The ABCs of ARC and PLC from the new Farm Bill
Under the 2018 Farm Bill, the two basic forms of risk management available to farmers are Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC).
New rules for choosing between ARC and PLC
A significant change for the new 2018 Farm Bill is that growers can re-elect either ARC or PLC coverage in 2019 for each commodity with the election remaining valid for 2019 and 2020. Beginning in 2021, growers can again choose between the two programs on an annual basis for the remaining three years of the bill.
This is in contrast to the 2014 bill, for which growers made a one-time election that was in effect for the duration of the bill. The effect of this regulation change is that growers will have more effective management tools to address their specific needs.
What is PLC?
PLC insulates growers when there is a steep decline in the price of a covered commodity. Generally, PLC payments are triggered when the effective price for a crop is less than the reference price. The new 2018 Farm Bill provides even more support, allowing the fixed reference prices to float higher based on the Olympic moving average price.
The fixed reference price is now permitted to increase to as much as 115 percent of the statutory reference price. The floating feature can have a significant impact on support. For example, the 2014 reference price for soybeans was $8.40 per bushel, but with floating prices, the bushel price could increase to $9.66.
What do farmers get from ARC?
ARC addresses revenue losses with two subcategories: ARC-CO and ARC-IC. ARC-CO is implemented on a commodity-by-commodity basis, while ARC-IC applies to all of the commodities on a farm. ARC provides revenue support when the actual revenue from a commodity is less than 86 percent of the benchmark revenue.
The 2018 Farm Bill introduced modifications to the plug prices under the ARC to float, leading to a floor on the prices no lower than the maximum statutory reference price or 85 percent of the Olympic moving average.
Another change was that the plug yield for calculating ARC payments was increased from 70 percent to 80 percent of the county's transitional yield. For growers who experienced lower than average crop yields, this change will increase the benchmark revenue guarantee.
Overall, the 2018 Farm Bill made changes that will assist growers in managing risk. PLC and ARC support prices can float higher, program yield benchmarks increased, and the yields used for ARC calculations have improved to provide greater revenue guarantees.
Choosing between the two
Growers with low farm yields will be inclined toward choosing ARC-CO, while growers with high yields will generally prefer ARC-IC or PLC. In either case, the new Farm Bill made it easier to adapt in the event that another support program is more closely aligned with a grower's requirements.
Need help in understanding the impact of the new Farm Bill on your farm operations? Halderman Real Estate & Farm Management can help you. You may call us at 800-424-2324 to talk about your specific needs. Make that call today.