Price Loss Coverage or Agricultural Risk Coverage - Part 1

This is the first in a series of three articles about the options producers must choose in the new Farm Bill.

The Agricultural Act of 2014, also known as the Farm Bill, ushered in the most sweeping changes to U.S. farm policy in nearly two decades. Among the biggest changes for crop producers: Direct payments have been eliminated. Farmers will no longer receive fixed payments per acre, whether crop prices are high or low—or even if they did not plant at all. Instead, they must elect one of two commodity programs: Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC). This is a one-time decision effective at least up through 2018, when the current Farm Bill expires. These programs will provide income support to farmers under adverse price or yield conditions at levels above where their regular crop insurance coverage may apply.

Highlights

PRICE LOSS COVERAGE. Farmers will receive payments if a covered commodity's national average marketing year price is below its “reference price” (a new term for target price). Payments will be made on a crop-by-crop basis (using the farm’s base acreage and program yield for the particular crop) and only cover from the reference price down to the market loan rate price. AGRICULTURAL RISK

COVERAGE. Farmers who elect ARC then must choose one of two options:

• ARC-County option—Crop revenue will be estimated using average county yields. Farmers will receive payments if the ARC-County actual crop revenue is less than the ARC-County revenue guarantee.


• ARC-Individual option—Farmers will receive payments if the actual revenue from all covered commodities is less than the ARC-Individual guarantee.

SUPPLEMENTAL COVERAGE OPTION (SCO). The SCO is a new supplement to the crop insurance choices currently available. Only crops under PLC (not ARC) are eligible. The SCO will be available for the 2015-2018 crop years but not 2014.

The 2014 Farm Bill requires crop producers and landowners to choose between several commodity program options as a safety net. The primary choice is between Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC). However, several secondary decisions are also required.

Key decision for crop producers:

UPDATE PAYMENT YIELDS? Landowners have a one-time opportunity to update their current payment yields established under the 2008 Farm Bill to 90 percent of their 2008-2012 average yields. This can be done on a crop-by-crop basis. Current payment yields for many are 93.5 percent of their 1998-2001 average yields, so if the 2008-2012 average yield is 3.9 percent higher (0.935/0.9) than the 1998-2001 average, the best choice is probably to update. This has particular significance for PLC, for which payment yields directly affect calculated payments.

REALLOCATE BASE ACRES? Landowners also have a one-time opportunity to reallocate their current base acres to reflect their mix of crops in 2009-2012. Landowners can choose to keep their current base acres (typically the average of their 1998-2001 acreages) or reallocate their current base acre total according to the mix of crops in 2009-2012. The current total cannot be increased.

PLC VS. ARC? Producers must choose between PLC (price-only protection) and ARC (revenue protection). PLC is similar to the old target price program, while ARC is a “shallow loss” crop revenue coverage program. For PLC and ARC-County (i.e., based upon county yields), this decision can be made on a crop-by-crop basis. Producers who choose ARC-Individual (i.e., based on a farm’s actual yields) must enter all covered commodities under this option. This is a one-time, irrevocable decision that remains in effect until through the 2018 crop year.

FOR PLC PARTICIPANTS, ADD SCO? Starting with the 2015 crop year, producers who choose PLC will be able to purchase the new Supplemental Coverage Option as an add-on to existing crop insurance coverage. The SCO essentially will allow producers to insure their remaining insurance deductible (up to a maximum 86 percent coverage level) using a county-level yield coverage that mimics the type of individual coverage that is in place (Yield Protection, Revenue Protection, or Revenue Protection – Harvest Price Excluded). The premium for SCO will be subsidized at the 65 percent level. SCO will not be subject to payment limitations.

FOR ARC PARTICIPANTS, ARC-COUNTY OR ARC-INDIVIDUAL? ARC can be taken as either county-level revenue coverage (can choose this or PLC on a crop-by-crop basis) or individual, whole farm-level revenue coverage that provides coverage on an aggregated basis across all program commodities produced on the farm in the particular coverage year. ARC-Individual coverage cannot be chosen on a commodity-by-commodity basis (as with ARC-County and PLC), as it’s an “all-in” choice.




Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visit www.AgriBank.com.