2019 yields and prices
The Benchmark yield includes a Trend Adjustment (TA) similar to crop insurance which helps to raise up the yields and ultimately the guarantee.
Plug (minimum) yields that are used has been increased from 70% to 80% of county T-Yields.
ARC-CO payment rate = lesser of
(ARC-CO revenue guarantee) - (ARC-CO actual revenue)
10% of the ARC-CO benchmark revenue
For all of the ARC-CO payment calculation details, scroll to the bottom of this update.
The table below shows 2021 ARC-CO numbers for corn and soybeans for counties in our area. The key number is the revenue guarantee highlighted in yellow. (I know the numbers are small, so if you click on the table, it should enlarge it or allow you to zoom in. You may want to view this one on your computer.)
On the right side, I give an EXAMPLE scenario for 2021 IF we were to have drought and have the same yields as 2012 and IF the MYA prices were to drop down to the PLC price floors of $3.70 corn and $8.40 soybeans.
In this ‘WHAT IF’ scenario, given such low yields for NI (non-irrigated), it looks like all counties in our area would receive the MAX ARC-CO payment for NI acres only which is equal to 10% of the Benchmark Revenue, but NO payment on IRR acres.
PLC - key points & changes
PLC possible payments are dependent on price declines alone (NO yield component).
PLC Effective Reference Prices (ERPs) for corn and beans are unchanged for 2021. The are currently equal to their base Reference Prices below.
The base Reference Prices (minimums / floors) are:
For the 2022 CY, it looks like the ERPs will also remain the same.
However, for the 2023 CY, there is a chance, although very small, that the ERPs could increase if much higher prices persist for this year and the next (it essentially takes two years of higher prices because it is a 5 year Olympic average, meaning you through out the high and the low, and since there is a two year lag):
PLC only makes a payment IF the MYA Price drops BELOW the PLC ERP (Effective Reference Price)
SCO (Supplemental Coverage Option)
If you elect PLC, you have the option of purchasing Supplemental Coverage Option (SCO)
If you elect ARC, you can NOT purchase SCO.
SCO is area/county based coverage that covers from the “86% level” down to your crop insurance coverage level. So if you have 75% MPCI, SCO covers an 11% band from 86% down to 75%, but again on an area or county basis.
SCO begins to pay when county average revenue falls below 86% of its expected level.
SCO is elected and purchased as part of your crop insurance policy.
ARC-IC
Individual rather than county based
Similar to ARC-CO in structure and payment formulas, but it is based on your farms individual yields, rather than county yields.
ARC-IC is similar to whole farm revenue coverage, in that it combines all crops together to look at the revenue for the whole farm. As a result, if you choose ARC-IC, you must chose it for all crops on that farm number (FSN) - i.e. ARC-IC is elected by FSN, not by crop. ARC-IC also crosses county lines.
Most producers already have their own individual MPCI coverage which will do a better job of covering their own fields rather than relying on ARC-IC to do so.
PLC payment calculation details:
IF MYA price comes in LESS THAN the PLC reference price, then there is a payment:
PLC ERP = higher of:
base Reference Price - $3.70 Corn, $8.40 Soybeans
85% of the 5yr Olympic MYA price for the previous 5 crop years given a 2 year lag (so for 2021, it looks at the MYA prices for 2015-2019).
i.e. take out the high and low prices for last 5 yrs & discount by 15%
For the 2021 CY, the current 5yr Olympic MYA price x 85% is $2.98 corn and $7.61 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 = (Reference Price - 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 (eff. reference price) minus it’s loan rate
Corn: $3.70 - $2.20 = $1.50 max PLC payment rate
Beans: $8.40 - $6.60 = $2.20 max PLC payment rate
ARC-CO payment calculation details:
The ARC-CO revenue guarantee = 86% x (ARC-CO benchmark revenue)
As stated above, there is effectively a ‘14% deductible’
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)
2021 ARC-CO actual price = higher of : 2021-22 MYA price -OR- 2021 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%
Links to other resources & sources used:
LINK - FSA website 1 for ARC & PLC
LINK - FSA website 2 for ARC & PLC program data and estimated payment rates
LINK - FSA 2021 PLC prices
LINK - FSA 2021 ARC-CO prices
LINK - FSA 2021 ARC-CO benchmark yields and guarantees by county
LINK - KSU AgManager.info Risk Management
LINK - KSU - ARC vs PLC comparison spreadsheet
LINK - University of Illinois - Choosing Between ARC-CO and PLC
LINK - WASDE - Supply & Demand report
