Farm operators overwhelmingly select Price Loss Coverage

By Kent Thiesse

Farm operators in United States overwhelmingly selected the Price Loss Coverage (PLC) farm program choice for 2019 and 2020 for most eligible commodity crops, except soybeans. The Agricultural Risk Coverage-County (ARC-CO) farm program choice was the predominant choice for soybeans for the 2019 and 2020 crop years. The most dramatic shift was the large number of corn base acres that were enrolled in the PLC program choice for 2019 and 2020, compared to the 2014-18 farm program choice when a large majority of corn base acres were enrolled in the ARC-CO program. The other farm program choice was the Agricultural Risk Coverage-Individual Coverage (ARC-IC) program, which saw increased enrollment in Minnesota, North and South Dakota. USDA recently released the results of 2019 and 2020 farm program sign-up, which ended earlier this year.

The potential ARC-CO program payments are based on a combination of the 12-month national market year average (MYA) prices for a crop and the average county yields for a given crop for that year. The ARC-IC program payments are calculated in the same manner, except utilizing farm-level annual crop yields. The PLC program payments are based on only the MYA price, compared to crop reference prices. PLC payments occur in any year that the MYA price for corn is lower than $3.70 per bushel, $8.40 per bushel for soybeans, and $5.50 per bushel for wheat.

The MYA marketing year for corn and soybeans runs from September 1 in the year of harvest until August 31 the following year. Any farm program payments occur in October of the year following harvest. (For example – 2019 farm program payments would occur in October, 2020.) Farm program payments are paid on 85 percent of crop base acres for the ARC-CO and PLC program, but only on 65 percent of base acres for the ARC-IC program. This probably accounts for the limited enrollment in the ARC-IC program, unless a producer is fairly certain that will earn substantial ARC-IC payments compared to PLC and ARC-CO payments for a given year.

National Farm Program Sign-Up Results

For the 2019 crop year a total of 253 million crop base acres in the U.S. were enrolled in the PLC, ARC-CO and ARC-IC farm program choices for the various eligible crop commodities. Following are the results of the farm program sign-up for the 2019 and 2020 crop years, listing the total base acres enrolled and (percentage) of crop base acres enrolled in each farm program option:

  • Total — PLC = 177 million acres (70%); ARC-CO = 65.5 million acres (26%);

               ARC-IC = 9.8 million acres (4%).

  • Corn — PLC = 72.1 million acres (75.5%); ARC-CO = 17.6 million acres (18.6%);

               ARC-IC = 5.6 million acres (5.9%).

  • Soybeans — PLC = 7.6 million acres (14.1%); ARC-CO = 43 million acres (79.7%);

                            ARC-IC = 3.4 million acres (6.2%).

  • Wheat — PLC = 59.1 million acres (93%); ARC-CO = 3.8 million acres (5.9%);

                 ARC-IC = 39 thousand acres (1.9%).

By comparison, farm program enrollment for major crops for the 2014-2018 crop years were:

  • Corn — 92% ARC-CO; 7% PLC; .33% ARC-IC
  • Soybeans — 96% ARC-CO; 4% PLC; .35% ARC-IC
  • Wheat — 54% ARC-CO; 44% PLC; 2% ARC-IC

 

Some observations of the 2019 and 2020 farm program enrollment data:

  • The shift in farm program enrollment for corn base acres from 2014-18 to 2019-20 was quite dramatic, shifting from 92% ARC-CO in 2014-18 to 75.5% PLC in 2019-20. The reason revolves around the ARC-CO benchmark price, which is adjusted from year-to-year, based on changes in the MYA price. For the 2014 and 2015 crop years, the corn benchmark price was $5.29 per bushel, which was well above the PLC reference price of $3.70 per bushel. Producers in a majority of Upper Midwest counties collected ARC-CO payments for the 2014 crop year, and some counties collected payments for the 2015 crop year. Following 2015, corn ARC-CO payments pretty much only occurred in situations where counties had reduced corn yields.
  • The MYA prices per bushel for corn were $3.70 in 2014, $3.61 in 2015, $3.37 in 2017 and 2018, and $3.61 in 2018, which meant that there were PLC payment for corn in the final four years. The low MYA prices also resulted in the ARC-CO benchmark price for corn to drop to $3.70 per bushel for 2019, which is the same as the PLC reference price. This means that producers that are enrolled in the PLC program start earning payments when the MYA corn price drops below $3.70 per bushel, while ARC-CO payments would not be initiated until the MYA price drops below $3.20 per bushel with average corn yields. The PLC program provides corn price protection down to a MYA price of $2.20 per bushel. Current USDA estimates for corn MYA prices are $3.60 per bushel for the 2019 crop year and $3.35 per bushel for the 2020 crop year.
  • Nearly 80 percent of the soybean base acres were enrolled in the ARC-CO program for 2019 and 2020. The 2019 soybean ARC-CO benchmark price is $9.63 per bushel, which is well above the soybean PLC reference price of $8.40 per bushel. From 2014 to 2018 the soybean MYA price never dropped below $8.40 per bushel, so there were no PLC payments during that period. Current USDA soybean MYA price projections are $8.55 per bushel for the 2019 crop year and $8.50 per bushel for the 2020 crop year, which would mean no PLC payments for either year. The counties in Minnesota and surrounding States that had below average soybean yields in 2019 are likely to receive 2019 soybean ARC-CO payments at current MYA price projections. Many soybean producers did not see much advantage to soybean PLC enrollment for 2019 and 2020.
  • The very low corn yields in 2019 in six or seven counties in Southwest Minnesota meant that there was a very high likelihood of a significant 2019 corn ARC-CO payments, which lead to a high corn ARC-CO program enrollment in those counties. Many of the corn and soybean ARC-IC acres for 2019 and 2020 were also in Southern and Western Minnesota and surrounding States. The large number of prevent plant acres in 2019, together with very low crop yields in some areas, made the ARC-IC program very attractive for some producers for the 2019 crop year.

Bottom-Line

The high level of enrollment in the PLC program for corn, wheat and other crops for the 2019 and 2020 crop years, as well as the relatively high enrollment in the ARC-CO program for soybeans, seems to suggest that many producers did their “home-work” to make the best choice for their farms. It also suggests that cash flow levels in corn and soybean production are very tight in many areas, and that having the likelihood of fairly substantial payments in 2020 (2019 crop year) and 2021 (2020 crop year) looked very attractive to reduce overall financial risk. The 2019 farm program payments in October this year will help many Minnesota crop producers that were impacted by poor crops in 2019. The good news is that starting with 2021 crop year, the farm program choice will become an annual decision and farmers will not be “locked-in” for multiple years.

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  

Download, print, and display ICBM’s Farm and Rural Helpline Flyer.

7900 International Drive, Suite 685,

Bloomington, MN 55425

Phone: 651.687.9080

Fax: 651.687.9387

info@icbm.org

© 2020 ICBM. All Rights Reserved.

A proud state affiliate of the