Category: Policy

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

The farm program election deadline for 2022 is March 15^th, and producers have the option to enroll commodities in Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC).  PLC protects against declines in prices, and ARC protects against revenue losses at the county level (ARC-CO) or individual farm level (ARC-IC).  Among Southern producers, ARC-IC has not been popular in previous program elections, accounting for less than 1 percent of farm signups.  However, for the 2022 crop year, producers are making their farm program decisions at a time with relatively high commodity prices.  In this situation, it is unlikely that PLC will provide much support, and only alternatives that include yield losses will likely trigger support (ARC-CO and ARC-IC).  This begs the question of whether producers should consider ARC-IC for 2022.  ARC-IC differs from ARC-CO in the following ways: 

1. The ARC-IC benchmark revenue is determined by a producer’s individual farm yields rather than county average yields. 
2. ARC-IC election is made by Farm Service Number (FSN) rather than by commodity, i.e., if ARC-IC is selected for a FSN, then all commodities on that FSN are enrolled in ARC-IC.  If multiple FSNs are enrolled in ARC-IC, they will be treated as one “ARC-IC Farm.” 
3. An ARC-IC payment is made on 65% of base acres rather than 85% for ARC-CO.
4. Coverage applies to commodities with planted acres rather than base acres, i.e., if a producer has seed cotton base but plants corn in 2022, the ARC-IC benchmark revenue will be determined by corn prices and yields. 

In addition to the ARC-CO/PLC decision tool, Texas A&M University offers a spreadsheet calculator for producers considering ARC-IC available at www.afpc.tamu.edu.  For the ARC-IC calculator, producers will need the information in Table 1.  Producers can utilize the calculator to compare potential ARC-IC payments with different combinations of FSNs and different price and yield expectations. 

Table 1. ARC-IC Calculator Inputs

Graff, Natalie, and Joe Outlaw. “ARC-IC Considerations for 2022 Farm Program Elections“. Southern Ag Today 2(4.4). January 20, 2022. Permalink

For the 2022 crop year, producers will have several decisions to make over the next few months.  For example, the U.S. Department of Agriculture’s Farm Service Agency (FSA) has announced that producers will have until March 15, 2022, to make their Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) elections and enrollments for the 2022 crop year.  In addition, many of the sales closing dates for crop insurance for spring-planted crops are rapidly approaching.

For the ARC-County (ARC-CO) and PLC decision, the Agricultural & Food Policy Center (AFPC) at Texas A&M University provides a decision tool to evaluate the trade-offs between the two programs on a crop-by-crop and farm-by-farm basis.  AFPC also offers a spreadsheet calculator for producers who are considering ARC-Individual (ARC-IC).  Given the current price outlook – where producers may expect to receive little (or no) assistance from ARC and PLC – it arguably makes the crop insurance coverage decisions even more important.  

To that end, we offer the following “rules of thumb” for you to consider as you make farm safety net decisions for the 2022 crop year:

• Similar to the 2021 crop year, ARC and PLC are less likely to pay.  That’s okay!  Most producers tell us they would rather get their income from the market than the government anyway. 
• Rather than focusing on expected ARC/PLC payments (when neither may trigger), consider instead where you are most vulnerable.  Is it lower prices due to trade disruptions or slow economic recovery?  Is it lower yields due to persistent drought?
• Talk to your crop insurance agent to make sure you’ve evaluated all yield enhancement options (e.g., Yield Exclusion) and unit structures.
• With current price elections on crop insurance, perhaps now is the time to focus more on adding area-wide tools like the Stacked Income Protection Plan (STAX) for upland cotton, the Supplemental Coverage Option (SCO), and the Enhanced Coverage Option (ECO).
  • You can have STAX on a farm if the seed cotton base on the farm is not enrolled in ARC/PLC.
  • You can purchase SCO for a crop on a farm as long as it’s not enrolled in ARC.
  • You can purchase ECO on the farm regardless of ARC/PLC enrollment.
• At a minimum, on farms with little (or no) seed cotton base, be sure to take a close look at area-wide policies like STAX.  
• If your APH is relatively higher than the county average yields, then be sure to compare STAX against both SCO and ECO.  Because of the 10% limitation in ARC, you may find SCO to be a more attractive alternative (and PLC can be utilized as well, providing some downside price protection, even if you do not expect to need it).

Fischer, Bart, and J. Marc Raulston. “2022 Farm Safety Net Decisions“. Southern Ag Today 2(2.4). January 6, 2022. Permalink

Congress is rushing to finish up its year-end work.  President Biden has already signed the continuing resolution to fund most of the Federal government through February 18, 2022, and Congress has now reached agreement on other priorities like the National Defense Authorization Act and raising the debt ceiling.  Reaching agreement on the Build Back Better Act (BBBA) – which passed the U.S. House of Representatives on November 19, 2021 – has proven to be more elusive.

While the BBBA touches on a number of different topics – falling mostly under the banner of “human infrastructure” – most of the agriculture-related provisions are tied to addressing climate change.  As noted in Figure 1, the bill dedicates an estimated $76.9 billion in spending on agriculture-related priorities over the next 10 years.  For example, $26 billion is provided for forestry activities, most of which is for forest restoration and fuels reduction projects.  Another $25.3 billion is provided for a number of rural development priorities, including $6.6 billion for a “fix” to the debt relief for socially disadvantaged producers provision from the American Rescue Plan (which has run into a number of constitutional challenges in the courts).  Perhaps most notably, the bill also includes $23.5 billion for conservation, with $5 billion going to cover crops and most of the remainder going to temporary plus-ups for existing conservation programs.

The path forward for the BBBA is not clear.  Even if the Senate reaches agreement before the end of the calendar year, they may very well amend the bill which will require the House to weigh in again.  Finally, even if the bill does become law, the temporary nature of the funding increases on the agriculture-related provisions may very well add to the complications that Congressional negotiators will face as they write the next farm bill.

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Fischer, Bart. “Build Back Better?” Southern Ag Today 1(50.4). December 9, 2021. Permalink

A total of 246,601,268 base acres were enrolled in the U.S. in 2021 across 23 covered commodities (Outlaw, Raulston, 2021). The enrolled base acres for the Farm Bill support programs, Agricultural Risk Coverage (ARC-CO) and Price Loss Coverage (PLC), total 244,109,500 for the 2021 program year. The remaining 2,496,768 base acres are enrolled in Agricultural Risk Coverage Individual Coverage (ARC-IC). Price Loss Coverage has the highest share of enrolled base acres at 56.7% followed by ARC-CO at 42.3% and ARC-IC at 1%. The Southern Region (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) account for 50,459,856 acres, or 20.6%, of the U.S. total acreage enrolled in PLC, ARC-CO and ARC-IC programs. The share of base acres enrolled by program for the 2021 crop year is 56.7% PLC, 42.3% ARC-CO, and 1.0% ARC-IC.   

The share of base acres enrolled in 2021 between ARC-CO and PLC is shown in Table 1. The crop with highest percentage of base acres enrolled in ARC-CO for the U.S. is soybeans at 87.2%. The next closest crop in terms of share is corn at 48.4%. The crops with the highest percentage enrolled in PLC is long grain rice at 99.8% followed by peanuts at 99.7%, seed cotton at 91.2%, and grain sorghum at 73.75%. 

Table 1. Share of Enrolled Base Acres by Crop for the 2021 Program Year.

2021 ARC-CO vs. PLC

	13 Southern States ARC-CO %	U.S. ARC-CO %	13 Southern States PLC %	U.S. PLC %
Corn	50.4%	48.4%	49.6%	51.6%
Grain Sorghum	24.1%	26.4%	75.9%	73.8%
Peanuts	0.17%	0.26%	99.8%	99.7%
Rice (Long Grain)	0.05%	0.16%	99.9%	99.8%
Seed Cotton	09.2%	08.8%	90.8%	91.2%
Soybeans	86.8%	87.2%	13.2%	12.8%
Wheat	14.3%	16.85%	85.7%	83.3%

The seven major program crops shown in Table 1 account for 98.7% of total base acres enrolled in the South according to Outlaw and Raulston. The three southern crops of long grain rice, peanuts, and seed cotton range from 90% to 99% enrolled in PLC and drive the U.S. total. Comparing the South to the U.S. for the other four crops shows the South trends with the U.S. in the share of ARC-CO and PLC enrolled base acres. The biggest differences are two percentage points higher in the South for corn ARC-CO, grain sorghum PLC, and wheat PLC. The 2018 Farm Bill allows farm operators to make program election changes in crop years 2021, 2022, and 2023 for ARC-CO and PLC. 

Citations:

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

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Smith, Nathan, and Trey Bucklew. “Enrolled Base Acres Share of ARC-CO and PLC Program by Crop.” Southern Ag Today 1(47.4). November 18, 2021. Permalink