Deciding between Farm Bill programs is difficult. There are a number of factors determining which program is the better option. There’s not a definitive right or wrong, or one-decision-fits-all. Making an informed decision means understanding the programs offered. PLC, ARC-County, and ARC-Individual. Because of its lack of popularity, ARC-IC will not be discussed. Nor will the Supplemental Coverage Option available under PLC. ARC-CO and PLC will be chosen for each program crop a farmer/landowner has base acres for.
PLC is a low price program that pays when the MYA price for a crop falls below a reference price. This reference price is a set price for this 2019 program. It will not change in 2020 either. Those prices are in the chart below.
ARC-CO is a low revenue program. Payments are made when the county average revenue, for the program year, falls below a calculated Guaranteed Revenue.
Is your farm more susceptible to a catastrophic price scenario or a shallow loss? Do you want to manage risk or chase the high payment? Basically, you are managing your risk or guessing whether the MYA price will be above or below the Effective Reference Price, and by how much. And also, will county yields be above or below average, and by how much. Not an easy task.
MYA prices lower than PLC reference prices will favor the PLC program. What do you expect yields to be over the next two years? The ARC-CO program may be preferred if prices are above reference prices because lower yields can trigger payments.
If the county yield is lower than average, ARC-CO will pay at much higher prices, but if the county yield is higher than average, it will take a large price loss to trigger any payment. The Tradeoff tool under the Programs title below shows this relationship well.
Below is more information on the programs and resources intended to help make your Farm Bill decision.
Projected Crop Price
Price Loss Coverage (PLC)
Payments in this program are made when the marketing year average (MYA) price, for the crop in PLC, falls below the Effective Reference Price. The amount paid per acre is the difference between the Effective Reference Price and the MYA price of the crop for that program year, multiplied by your PLC Yield. This program pays on 85% base acres. As a result of this program using your PLC Yields, your payment rate would not be affected by a low yielding or high yielding year. It is strictly a low price program. Whereas, ARC-CO is a low revenue program, so county yields and MYA crop price are factors.
For wheat, the Effective Reference Price is $5.50. If the MYA price is $4.60, the payment would be $0.90 multiplied by your PLC Yield. Say for wheat your PLC Yield is 40 bu/ac, your payment would be $0.90 x 40 = $36/acre.
Wheat's marketing year, for the 2019 program year, runs from June 1, 2019 to May 31, 2020. Fall crops' marketing years, for 2019, go from September 1, 2019 to August 31, 2020.
Currently there is a PLC yield update being offered. Even if you are not going to choose the PLC program, TAKE THE YIELD UPDATE OPPORTUNITY. This is done through FSA. Your yields can't go down.
2019 Projected PLC Payment Rates - This document shows what PLC payments will be if the USDA's projected prices are correct. The same information is in the chart above. This form has a little more detail but does not have the other sources of projections.
2019 Effective Reference Price Calculations - This farm bill gave the opportunity for the Effective Reference Price to increase up to 115% of the set statutory price. The statutory price is the basement for the reference price. It cannot go below this. To calculate the effective reference price. An Olympic average is taken of MYA prices from 2013-2017 and multiplied by 85%. If that number is above the statutory price, the effective reference price increases (up to 115% statutory.) Unfortunately, reference prices will remain at the set statutory prices, but if you want to see the numbers, here they are)
Agricultural Risk Coverage - County (ARC-CO)
This program pay when the actual revenue for a county drops below a Guaranteed Revenue. Once the Benchmark Yield and Price are calculated, they are multiplied by each other to come up with the Benchmark Revenue. This Revenue is then used to calculate the Guaranteed Revenue. Multiplying the Benchmark Revenue by 86% gives you the Guaranteed Revenue. If Actual Revenue falls below the Guarantee, payments are triggered for this program. The Actual Revenue comes from the county average yield for the year and the national marketing year average for the crop. This program pays on 85% of base acres and per acre payments cap out at 10% of the Benchmark Revenue.
If the Benchmark Revenue was $500/acre, the payment cap would be $50/acre. Otherwise, payments are based on the difference between Guaranteed Revenue and Actual Revenue.
Sticking with $500/acre for the Benchmark. Guaranteed Revenue would be $430. If Actual Revenue was $400, payments would be $30/ acre. If Actual Revenue was $300, the payment cap kicks in and payments would be $50/acre. If Actual Revenue was $431, it would exceed the Guaranteed Revenue and there would be no payment.
Benchmark Yield and Guarantee Revenues - This form shows how the Benchmark Yields and Benchmark Revenues are calculated. The Benchmark Yield is calculated by taking an Olympic Average of county yields from years 2013-2017.
Benchmark Price Calculations and Actual Price Projections - This form shows how the Benchmark Price is calculated. Highlighted in yellow is the Benchmark Price, which is used to establish the Benchmark Revenue. The Benchmark Price is calculated by taking an Olympic average of MYA prices from 2013-2017. In the ARC-CO program, years where the MYA price fell below the 2019 Effective Reference Price are replaced by the Effective Reference Price. Years where this substitution occurred are grayed out. The final column is the USDA's projected MYA price for program year 2019. This number, once it is finalized, will be multiplied by the county's average yield to establish 2019's Actual Revenue. The marketing year for crops, harvested this fall, goes from September 1, 2019 to August 31, 2020. The final MYA price will be published shortly after the end of the marketing year.
2019 ARC-CO Payment Calculation
1. Benchmark Price can be found in column K of Benchmark Price Calculations and Actual Price Projections 2. Benchmark Yield can be found in column A of Benchmark Yield and Guarantee Revenues * MYA Price will be published in August 2020 for wheat and September 2020 for fall crops. Average County Yield uses RMA yields, which do not typically come out until June. NASS will publish county yields for wheat in December 2019 and for fall crops in February 2020. KSU will use NASS county yields to come up with projections for ARC-CO payments