Economic

Considerations for

ARC & PLC in 2021

Ben Brown

Agricultural Economics, University

of Missouri 1.13.2020Photo Credit: Amy Harsch

Farm Bill Election: Just

take a deep breath and

we will be done soon!

The average person makes 27 decision a day and

each decision takes roughly 9 minutes- meaning we

spend 4 hours just trying to decide what to do….

However, the decision I want you to ask yourself right

now is “what is my goal when it comes to commodity

program election?”

Truman

For four years, I’ve seen people get upset because

▪ They didn’t maximize revenue,

▪ Missed out a payment all together,

▪ Choose the program that didn’t pay out when

they needed money……

Farm Bill Consideration: Roadmap for Today

1. ARC/PLC Program Characteristics

▪ 2019 Payment Performance

▪ 2019 Enrollment Data

2. Price Consideration for 2021

▪ Global Weather

▪ Chinese Corn Demand

▪ US 2021 Acreage and Yield

3. Making the Decision

▪ Historical Analysis

▪ Price and Yield Expectations

▪ Crop Insurance

Program Refresher: General RefresherProgram Year 2021 Timeline-

Corn and Soybeans (Month, Year)

Jan. 21 Mar. 21 June. 21 Sept. 21 Nov. 21 Jan. 22 Feb. 22 Mar. 22 Jun. 22 Aug. 22 Oct. 22

Today:

Trying to

make a

decision

for 2021.

Mar. 15th

Enrollment Deadline

Summer 2021

Crop Growing

Sept. 1st

2021 Market Year

Price Starts

Jan. WASDE

“Final” estimate of

2021 crop size.

Feb. 24th

NASS 2021 County

Yields Released

Mar. 15th

Program year 2022

Enrollment Deadline

June 15th

RMA 2021 yields

released

Summer 2022

Crop Growing

Aug 31, 2022

2021 Market Year

Price Ends

Oct.

2021

Payments

Released Calendar Year

2021

Calendar Year

2022

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pri

ce P

er B

ush

el

Historical Corn Prices with PLC Effective

Reference Price

Reference Price Market Year Average Price

Program Refresher: PLC ❖ PLC makes a payment when the Market Year Average Price falls below a calculated effective

reference price:

❖ Corn- $3.70

❖ Soybean- $8.40

❖ Wheat- $5.50

❖ Barley- $4.95

❖ Grain Sorghum- $3.95

❖ The payment rate is then multiplied

by your individual FSA Farm Yield

to generate a payment that is paid

on 85% of commodity specific base

acres.

❖ MYA prices are the national

product of the percent of grain sold

during a month times that month's

price. Market year for program

year 2021 starts Sept. 1, 2021.

❖ There is a price escalator, but we

would still need higher prices to

increase the reference price.

No Payments Triggered

Here MYA > ERP

Payments Triggered

Here MYA < ERP

Program Refresher: ARC-County

$300

$350

$400

$450

$500

$550

$600

$650

$700

$750

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rev

enu

e P

er A

cre

Estimated 2019 & 2020 ARC-CO Performance for

Greene County, Ohio-Soybean

Actual Revenue Guarantee

❖ ARC-CO makes a payment when the

national price times the county yield for

the year falls below a 5-year Olympic

Average of prices and yield times 86%.

❖ In other words- a payment is

triggered when the red bar (actual

revenue) is below the black line

(guarantee).

❖ The payment rate is then paid on 85%

of commodity specific base acres.

❖ These are county yields- not farm your

yields.

❖ Counties can have different payment

rates. 2018 Farm Bill now blends

individual payment rates by share of

acres in each county.

No Payments Triggered

Payments

Triggered

Program Refresher: ARC-Individual ❖ A completely different type of beast than what we are used to with ARC-CO, but the concept is basically the same-

payments are triggered when actual revenue falls below a calculated benchmark using individual yields.

❖ Three major differences:

❖ All commodities of this FSA Farm Number are combined to create the farm specific revenue. Also, all FSA

Farms under the same individual in the same state are combined.

❖ Based on actual plantings from the current year for the actual and historical revenue.

❖ Payments are made on 65% of historical base acres instead of 85% under ARC-CO or PLC.

Photo Credit- Protagonists

FSA Farm that might benefit from ARC-IC

1. 100% Prevent Plant acres on any FSA Farms

2. FSA Farm Yields 15% below the historical 5-Year

FSA Farm average of all crops.

3. High year-to-year production variability. (example

river bottom)

4. “Large” acreage of fruits and vegetables (+15%)

This played large

for parts of Ohio in

2019 since we

already knew our

yields.

We won’t know

them in 2021 since

the enrollment

deadline is before

planting.

What about Supplemental Coverage Option??

Eligibility: Only available if a producer select PLC as a commodity program and if their underlying

crop insurance policy is anything but area or index insurance.

What is it: SCO is an area-based crop insurance products up to 86% coverage with higher subsidy

levels.

Elect a Federal Commodity Program

Price Loss CoverageAgricultural Risk

Coverage- County

Agricultural Risk

Coverage- Individual

Supplemental

Coverage Option

Paid on 85% of Base Acres Paid on 65% of Base Acres

Paid on 85% of Base Acres

Paid on COMBO Purchased Planted Acres

What about Supplemental Coverage Option??

5055

6065

7075

8085

3631

2621

1611

6

1

0

10

20

30

40

50

60

70

80

90

100

Pe

rce

nt C

ove

rag

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eve

l

Insurance Coverage Levels

Crop Insurance Policy SCO

86% Guarantee

Individual

Coverage

Level

Farm Policy

Basic

Premium

FARM + SCO = Total + Adm.

Fee

85% $33.97 $33.97 + $0.90 = $34.87

80% $22.53 $22.53 + $4.43 = $26.96

75% $14.39 $14.39 + $6.52 = $20.91

70% $9.55 $9.55 + $7.61 = $17.16

65% $7.06 $7.06 + $8.31 = $15.37

60% $4.58 $4.58 + $8.74 = $13.32

55% $3.20 $3.20 + $8.83 = $12.03

50% $2.07 $2.07 + $8.86 = $10.93

2019 Example:

Union County Ohio, Corn, APH- 166, 160 Acres,

$4.00 Projected Price, Revenue Protection, Non-Irrigated

2021 premiums will likely be higher

Is SCO right for my operation? A couple options to think about and consider:

1. If planted acres > historical base acres, then SCO provides you a stronger revenue protection on what

you are actually growing.

❖ Keep in mind that crop insurance units might not match up with FSA farm numbers.

2. Decreasing your individual coverage to cheapen your crop insurance bill will lower you prevented planting

protection.

3. Even at 1% and 6% SCO you are adding revenue protection to the tune of about $10 and about $60 at

current corn prices.

4. PLC with SCO is the most complete risk management option because you have the revenue protection

like ARC-CO for yield losses and the price protection from SCO.

❖ But it does cost an extra premium and administration fee.

ARC vs PLC: What did people do in 19 & 20?

This information was collected from

producer meetings related to sign-up.

1. Revenue and Price expectations and profit maximization more so than financial risk management of the

operation were the #1 factors of producer decision making.

▪ Year 1 (2019) having the biggest influence.

2. Producers with higher levels of crop insurance coverage were more likely to do ARC-IC or ARC-CO than

PLC.

▪ For ARC-IC this likely is the result that higher coverage levels had higher payments for prevented

planting because PP is partially based on coverage level.

▪ This could be due to the fact higher coverage levels lower the benefit of SCO because of the

smaller gain. Someone with an 85% policy would only get 1% additional coverage.

3. ARC-IC was a deterrent due to high management costs like record keeping and farm identification for

some. With 2019 already behind us, people were willing to do the management for the guaranteed

payment.

▪ Producers also did not like that they had to enroll all crops in the same program. Likely a result of

likely PLC payments in Corn and Wheat.

4. For producers who indicated that they didn’t know which program to choose after attending as

educational meeting mostly choose the relatively simpler program PLC.

▪ Participants of some form of education overwhelmingly said that the meeting helped inform their

decision. This was likely people switching from ARC to PLC in 2019.

Corn: 2019ARC-CO PLC Payments▪ Figure 1. shows estimated

ARC-CO payments. Payments

have been adjusted for:

▪ 85% of base acres

▪ 31 county units triggered ARC-

CO payments.

▪ Average of $32/eligible

corn base acre

▪ Range $0-$58/ corn

base acre.

▪ The National Marketing Year

Average Price came in at

$3.56/bu.- triggering a

$0.14/bu. Payment.

▪ This PLC rate is

multiplied by the PLC

yield for each individual

FSA Farm Number.

▪ Figure 2 uses an

average PLC yield for

the county.

Corn: Estimated ARC-CO Irrigation Practices

▪ Four Ohio counties had

enough irrigated acres of corn

that FSA designated them to

have both irrigated and

nonirrigated ARC-CO payment

rates:

▪ Champaign, Pickaway,

Ross and Williams

▪ Payments have been adjusted

for:

▪ 85% of base acres

▪ Producer have to be listed as

irrigation practice on their FSA

form to receive the respective

payment rate.

▪ FSA farms with both irrigated

and nonirrigated acres will use

a blended payment rate for all

acres on the farm.

Soybeans: Estimated ARC-CO PLC Payments

▪ Figure 5. shows estimated

ARC-CO payments. Payments

have been adjusted for:

▪ 85% of base acres

▪ 52 county units triggered ARC-

CO payments.

▪ Average of $28/eligible

soybean base acre

▪ Range $0-$49/ soybean

base acre.

▪ The National Marketing Year

Average Price came in at

$8.57/bu. This is above the

effective reference price of

$8.40 for soybeans.

▪ No counties nationwide

triggered a PLC payment in

program year 2019.

Soybeans: Estimated ARC-CO Irrigation Practices

▪ Eleven Ohio counties had

enough irrigated acres of

soybeans that FSA designated

them to have both irrigated

and nonirrigated ARC-CO

payment rates:

▪ Allen, Auglaize,

Champaign, Hardin,

Putnam, Seneca,

Shelby, Union, Van Wert,

Williams, and Wyandot

▪ Producer have to be listed as

irrigation practice on their FSA

form to receive the respective

payment rate.

▪ FSA farms with both irrigated

and nonirrigated acres will use

a blended payment rate for all

acres on the farm.

Wheat: ARC-CO PLC Payments

▪ Figure 9. shows estimated ARC-

CO payments. Payments have

been adjusted for:

▪ 85% of base acres

▪ 78 county units triggered ARC-

CO payments.

▪ Average of $34/eligible

wheat base acre

▪ Range $0-$42/ soybean

base acre.

▪ The National Marketing Year

Average Price came in at

$4.58/bu.- triggering a $0.92/bu.

PLC payment rate.

▪ This PLC rate is multiplied

by the PLC yield for each

individual FSA Farm

Number.

▪ Figure 10 uses an average

PLC yield for the county.

ARC vs PLC: 2019 Election Data

75

7

66

32

3

42

22

93

33

67

97

56

4

0

0

1

0

2

0% 20% 40% 60% 80% 100%

Barley

Corn

Grain Sorghum

Oats

Soybeans

Wheat

2014-2018 Farm Bill Elections

PLC ARC-CO ARC-IC

94.1

75.5

93.4

61.4

14.1

93

5.5

18.6

5.9

36.7

79.7

5.9

0.4

5.9

0.7

1.9

6.2

1

0% 20% 40% 60% 80% 100%

Barley

Corn

Grain Sorghum

Oats

Soybeans

Wheat

2019-2020 Farm Bill Elections

PLC ARC-CO ARC-IC

Commodity

Markets Update

When: Friday, January 22, 2021, 10-11:30 EST

Where: https://agnr.osu.edu/programming/farm-office

Price Risk: Key indicators I’m watching❖ COVID-19 Resurgence

❖ Stay at home orders reducing gasoline and ethanol demand and

❖ And international logistics of competitors.

❖ Chinese Demand

❖ Both corn and soybean export sales turning into export inspections,

❖ Biden Administration approach to failure to reach Phase 1 targets, and

❖ Increase to Chinese corn Tariff Rate Quotas (TRQs) above current levels.

❖ South American Production

❖ Dryness and timing of South American Crop,

❖ South America as an importer of US commodities.

❖ Technical Money Flow into the Sector

❖ Dollar Index, inflation, interest rates, and

❖ M1 Money Supply

❖ US 2021 Production

❖ Acreage and Yields, the market will assume average yield till May.

Corn Balance Sheet: Shrinking Production, Demand? Corn Balance

SheetUnit 2016/17 2017/18 2018/19 2019/20

2020/21 Dec.

Est. (Δ Sept.)

Area Planted Mil.ac. 94.0 90.2 88.9 89.7 90.8 (-1.2)

Area Harvested Mil. Ac. 86.7 82.7 81.3 81.3 82.5 (-1)

Yield Bu./acre 174.6 176.6 176.4 167.5 172.0 (-6.5)

Beg. Stocks Mil. Bu. 1,737 2,293 2,140 2,221 1,919 (-334)

Production Mil. Bu. 15,148 14,609 14,340 13,620 14,182 (-718)

Imports Mil. Bu. 57 36 28 42 25

Total Supply Mil. Bu. 16,942 16,939 16,509 15,883 16,127 (-1,051)

Feed and Res. Mil. Bu. 5,470 5,304 5,429 5,827 5,650 (-175)

Food, Seed, In Mil. Bu. 6,885 7,057 6,793 6,282 6,375 (-150)

Ethanol Crush Mil. Bu. 5,432 5,605 5,378 4,852 4,950 (-150)

Exports Mil. Bu. 2,294 2,438 2,066 1,778 2,550 (+225)

Total Use Mil. Bu. 14,649 14,798 14,288 13,887 14,575 (-100)

Ending Stocks Mil. Bu. 2,293 2,140 2,221 1,919 1,552(-951)

Farm Price $/Bu. $3.36 $3.36 $3.61 $3.56 $4.20 (+$0.70)

Source: USDA WAOB

Ben’s 21/22

Est.

90.5

83.1

180.5

1,552

15,000

30

16,567

5,700

6,450

5,025

2,300

14,450

2,117

$3.65

360302

-45

80 90

-175

130170

90

15 10

11052

96

194

-3

140

-97

4

-127

80

-105

5 7

250

-115

90

15

-170

330

215

-195

-45

-130

-50

30

406

629

-300

-200

-100

0

100

200

300

400

500

600

700

Mil

lion

Bu

shel

sSuprises in US December Corn Stocks

Trade Average minus Actual Stocks

Corn Balance Sheet: Dec. 1st Stock Report Surprise

Corn Balance Sheet: Dec. 1st Stock Report Surprise

-0.5

-0.3

2.2

-2.4

0.2

-0.2

0.6

0.3

1.4

-0.7-0.8

0.2

1.7

-1

0.1

-0.5

-2.1

-2.3

-0.5

1.5

-1.7

0.1

0.8

-2.3-2.4

-0.9

-0.7

1.2

-2.5

0.5

-3.8

-5

-4

-3

-2

-1

0

1

2

3199

0

199

1

199

2

19

93

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

20

08

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Bushels

/Acre

Change in US Corn Yield (Final -November Estimate)

Soy Balance Sheet: Surprising Yields, Trade OptimismCorn Balance

SheetUnit 2016/17 2017/18 2018/19 2019/20

2020/21 Jan.

(Δ Sept.)

Area Planted Mil. Acres 83.4 90.2 89.2 76.1 83.1 (-0.7)

Area Harvested Mil. Acres 82.7 89.5 87.6 74.9 82.3 (-0.7)

Yield Bu./Acres 52.0 49.3 50.6 47.4 50.2 (-1.7)

Beg. Stocks Mil. Bu. 197 302 438 909 525 (-52)

Production Mil. Bu. 4,296 4,412 4,428 3,552 4,135 (-178)

Imports Mil. Bu. 22 22 14 15 35 (+20)

Total Supply Mil. Bu. 4,515 4,735 4,880 4,476 4,695 (-208)

Soy Crush Mil. Bu. 1,901 2,055 2,092 2,165 2,220 (+20)

Exports Mil. Bu. 2,166 2,134 1,752 1,676 2,230 (+105)

Seed Mil. Bu. 105 104 88 96 103 (+3)

Residual Mil. Bu. 41 5 39 16 22 (-16)

Total Use Mil. Bu. 4,214 4,297 3,971 3,953 4,555 (+113)

Ending Stocks Mil. Bu. 302 438 909 525 140 (-320)

Farm Price $/Bu. $9.47 $9.33 $8.48 8.57 $11.15 (+1.90)

Source: USDA WAOB

Ben’s

21/22 Est.

90.5

88.4

51.0

140

4,508

30

4,678

2,205

2,200

105

25

4,535

143

$11.80

1,552

1000

1500

2000

2500

3000

3500M

ay

June

July

Au

gust

Sep

tem

ber

Oct

ob

er

No

vem

ber

Dec

emb

er

Jan

uar

y

Feb

ruar

y

Mar

ch

Ap

ril

May

June

July

Au

gust

Sep

tem

ber

Oct

ob

er

No

vem

ber

Dec

emb

er

Fin

al

Bu

shel

s (M

illi

on

)

U.S. Corn Ending Stocks by Month

2013/14 2014/15 2015/16 2016/17

2017/18 2018/19 2019/20 2020/21

Current Happenings: The Tide Turned Quick!!!

Corn Stocks went from record

high to 5-year lows within six

months!

1400

200

400

600

800

1000

1200

May

June

July

Au

gust

Sep

tem

ber

Oct

ober

No

vem

ber

Dec

emb

er

Jan

uar

y

Feb

ruar

y

Mar

ch

Ap

ril

May

June

July

Au

gust

Sep

tem

ber

Oct

ober

No

vem

ber

Dec

emb

er

Fin

al

Bu

shel

s (M

illi

on

s)

U.S. Soybean Ending Stocks by Month

2013/14 2014/15 2015/16 2016/17

2017/18 2018/19 2019/20 2020/21

0

20

40

60

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120

140

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200

Nu

mb

er o

f D

ays

Ohio Cash Soybean Price Histogram

51% of Day

Fell Between

$8.50-$10.50

Today-

$14.07

Current Happenings: There is excitement on price!

0

50

100

150

200

250

300

350

400

Nu

mb

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f D

ays

Ohio Corn Cash Price Histogram

46% of Day

Fell Between

$3.40-$4.15

Today-

$5.15

Commodity Outlook: South America as of Tuesday 1.12.21

January WASDE

lowered corn

production 1.5 mmt

and beans 2 mmt.

Commodity Outlook: South America as of Tuesday 1.12.21

The story all year in

Brazil has been

they have gotten

the rain when they

most needed it.

January WASDE

lowered corn- 1mmt but

left soybeans alone at a

record 133 mmt.

Commodity Outlook: Chinese Corn Demand

-

2,000

4,000

6,000

8,000

10,000

12,000

1980/8

1

1982/8

3

1984/8

5

19

86/8

7

1988/8

9

1990/9

1

1992/9

3

1994/9

5

1996/9

7

1998/9

9

2000/0

1

2002/0

3

2004/0

5

2006/0

7

2008/0

9

2010/1

1

2012/1

3

2014/1

5

2016/1

7

2018/1

9

2020/2

1

Mil

lion

Bu

shel

s

Chinese Corn Production and Use

Production Domestic Demand

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1980/8

1

1982/8

3

19

84/8

5

1986/8

7

1988/8

9

1990/9

1

1992/9

3

1994/9

5

1996/9

7

1998/9

9

2000/0

1

2002/0

3

2004/0

5

20

06/0

7

2008/0

9

2010/1

1

2012/1

3

2014/1

5

2016/1

7

2018/1

9

2020/2

1

Mil

lio

n B

ush

els

Chinese Soybean Production and Use

Production Domestic Demand

Image Source: USDA FAS, PSD

Commodity Outlook: Chinese Corn Demand

2

3

4

5

6

7

8

9

10

11

121980/8

1

1982/8

3

1984/8

5

1986/8

7

19

88/8

9

1990/9

1

1992/9

3

1994/9

5

1996/9

7

1998/9

9

2000/0

1

2002/0

3

2004/0

5

2006/0

7

2008/0

9

2010/1

1

2012/1

3

2014/1

5

2016/1

7

2018/1

9

2020/2

1

Mil

lion

Bu

shel

s

US Corn Yield

US Yield Linear (US Yield)

2

3

4

5

6

7

8

9

10

11

12

1980/8

1

1982/8

3

1984/8

5

1986/8

7

1988/8

9

1990/9

1

1992/9

3

1994/9

5

1996/9

7

1998/9

9

2000/0

1

2002/0

3

2004/0

5

2006/0

7

20

08/0

9

2010/1

1

2012/1

3

2014/1

5

2016/1

7

2018/1

9

2020/2

1

Mil

lio

n B

ush

els

Chinese Corn Yield

Chinese Yield Linear (Chinese Yield)

Some of this deficit has been

made by a lack of Chinese

yields to increase with

demand.

Image Source: USDA FAS, PSD

Commodity Outlook: Chinese Corn Demand

China’s Corn Imports from the United States,

Ukraine, and all other Countries 2017-2020

Image Source: He, Hayes and Zhang “China’s Agricultural Imports Under the Phase One Deal: Is Success Possible?” CARD Policy Briefs

(20-PB-29) Iowa State University, Ames, IA. November 2020.

Ukraine

US

Commodity Outlook: China

89 39 29 2 2 62 16 41 47

1,296979

5,231

2,7023,277

5,516

3,1742,464

3,456

4,483

7,596

17,500

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

20

06/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

2013/1

4

2014/1

5

2015/1

6

2016/1

7

2017/1

8

2018/1

9

2019/2

0

2020/2

1

Met

ric

Tons

(1,0

00_)

Chinese Imports of World Corn

7.2 Mil Metric Ton Tariff Rate Quota

Image Source: USDA FAS, PSD

Thoughts: Would require a change

in Chinese Policy.

❖ Self-Sufficiency

❖ Other Grains

❖ Flood their domestic market

91

109106

120118

105

89

74

59

6964

5559

6358

49 51

60

82

105

114

121

114

104102

90

3034 35

3034

31 32

42 4245

41 41

48 4844

4038 38

49 4943

52

46

36 35 34

0

20

40

60

80

100

120

140

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

20

06/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

2013/1

4

2014/1

5

2015/1

6

2016/1

7

2017/1

8

2018/1

9

2019/2

0

2020/2

1

World Days of Corn Supply Available with and

without China

World World Minus China

COVID Impacts: Prevent Plant Acres

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3

So

yb

ean

to

Co

rn R

atio

New Crop Soybean (Nov. 20)/ New Crop Corn (Dec.)-

Hardin County

Theoretical Decision: Plant Corn or Plant Soybeans

Above

2.5:1

Add

Soybean

Acres

Below 2.25:1 Add corn acres

Prospective Corn Planting 97 mil. acres

Actual Corn Planting: 91 mil. acres

Prospective Soy Planting 83.5 mil. acres

Actual Soy Planting: 83.1 mil. acres

1.1 1.5 2.8 3.4

4.5

0.4

5.3

2.4

4.6

1.3 1.4 1.2

15.9

7.7

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

Mil

. Acr

es

Combined Prevent Plant Acres of

Corn and Soybeans

Acreage data: USDA FSA

PP Corn gar.: $3.10

PP Soy gar.: $7.34

Corn Share in 2020: 81%

Commodity Outlook: Summary❖ Fundamentals have greatly improved for both corn and

soybeans. Soybeans was earlier, now corn.

❖ Trade relations have improved.

❖ I choose to look at the glass as half full and the export

picture is positive to me but caution again political

winds.

❖ China’s breeding hog herd is recovering faster than

expected on record profitability. Roughly $300 per pig.

❖ South American Weather and Ultimately Production

❖ Delayed harvest window for soybeans.

❖ Larger Second Crop Corn

❖ Timely Rains Continue

❖ US Planting

❖ The fight for acres is on! Soybeans have the advantage,

but producers love to plant corn!

What do Economist, Weathermen and Pollsters

all have in common??

We love and use the

principles of probability.

ARC vs PLC: Price Probabilities for 2021- Corn

This information came

from the University of

Illinois iFarm Price

Distribution tool.

https://farmdoc.illinois.

edu/decision-

tools/price-distribution

What this is telling us is

that there is a 43%

chance that the 2021

price will fall below $3.70

and a 57% chance the

price will fall above $3.70.

ARC vs PLC: Price Probabilities for 2021- Soybean

This information came

from the University of

Illinois iFarm Price

Distribution tool.

https://farmdoc.illinois.

edu/decision-

tools/price-distribution

What this is telling us is

that there is a 9.5%

chance that the 2021

price will fall below

$8.40 and a 90.5%

chance the price will fall

above $8.40.

ARC vs PLC Decision: Historical Analysis

Source: Zulauf, C., B. Brown, G. Schnitkey, K. Swanson, N. Paulson and J. Coppess. “An Alternative Look at the 2019-2020 Farm Program Decision.”

farmdoc daily (10):26, Department of Agricutlural and Consumer Economics, University of Illinois at Urbana- Champaign, February 12, 2020.

Three key differences between ARC and PLC inform

this analysis:

1. PLC only helps when the MYA price falls

below the effective reference with no direct

connection to yield.

2. Assistance for ARC starts when revenue

drops below 86% of the historical revenue vs

100% for PLC.

3. There is a 10% cap on ARC-CO payments

(76%-86% of the historical revenue) whereas

PLC’s reference cap is the commodities loan

rate. 2021 PLC caps are:

1. Corn- 41%

2. Soybean-26%

3. Wheat 39%

Question- what if we could we use the prior year

market year average price to influence commodity

program elections??

10

24 2320

32

0

5

10

15

20

25

30

35

80% or Less 80.1%-95% 95.1-110% 110.1%-130% more than130%

Distribution of Observations of Ratio of Prio Years MYA Price and the Commodity's

Effective Reference Price

ARC vs PLC Decision: Historical Analysis

100%96%

100%

90% 91%

100%

88%

61%

15%

6%

0%

20%

40%

60%

80%

100%

120%

80% or Less 80.1%-95% 95.1-110% 110.1%-130% more than130%

Occurance of Triggering a Commodity Program Payment based on a Ratio of Prior

Year MYA to Reference Price

Percent of Observations Triggering a ARC-CO Payment

Percent of Observations Triggering a PLC Payment

$23

$16 $15 $15

$8

$81

$51

$19

$6$0

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

80% or Less 80.1%-95% 95.1-110% 110.1%-130% more than130%

US Average ARC-CO and PLC Payments per Base Acre When Payment was Made by Ratio

of Prior Marketing Year to Reference Price

Average ARC-CO Payment Average PLC Payment

ARC vs PLC Decision: Historical Analysis Looking at forecasted MYA prices and

expected effective reference prices

▪ 7 commodities including soybeans,

corn and grain sorghum are greater

than 10% above signaling that PLC

is unlikely or small, and ARC has a

greater chance of triggering.

▪ 3 commodities 5% below and 10%

above. Using this strategy there is

no signal. A diversified farm

approach might be attractive.

▪ 13 commodities including wheat and

barely have a ratio greater than 5%

below. This signals high chance of

triggering a payment and a relatively

large PLC payment.

142%

140%

133%

114%

113%

111%

110%

109%

107%

98%

93%

92%

91%

90%

88%

86%

84%

84%

82%

81%

79%

77%

67%

Sesame

Mustard

Soybeans

Corn

Oats

Sorghum

Japonica Rice

Crambe

Safflower

Sunflower

Rapeseed

Barley

Seed Cotton

Flaxseed

Wheat

Medium-grain rice

Long-grain rice

Dry- Peas

Canola

Lentils

Peanuts

Small Chickpeas

Large Chickpeas

Ratio of Forecated 2020/21 MYA Prices to Expected 2021 Effective Reference Prices

ARC vs PLC Decision: OSU Resources

Go.osu.edu/FarmBill2021

Step 1. Click

Decision Aid ToolsStep 2. Click the OSU

Logo #Go Bucks!

Where is the tool?? Purple Circle:

❖ The 2018 Farm Bill changed

ARC yields from NASS to

RMA yields and makes all

historical yields trend adjusted

to a current year at the

recommendation of County

Executive Committees.

Orange Circle:

❖ An example form this point

above is included here: crop

year 2013 went from 174

bu./acre in 2013 to 187 for

2018 Farm Bill. Yields can

go up and down depending

on trend line of county.

I have good news!!!

https://www.fsa.usda.gov/programs-and-

services/arcplc_program/arcplc-program-data/index

Other Resources

ARC vs PLC Decision: Closing Remarks

▪ Given the probability of payments for both ARC and PLC being relatively low- choosing PLC to take

advantage of the cheaper area insurance coverage under SCO might be attractive.

▪ However, if you are a high coverage user of crop insurance (80 or 85%) there is probably little

incentive to select your commodity program on this incentive just to gain 6 and 1% respectively.

▪ If your goal is to ensure that some of your risk is always protected- a diversified strategy might have

appeal. Diversification usually does not result in the highest amount of payments.

▪ In practice this would be putting some of your FSA Farm Numbers in ARC-CO and some in PLC.

▪ Advice would be to put the farms with the largest yield variability in ARC-CO and other farms in PLC.

▪ Farms that went into ARC-IC in 2019 may want to amend their election. However, there are reasons to stay

with ARC-IC.

▪ Highly variable FSA Farm yields (river bottom or flood prone area)

▪ Program election for 2021 will be different than 2014 and 2019- we no longer have the benefit of knowing

as much information about yields and prices as we did during those elections.

▪ The election effectively comes down to operational goals.

▪ Like 2019/20- wheat favors PLC and Soybeans favors ARC. Corn is the toss up.

Ben Brown- Contact Information660-492-7574- Mobile bpbrown@missouri.edu

Thank You- Ohio!