Sign up for ARC or PLC Next Week? Surely You Jest!


by Chris Clayton DTN Ag Policy Editor

When it comes to the new farm programs, “the flip side of choice is complexity,” noted Chad Hart, an associate professor and crop markets specialist at Iowa State University.

Hart was on a panel Monday at the American Bankers Association National Agricultural Bankers conference in Omaha, AKA “the ag bankers' meeting.”

The Farm Service Agency also issued a news release on Monday letting everyone know farmers can rush to their local FSA offices on Nov. 17 to sign up for the new farm programs if they so choose. Perhaps the more important date farmers need to keep in mind is March 31, the deadline for making those program decisions.

Farmers can sign up for these programs yet a great many landowners likely are still learning about options to reallocate base acres and update yields for commodities on those farms. The deadline for updating base acres and yields is Feb. 27.

The program choices come down to Price Loss Coverage versus the two Agricultural Risk Coverage programs, ARC-County and ARC-Individual. The decision to sign up for ARC or PLC on every FSA farm and for every commodity still comes down to a one-time irrevocable decision that will cover the life of this farm bill. So hurrying to beat the crowd may not be advisable.

Price Loss Coverage pays when the market-year average price is below the reference prices set in law. The payment rate is the reference price minus that market-year average. The payment is based on 85{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} of base acres.

ARC-County is really the main ARC program and pays based on benchmarks set using five-year Olympic averages of county yields and the national market-year average prices. The guarantee is 86{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} of that benchmark. As speakers stressed for the bankers on Monday, ARC-County is a county trigger. An individual farmer may have had a miserable year, but if the county as a whole did well, then ARC-County may not trigger a payment.

The computer models used for farms, commodities and price scenarios run through a broad array of options when projected the best choice for a particular farm or farmers in a certain county.

Gary Schnitkey, an agricultural economics professor at the University of Illinois, said if farmer believe corn prices are going to average $3.30 or below over the next five years then they want to choose PLC over ARC-County. If a farmer believes corn prices are going to be higher, then they would want to go with ARC for corn.

“If you are concerned about moderately low prices for corn — $3.70, $3.50, $4 — ARC-County might be the better alternative,” Schnitkey said. “If you are concerned about prices below $3 for corn, PLC is going to be the better alternative.”

With an $8.40 reference price for soybeans, ARC-County is going to win out for soybeans as well. “For soybeans, it's going to be hard to find ARC-County not being the higher payment.”

Holding off on making a decision between ARC and PLC is going to help producers get a better feel for potential payments for the 2014 crop year. Farmers are going to know a lot more by early March as USDA releases county yield data for crops. Producers also are going to have a good feel for how prices are going to go for the rest of the year given that it will be nearly roughly six months into the marketing year for the crop.

Another interesting note related to cash renters. Farmers taking over 2015 leases and thus making the decisions on which commodity program for a farm will actually make the decision for the program payment the 2014 renter would be eligible to receive.

In looking at the Supplemental Coverage Option, it too is a countywide endorsement meant to supplement an individual farm policy. SCO is available for farms with PLC but not ARC. Myles Watts, an ag economics professor at Montana State University, emphasized SCO, like ARC-County, is based on countywide losses as well. It's possible to have that individual farm loss, but not affect the whole county. Watts said this has been a problem for some farmers who don't understand area plans.

“Producers and bankers and everybody else need to keep that at the forefront of their minds,” Watts said. He added, “When you have an individual loss, SCO is an imperfect risk tool.”

There is some confusion out there that ARC and SCO are exactly the same. That's not the case in that ARC-County is based on a rolling five-year Olympic average of prices and yield. SCO is going to use the current year crop-insurance prices. Thus, the way the two programs calculate their revenue guarantees is different and not correlated.

Another factor to keep in mind when considering ARC-County versus PLC-SCO is commodity payment limits. ARC and PLC are subject to the $125,000 payment caps for all commodity programs while SCO has no payment cap as a private insurance product.



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Posted by Jami Howell

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