PLC and ARC Decision 2022 • farmdoc daily

Farmers will again have until March 15 to make commodity title program selections. Given current high prices, no merchandise title payments are expected from any program option for marketing year 2022. Should a change in terms result in payments, these would be received in October 2023, after close of the 2022 marketing year. Farmers wishing to purchase the Crop Insurance Policy with Supplemental Coverage Option (SCO) should select Price Loss Coverage (PLC) as their commodity title choice. Based on current price projections, County-Level Agricultural Risk Coverage (ARC-CO) will maximize the odds of payment for soybeans, although those odds are low. The probability of payouts is about the same for corn and soybeans.

Decision overview

Farmers have three program options when making their election decisions.

  • Price Loss Coverage (PLC) is a crop-specific, fixed-price support program that triggers payments if the average marketing year price (MYA) falls below the product’s effective reference price. Payments are made on 85% of historical base acreage.
  • County-Level Agricultural Risk Coverage (ARC-CO) is a crop-specific county revenue program. ARC-CO triggers payouts if actual revenue (MYA price multiplied by county yield) falls below 86% of baseline revenue (product of baseline price and historical trend-adjusted yield for the county) . Payments are made on 85% of historical base acreage.
  • Agricultural Risk Coverage at the Individual Level (ARC-IC) is an income support program at the farm level. Like ARC-CO, payments are triggered if actual earnings fall below 86% of the benchmark. If an FSA farm unit is registered with the ARC-IC, information on all commodities planted in 2022 is combined in a weighted average to determine baseline and actual revenues. If a farmer enrolls multiple FSA farms in the same state, all farm units are combined to determine the actual and benchmark revenue averages. Payments are made on 65% of historical base acreage.

Decisions are made for each FSA farm unit. PLC and ARC-CO are product specific and can be mixed and matched on the same FSA farm or different FSA farms (i.e. PLC for one product, ARC-CO for another on the same FSA farm, or using different programs for the same crop on different FSA farms).

The following subsection will discuss the decision of PLC and ARC-CO for corn, soybeans and wheat in 2022. This goal is taken because most individuals choose between PLC and ARC-CO. Few farms are registered with the ARC-IC. Even if you sign up for ARC-IC, having some understanding of PLC and ARC-CO alternatives will be helpful in making decisions.

But

The effective benchmark price for corn in 2022 is $3.70 per bushel. If the 2022 Market Year Average (MYA) price falls below $3.70, PLC will make a payout. The 2022 maize marketing year will start in September 2022 and end in August 2023.

Currently, expectations are for MYA prices much higher than the reference price. Chicago Mercantile Exchange (CME) contract price assessments, along with fall delivery offers, suggest an expected price for 2022 MYA of around $5.00 a bushel, well above the effective benchmark price. . Based on current market expectations, there is a roughly 10% chance that the average corn price for the 2022 market year will fall low enough to trigger a PLC payout.

ARC-CO makes payments when county revenue falls below a county guarantee. County revenues are equal to county yields multiplied by the MYA price, the same price used to determine PLC payments. For corn, the departmental guarantee is equal to:

0.86 hedge level x MYA benchmark price x county benchmark yield.

The county guarantee and county revenue equations are used to define the MYA equilibrium prices below which ARC-CO will make payments in 2022, given the county’s yield as a percentage of the benchmark yield (percentage yield of the county). At a County Yield Percentage of 100%, the County Yield is equal to the Benchmark Yield. At this point, a county yield percentage of 100% is a reasonable projection for county yields in 2022.

At a County Yield Percentage of 100%, the 2022 MYA price would need to be below the breakeven price of $3.18 to trigger an ARC-CO payment for corn. This price is below the effective benchmark price of $3.70 that would trigger PLC payouts due to the 86% hedge level used to set the ARC-CO guarantee.

Equilibrium prices are shown for rainfed corn in Champaign County, Illinois. Champaign County’s benchmark yield is 222.2 bushels per acre. If Champaign County’s 2022 yield is 222.2 bushels per acre — making the county’s percentage yield 100% — ARC-CO will make payments at MYA prices below $3.18. At a county yield percentage of 100%, PLC will trigger payouts equal to or greater than ARC-CO, at least for reasonably high PLC yields.

A county percentage yield of 80% would occur with a yield of 177.76 in Champaign County in 2022. In this scenario, MYA prices are expected to be below $3.98 per bushel (see Table 1). Here, ARC-CO would make payments for prices between $3.98 and $3.70, unlike PLC. At a price below $3.70, PLC would make higher payments than ARC-CO. The exact level would depend on the size of an FSA farm’s yield.

In our analysis, PLC has a higher chance of making payments than ARC-CO, although both have a minimal chance of making payments. Overall, do not expect PLC or ARC-CO payments for corn. Farmers who wish to purchase the Supplemental Coverage Option (SCO) for corn will need to choose PLC to remain eligible for SCO coverage.

Soy

For 2022, the effective benchmark price for soybeans is $8.40 and the 2022 ARC-CO benchmark price is $9.12 per bushel (see Table 1). Given current market prices, the projected MYA price for 2022 is $12.50. There is a 4% chance that the MYA 2022 price will fall below the reference price of $8.40.

Table 2 shows the equilibrium prices below which ARC-CO will make payments. The benchmark yield for rainfed soybeans in Champaign County is 69.0 bushels per acre. At a County Yield Percentage of 100% – implying the County Yield is 69.0 – the 2022 MYA price must be below $7.84 a bushel before ARC-CO makes the payments.

A county yield of 80% implies a county yield of 55.2 bushels per acre in Champaign County. At this yield, 2022 MYA prices must be below $9.80 before ARC-CO makes payments. The price of $9.80 is well above the reference price of $8.40, indicating that the ARC-CO could trigger payouts at price levels that would not trigger PLC payouts if yield losses sufficient were incurred at the county level.

ARC-CO has a higher probability of making payments than PLC. Note that PLC has not made payments in the past as the MYA price of soybeans has never been below $8.40 since 2014 when the current commodity programs began. Farmers may wish to consider ARC-CO for soybeans due to its higher likelihood. Still, the probability of payout is not high. Again, the interest of an SCO cover for soybeans would require the use of PLC.

Tools

The tools available for making commodity title decisions are:

  • The 2022 Farm Bill Simulation Tool. This Microsoft Excel spreadsheet displays payments based on different values ​​entered by the user.
  • The Gardner ARC/PLC Calculator (https://fd-tools.ncsa.illinois.edu) gives payout probabilities and expected payout amounts for PLC and ARC-CO for various counties.

Summary

Farmers have until March 15 to review product title decisions. If the choices are not changed, farmers will automatically be enrolled in the same option as last year. At this point, do not expect any commodity title payments for PLC or ARC-CO. Given the low probability of payments with current price projections, farmers may wish to base program selection on perceived risk, considering whether there is higher price risk or higher yield risk for the season. harvest and marketing year 2022. PLC is intended to face price risk while ARC-CO provides income protection, which incorporates yield risk.

About Marco C. Nichols

Check Also

The ‘Corn Kid’ just became a cornfluencer

Vegetables, whole grains, fruits and now a viral star with its own official ambassador. Of …