Making the ARC/PLC Choice for 2021

from Joe L. Outlaw and Bart L. Fischer | Co-Directors of the Agricultural and Food Policy Center at Texas A&M University

Unlike previous commodity program selections, this time you are making your commodity program choices before crops — other than wheat — have generally been planted. For both the one-time signup that covered 2014-2018 crop years in the 2014 Farm Bill and the 2018 Farm Bill sign-up for the 2019 and 2020 crop years, you knew considerably more about the crop than you do now. For example, it was clear during the 2014 Farm Bill signup that several crops were guaranteed to trigger ARC county payments for the first couple of years of the farm bill at signup. For 2019, signup was after harvest so you naturally had a better idea of whether ARC would be in the money at least for 2019. 

What else is new this time? Well, for starters, harvest-time futures prices are currently higher than they have been in eight years. Also new this sign-up, you are making a one-year decision. Taking the pessimistic view, at least a bad choice won’t stay with you for multiple years. 

You have to make your ARC/PLC selections for each crop on each of your farms by March 15th. It’s very unlikely that any new information will be available by then, so you might as well figure out what you are going to do and get signed up.

So, what should you do? We aren’t in the business of telling you exactly what to do because, frankly, we don’t know what will end up being the best choice. We do have a decision aid HERE where you can input your info and it will show you expected payments under as many different price scenarios as you want to look at. We also have students who will input your information for you and call you to discuss results. All you need to do is call 979.845.5913 and ask for decision aid help.

Table 1. USDA and FAPRI marketing year average price forecasts for selected crops

At this point, the best we can do is provide you with a few things you should consider when making your choices. The most recent USDA and FAPRI price forecasts for the 2021/22 marketing year would imply that PLC likely won’t trigger payments for many crops, and without a substantial yield loss, neither will ARC county (Table 1). Remember, ARC and PLC are part of a government-provided safety net — it’s ok if you don’t get a payment. In fact, the number one statement producers tell us is they would rather get their income from the market rather than the government. It looks like after about 8 years of mostly bad prices you may get your wish. 

In a situation where the safety net doesn’t look like it will trigger… consider where you are the most vulnerable. Is it to lower prices if China decides they no longer want to buy from the U.S. or is it that you think the persistent drought in much of Texas is the bigger concern? Realize that not a lot has to go wrong with the USDA or FAPRI price forecasts and PLC will be back in the money. If you don’t think that is likely and want to supplement your crop insurance with the shallow loss revenue protection provided by ARC county, then maybe that is the way you should go.

Some will say that they will just pick ARC county because there are two ways that it can trigger… low prices and/or low yields. That is certainly true, but ARC doesn’t pay until you lose 14% of revenue relative to the county benchmark. The last time we looked, with normal yields it would take around a $3.15 corn price to trigger an ARC payment. That price isn’t likely, so you will need a substantial yield loss to trigger a payment.

With ARC and PLC unlikely to trigger, your crop insurance decisions take on even more importance. Be sure to talk to your insurance agent about ways to enhance your Actual Production History (APH) — for example, using the Yield Exclusion to remove yields from disaster years. You may also want to look at tools like the Supplemental Coverage Option (SCO) or the new Enhanced Coverage Option (ECO), both of which provide area-wide coverage for part of the deductible not covered by your underlying policy. For example, the new ECO policy has coverage levels as high as 95%.

Hopefully, we have given you something to think about as you consider your signup decisions. We wish you luck, and don’t hesitate to call for assistance. 

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