ARC-PLC Details Clearing Up

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) — Farmers could choose their new commodity programs as early as next week if they want, but caution may be the wiser tool in risk management right now, considering the current state of commodity prices.

Besides, no farmer is going to see a payment from the new farm programs until at least October 2015.

On Thursday, USDA announced updates of base acres can begin Sept. 29. The rule for electing between Agricultural Risk Coverage and Price Loss Coverage is expected to be posted in the Federal Register as early as Friday.

Under the rule, USDA gives farmers until June 1, 2015, to make a final call on a commodity program contracts for the 2014 and 2015 crop years. That means farmers will have a firm grasp of just how the 2014 marketing year has played out before the final signup decisions. However, farmers likely will have to make their election on ARC or PLC before then, but USDA has not set a final date for that decision.

Agriculture Secretary Tom Vilsack indicated farmers could make that ARC-PLC election as early as next week, but he cautioned against doing so. He urged farmers to dive into the online tools rolled out Thursday by USDA which will show producers there are potentially thousands of dollars in payment differences between the new commodity programs. There are cases where farmers will want to opt for PLC for a crop on one farm and one of the ARC programs on another farm.

"We would expect and anticipate folks would take a little time, but they will be in a position to make this (ARC-PLC) election this fall," Vilsack said. "They can make it immediately if they have the information. I think they are going to take the time to work the numbers."

He added, "Technically, they can make the decision, but I would be very surprised if any of them do that."

The online decision tools were developed separately by the University of Illinois and Texas A&M University. Gary Schnitkey, an ag economist at the University of Illinois, said the two tools should give farmers the same answers until farmers change price forecasts. The programs use price projections from USDA, but also allow farmers to change those projections.

"If you change prices in these models, they will change the answers," Schnitkey said.

Vilsack dismissed the idea that new farm programs would lead to overpaying farmers for revenue losses because of the price declines facing most major commodities. The program options will help reduce some of the significant income risks farmers are facing now.

"Crop insurance is designed to protect against the vagaries of Mother Nature," Vilsack said. "These programs we are talking about today provide a little additional coverage above and beyond crop insurance. The reality is these programs don’t necessarily guarantee a profit for farmers."

The secretary also noted the new programs are better than the much-criticized Direct Payments which paid farmers regardless of market prices. "It was pretty difficult to explain to folks when people were getting checks from the government when prices were at $8 a bushel for corn."

The choice between Agricultural Risk Coverage and Price Loss Coverage is a one-time, irrevocable election that will stick with a farm and/or commodity through the life of the farm bill. All producers in a Farm Service Agency farm entity must agree with the program decision. If a decision is not made, the farm will not be eligible for any payments for 2014 crops and all base acres on that farm will be automatically signed up for Price Loss Coverage in 2015 through 2018.

While landowners have the "sole right" to make determinations on reallocating base acres and yields, that is not the case with the ARC-PLC enrollment. Unless the landowner is an actual producer, he or she will not be involved in the election of the commodity program. Landlords using crop-share agreements are considered "producers." But landlords using cash-rent agreements won’t need to sign off on those ARC-PLC enrollment decisions, Vilsack said.

The election of commodity programs remains in effect regardless of whether the farm is sold or a new operator takes over the lease.

Farmers with multiple FSA farms in a state can elect different farm programs on those separate farms for their commodities.

Any payments under ARC or PLC for 2014 will not occur until after Oct. 1, 2015, because both programs use the final prices for the full marketing year to calculate payments.

Electing ARC or PLC also is not the same as enrollment. Farmers still will have to annually enroll their share of base acres or covered commodities every year in order to receive program payments even though they cannot switch programs.

Farmers actually have three choices for commodity programs. Farmers can enroll separate commodities in the Agricultural Risk Coverage-County or Price Loss Coverage. Farmers also can enroll their whole farms in the ARC-Individual program.

ARC-County operates like countywide insurance coverage that pays on 85% of base acres. ARC-County uses a five-year rolling Olympic average for yield and price, meaning it throws out the highest and lowest yield and price. ARC-County has a revenue guarantee equaling 86% of the county’s previous five-year Olympic yield and the marketing year prices. Payments, however, may not exceed 10% of that revenue guarantee.

ARC-Individual at the farm pays on 65% of base acres. ARC-Individual is based on revenues at the farm level using a rolling Olympic average. The revenue guarantee and the actual revenue are calculated using actual crop plantings for that current year. All of the farm’s covered commodities are rolled into ARC-Individual, so there is no option to sign up any commodity for PLC on that farm. ARC-Individual also caps payments at 10% of the farm’s benchmark revenue.

Price Loss Coverage pays on 85% of base acres or updated yields up to 90% of the 2008-12 average yield per planted acre. Payments are not paid based on actual crops planted, but are paid on the commodity base acres and base yield. PLC pays when the market price for the commodities for the full marketing year averages below the fixed reference price set in the law for 22 different commodities. For corn, the reference price is $3.70 per bushel; for soybeans, it’s $8.40 per bushel; for wheat, it’s $5.50 per bushel. Those prices are set through 2018.

When determining which commodity program to enroll in, farmers must also consider how the insurance Supplemental Coverage Option (SCO) would factor into their potential revenue protection. SCO is a countywide policy for yield or revenue that will raise a farmer’s potential insurance coverage level up to 86% of a revenue benchmark. SCO can only be used for commodities not enrolled in one of the ARC programs. However, farmers can also buy SCO coverage for land that is not included as part of a farm’s base acres.

Frequently asked questions on ARC-PLC: http://www.dtn.com/…

A Fact Sheet on ARC-PLC: http://www.dtn.com/…

USDA details and calculator tools: www.fsa.usda.gov/arc-plc

University of Illinois decision tool: http://farmbilltoolbox.farmdoc.illinois.edu/…

Texas A&M decision tool: https://www.afpc.tamu.edu/…

Chris Clayton can be reached at Chris.Clayton@DTN.Com

Follow him on Twitter @ChrisClaytonDTN.

(AG/CZ)