Author: Joe Outlaw

Producers have until March 15^th to select their Title I safety net coverage at their local county FSA office.  Current futures prices for many U.S. covered commodities are well above the reference prices which has most producers thinking there will be no payments for the Price Loss Coverage (PLC) so they should choose the revenue coverage provided by Agriculture Risk Coverage-County Option (ARC-CO).  The combination of price and yield protection provided by ARC-CO should be somewhat more likely to trigger a payment than just the price protection provided by PLC.  On the surface this seems quite reasonable, however, as is the case with most decisions in life, this one is much more complicated than that.

First, with a 2022 yield equal to the 2022 county benchmark yield, ARC-CO would not trigger a payment until market prices fall below $3.18/bu for corn, $7.84/bu for soybeans, $3.40/bu for grain sorghum, and $4.73/bu for wheat (Figure 1).  These trigger prices are considerably lower than the effective reference prices for each crop.  So, what if the yield isn’t average?  Across these 4 commodities, it would take a 14 percent yield decline relative to the 2022 county benchmark yield just to increase each commodity’s ARC-CO trigger price to the effective reference price (i.e., $3.70 for corn, etc).

Second, the supplemental coverage option (SCO) is only available on the crops for which a producer chooses PLC as their Title I safety net program.  Given the extremely high futures prices that currently are in place during price discovery, if a producer is looking for a shallow loss revenue protection option, SCO often provides significantly more revenue protection than ARC-CO which uses marketing year average prices to determine revenue benchmarks.  While SCO has a premium that must be paid, many producers may find the coverage difference well worth the cost.

Finally, the current high futures prices for most commodities are good indicators that market prices will be quite strong this harvest.  However, both ARC-CO and PLC use marketing year average prices to determine whether a payment is triggered.  The 2022-23 marketing year for corn begins September 1, 2022 and continues through August 31, 2023.  While not likely to crash, a lot can happen between now and August 2023.  Purchasing SCO allows a producer to elect PLC for the covered commodity, effectively establishing a free put option at the reference price (at least on those base acres and program yields).

Figure 1.  Example ARC-CO and PLC Parameters for the 2022 Decision.

Crop Name	2016 County Yield	2017 County Yield	2018 County Yield	2019 County Yield	2020 County Yield	2022 Benchmark County Yield	2022 Benchmark Price	2022 Benchmark Revenue	2022 Guarantee Revenue	Price below which ARC-CO is Triggered with an Avg Yield	2022 Effective Reference Price (ERP)
Corn	129.62	144.90	168.80	137.45	157.42	146.59	$3.70	$542.38	$466.45	$3.18	$3.70
Grain Sorghum	97.93	109.10	120.02	93.14	93.48	100.17	$3.95	$395.67	$340.28	$3.40	$3.95
Soybeans	49.46	44.56	51.96	39.06	45.11	46.38	$9.12	$422.99	$363.77	$7.84	$8.40
Wheat	74.45	86.24	61.69	61.77	64.21	66.81	$5.50	$367.46	$316.46	$4.73	$5.50

Outlaw, Joe, and Bart Fischer. “The ARC-CO/PLC Decision isn’t as Easy as You Think.” Southern Ag Today 2(6.4). February 3, 2022. Permalink

For the 2021 program year, the U.S. had a total of 246,601,268 enrolled base acres across 23 covered commodities, ranging from feed and food grains to various major and minor oilseeds and seed cotton.  The 13 Southern States (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) accounted for 50,459,543 acres or 20 percent of the U.S. total.  

Looking at enrolled crop bases for the 2021 program year, the South accounted for a relatively low percentage of corn and soybean bases (9% and 14%, respectively).  The Southern States accounted for over 90 percent of seed cotton, long grain rice, and peanut base acres, which makes sense as these three commodities are generally grown in warmer climates and are often referred to as “Southern crops”.  While the share of wheat base in the Southern States was only 24 percent of the U.S. total, the 14,734,976 acres of wheat base represented the largest raw number of base acres of any single crop in the 13-state region.

Table 1. Enrolled Base Acres for the 2021 Program Year.

Base Acres	Corn	Soybeans	Seed Cotton	Long Grain Rice	Wheat	Grain Sorghum	Peanuts
13 Southern States	7,996,187	7,186,913	10,483,866	3,487,440	14,734,976	3,563,167	2,355,027
U.S. Total	92,307,697	52,245,516	11,546,346	3,790,095	61,910,841	8,501,757	2,404,116
13 States as % of Total	9%	14%	91%	92%	24%	42%	98%

These seven crops accounted for 49,807,514 of the 13 Southern State total of 50,459,543 base acres (or 98.7 percent), indicating there are very few enrolled base acres of other covered commodities on farms located in the South.

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Outlaw, Joe, and J. Marc Raulston. “Southern States Share of Major Crop Bases.” Southern Ag Today 1(45.4). November 4, 2021. Permalink

Producers across the United States benefited from the Coronavirus Food Assistance Program (CFAP) 1.0 and CFAP 2.0 programs aimed at providing assistance for losses due to the COVID-19 pandemic.  CFAP 1.0 provided more than $10 billion in payments on over 600,000 applications.  CFAP 2.0 provided almost $14 billion in payments along with top-up payments for acreage based commodities totaling another $4.8 billion from over 900,000 approved applications.

CFAP 2.0 provided broader coverage than the CFAP 1.0 program that limited eligibility to only those crops experiencing a 5 percent decline while focusing on unsold inventories from 2019, left out HRW wheat, and only protected livestock inventories on the farm as of January 15th, 2020.  

 CFAP 2.0 was widely accessed by producers across the South with the 13 southern states accounting for $3.7 billion or nearly 27 percent of the payments.  Soybeans, cattle, and sales commodities were the highest commodity categories in four states each, while corn was the highest in Kentucky.  Sales commodities include specialty crops, aquaculture, nursery crops and floriculture, and other commodities not included in the price trigger and flat-rate payment categories.

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Outlaw, Joe, and J. Marc Raulston. “CFAP 2.0 Payments Across the South.” Southern Ag Today 1(43.4). October 21, 2021. Permalink