2021: Agricultural Risk Coverage or Price Loss Coverage for Corn Base Acres?

2021: Agricultural Risk Coverage or Price Loss Coverage for Corn Base Acres?

The deadline to enroll in Farm Programs is quickly approaching on March 15, 2021. Producers have the option to change enrollment between Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC). But the question is, “which one should I choose?”

Whatever your choice, you need to contact your local FSA office to schedule an appointment for enrollment. 

To answer the ARC vs. PLC question, first look at each farm’s “base acres.” Base acres refer to a farm’s historical plantings enrolled in farm programs and have a program commodity assigned to each base acre. A farm’s number of base acres cannot be changed or reassigned to different commodities at this time.

Payments are made on base acres. It is possible that your base acres are less than your total planted acres. It is also possible that your base acres are assigned to a commodity that you don’t plant. Once you have your base acre information, we can discuss what program to enroll in. 

There are three program enrollment choices: Price Loss Coverage (PLC), Agricultural Risk Coverage at the County Level (ARC-CO), and Agricultural Risk Coverage at the Farm Level (ARC-IC). 

PLC and ARC-CO make payments on 85% of base acres. These programs allow you to enroll on a commodity-by-commodity basis. For example, if you have corn and wheat base acres on a single farm (FSA farm number) you can enroll one commodity in PLC and the other in ARC-CO. Likewise, if you have more than one farm with corn base, you can enroll corn base acres on the first farm in ARC-CO, and on the second farm you can enroll corn base acres in PLC. Production reporting is not required for PLC or ARC-CO.  

ARC-IC pays on 65% of base acres and covers all program commodities on all of the producer’s farms (FSA farm numbers) enrolled in ARC-IC. ARC-IC depends on actual production and requires you to report production. 

 

PLC — Price Loss Coverage

PLC provides price protection if the national marketing year average price falls below the “effective reference price”. For the 2021 crop, the “effective reference price” for corn is $3.70 per bushel. Thus, the national marketing year average price of corn would have to be below $3.70 per bushel to trigger a payment. Payments are made on the farm’s PLC yield. PLC yields cannot be changed at this time.

The USDA Outlook forum predicted the marketing year average price to be $4.20 per bushel. If this prediction is correct, no payments would be available under the PLC program for 2021. Prices would have 50 cents or 12% from the expected $4.20 price to trigger a payment. While this may not be expected, there is at least some chance if prices falling this far, thus there is some probability of a PLC payment occurring.

 

ARC-CO — Agricultural Risk Coverage at the County Level

ARC-CO is a more complex program that relies on 5-year Olympic average county trend adjusted yields and national marketing year average prices to estimate a “benchmark revenue.” The ARC revenue guarantee is then equal to 86% of the benchmark revenue. The calculation for 2021 will rely on 2015-19 data to calculate the benchmark. When a county’s actual revenue falls below the guarantee (86% of the benchmark), a per acre payment is made. All farms in a county with base acres enrolled in ARC-CO will received the same payment per acre. Each county has a different benchmark revenue. 

Given the benchmark price for corn at $3.70 (recent market prices have been below the effective reference price) and the guarantee at 86% of the benchmark, the county would have to suffer a major revenue loss for an ARC-CO payment to be made. Given the $4.20 price projection and benchmark trend yield expectations, revenue would have to drop more than 24% due to price and/or yield losses to trigger an ARC-CO payment for the 2021 crop. 

 

ARC-IC — Agricultural Risk Coverage at the Farm Level

ARC-IC is a unique program. Unlike PLC and ARC-CO, all covered commodities on a farm must be enrolled in the ARC-IC program. If you have more than one farm, you do not have to enroll all of your farms in ARC-IC. For example, if you have three farms, you can enroll one in ARC-IC. However, when two or more farm numbers are enrolled in ARC-IC, a single revenue calculation is made for all farms enrolled in ARC-IC in a state. 

ARC-IC relies on five-year Olympic average farm yields and national marketing year average prices to estimate a “benchmark revenue.” The calculation for 2021 will rely on 2015-19 data calculate the benchmark. 

ARC-IC should have a higher probability of payment than ARC-CO because it solely relies on the individual farm yields instead of aggregate county yields, but the higher probability of payment is at least partially offset by the fact that ARC-IC only pays on 65% of base acres. ARC-IC requires the producer to plant a covered commodity. ARC-IC should be considered for people looking for revenue protection on a single farm number, or farm numbers that have the following characteristics: (1) farms whose ARC-IC benchmark yields are much higher than the county’s ARC-CO benchmark yields or the farm’s PLC yields; (2) farms who have highly variable yields from year to year; or (3) farms where producers have significant concerns for yield prospects in 2021 that may not show up in county-level yield results. 

 

Conclusions

PLC may have the highest probability of payment in 2021 for corn based on the comparison of losses needed to trigger a payment and may remain the program of choice for corn base acres. However, neither PLC nor ARC-CO will be expected to make a payment for the 2021 crop.  

ARC-IC may be a viable option for individuals looking for additional revenue protection. However, one must consider the tradeoff between the individual protection and the reduced payment rate.

For more information or decision tools visit USDA’s ARC/PLC Program site.