46
Economic Considerations for ARC & PLC in 2021 Ben Brown Agricultural Economics, University of Missouri 1.13.2020 Photo Credit: Amy Harsch
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
e L
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
80
100
120
140
160
180
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
er o
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 [email protected]
Thank You- Ohio!
