Spring 2022

This time of year, there are many decisions to make at the farm table – most notably related to crop insurance and elections authorized by the 2018 Farm Bill. Now, more than ever, those decisions are dependent on each other. We’ll recap the differences between the ARC-CO and PLC programs, how they have fared the last few years, and considerations to keep in mind for the year ahead.

The deadline to make election decisions for the 2022/2023 year is March 15. Previously this was a one-time election every five years, but it is now an annual decision. It is important to note that if no changes are made for the coming year, the producer’s prior year’s elections are the default.

As a recap, here are key differences between the programs:

It’s important to note the market year averages for most commodities are set between September 1 and August 31, and for wheat the MYA is June 1 – May 31. As such, there is nearly a six-month gap for prices to fluctuate between the time Farm Bill elections are made and the averaging period begins. For this reason, payments under the program lag the decision by nearly two years. For example, ARC-CO/PLC payments for last year’s election (March 2021) will not be made until this coming October since we are only partly through the 2021/2022 marketing year.

Many producers may wonder if the elections they made last year will result in payments this October. The answer: it’s not likely unless their county suffered significant yield losses. With higher commodity prices, PLC payments are unlikely to be triggered for corn, soybeans, wheat or sorghum. Likewise, higher commodity prices will bolster county revenues, even with shallow yield losses, so ARC-CO payments are likely to be isolated across the nation.

As we look ahead to the decision facing producers today, it’s much of the same story. Neither program looks to be a slam dunk this coming year. One might argue the likelihood of PLC triggering a payment in the coming year is less than ARC-CO. This is because the yield component may trigger a payment, even with high commodity prices. However, it’s critical to understand that by electing ARC-CO, a producer is prohibited from purchasing Supplemental Coverage Option (SCO) from their crop insurance agent. SCO is an optional endorsement available to producers that adds county-based coverage on top of their individual multi-peril policy up to the 86% coverage level. Since SCO and ARC-CO are both county-based programs, producers are not able to enroll in each at the same time on the same farm/crop. Producers with lower levels of crop insurance coverage may look to add SCO to their policy since it provides coverage down to their base policy, hence playing a larger factor in their ARC-CO/PLC decision.

One flexibility of the ARC-CO/ PLC program is that elections can be made by FSA farm. As a result, producers who are on the fence about enrolling in one or the other could choose to place some farms in the ARC-CO program and others in the PLC program. If doing so, it is prudent to place higher yielding farms in the PLC program since any payments triggered under PLC are made on farm yields.

In short, we have nearly six months before prices begin to average for the 2022/2023 programs; but if commodity prices remain high, neither program looks to trigger payments without significant yield issues. As such, producers should:

• Consider if SCO is a fit for their operation,
• Compare coverage amounts (and premiums) under SCO to benchmark guarantees offered through the Farm Bill election,
• Then look to make the best risk management decision for their operation.