Choosing between PLC and ARC
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The "Agricultural Act of 2014," commonly called the farm bill, requires producers and owners who receive a share of the crop to make a one-time, irrevocable decision to elect either Price Loss Coverage (PLC) or one of the Agricultural Risk Coverage (ARC) options. This fact sheet discusses this decision. Other fact sheets in the series describe other parts of the bill.
Price Loss Coverage (PLC)
The Price Loss Coverage (PLC) program will make a payment if a covered commodity's national average marketing year price is below its reference price, the new term instead of target price. (See Table 1.) Payments will be made on a crop by crop basis. Under PLC, the payment is the difference between the national marketing year average (MYA) price and the effective price multiplied by the payment yield and 85 percent of the base acres. The effective price is the maximum of the MYA price and the loan rate.
Table 1: Reference prices ($); set in 2014 farm bill.
|Long grain rice||14/cwt|
|Med. grain rice||14/cwt|
As an example, suppose the corn price drops in a future crop year to a marketing year average (MYA) price of $3.40. This is lower than the reference price of $3.70 per bushel set in the 2014 farm bill so a payment is triggered.
Using an example farm with a payment yield of 160 bushels for corn and a corn base acreage of 350 acres, the payment would be the difference between the reference price ($3.70) and the current MYA price ($3.40 in this example) multiplied by the corn payment yield and 85 percent of the corn base acres.
For this example farm, the PLC payment would be: (3.70 - 3.40) x 160 x (0.85 x 350) = $14,280.
Agricultural Risk Coverage—County (ARC-County)
In the county coverage option, crop revenue is estimated using average county yields. A payment is made if the ARC-CO actual crop revenue is less than the ARC-CO revenue guarantee. The ARC-CO actual crop revenue is the actual county yield times the maximum of the national marketing year price or the loan rate specified in the farm bill. (The loan rate is $1.95 per bushel for corn, $5.00 for soybeans, and $2.94 for wheat.) The guarantee under the ARC-CO coverage is 86 percent of the ARC-CO benchmark revenue. The ARC-CO benchmark revenue is the product of the most recent 5-year Olympic-average county yield and the most recent 5-year Olympic-average marketing year price. (The Olympic average is calculated by dropping the highest and lowest yield or price from the most recent 5-years and calculating the average based on the remaining 3 yields or prices.) Under the ARC-CO choice, the payment rate per acre is the difference between the ARC-CO guarantee and the actual revenue, but the payment rate cannot exceed 10 percent of the benchmark revenue. The ARC-CO payment for a covered commodity is the ARC-CO payment rate for that commodity times 85 percent of the farm's base acres for that commodity.
Agricultural Risk Coverage—Individual (ARC-Individual)
Under ARC-IC coverage, a payment is made if the actual revenue from all covered commodities is less than the ARC-IC guarantee. The actual revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price, summed over all covered commodities and divided by the farm's planted acreage that year. The ARC-IC guarantee is 86 percent of the ARC-IC benchmark revenue. The ARC-IC benchmark revenue is the most recent 5-year Olympic-average of the revenue from all covered commodities weighted by the ratio of the acreage planted to a covered commodity and the total acreage of all covered commodities. The revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price. The ARC-IC payment rate per acre is the difference between the ARC-IC guarantee and the ARC-IC actual revenue, but the payment rate cannot exceed 10 percent of the ARC-IC benchmark revenue. Under ARC-IC, the payment for a farm is the ARC-IC payment rate for that farm times 65 percent of the farm's total base acres (compared to 85 percent for ARC-CO based coverage).
Mix and match?
Producers can choose PLC for some crops and ARC-CO for other crops. For example, a farm can choose PLC for corn and wheat and ARC-CO for soybeans.
The ARC-IC option covers all covered commodities on the farm. PLC or ARC-CO are not options for a farm enrolled in ARC-IC.
If either ARC option is chosen, the crop or farm is not eligible for the Supplemental Coverage Option (SCO).
If all the producers and owners who receive a share of the crop on a farm fail to make a unanimous election of which program to elect, the bill says the Secretary of Agriculture may not make any payments to that farm for the 2014 crop year, and the farm will be deemed to have elected PLC for the 2015 through 2018 crop years.
Reviewed in 2014