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Extension > Agriculture > Agricultural Business Management > Farm bill > Choosing between PLC and ARC

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Part 3 of the Agricultural Act of 2014 series

Choosing between PLC and ARC

Kent Olson, Applied Economics, March 2014

The "Agricultural Act of 2014," commonly called the farm bill, requires farmers to make a one-time, irrevocable decision to elect either Price Loss Coverage (PLC) or one of the Agricultural Risk Coverage (ARC) options. This fact sheet discusses this decision. Other fact sheets in the series describe other parts of the bill. Please note that the final rules and interpretations will come from the USDA at a future date.

Here's a warning: If all the producers and owners on a farm fail to make a unanimous election of which program to enroll in, the bill says the Secretary of Agriculture may not make any payments to that farm for the 2014 crop year, and the farm will be deemed to have elected PLC for the 2015 through 2018 crop years.

Price Loss Coverage (PLC)

The Price Loss Coverage (PLC) program will make payments to farmers if a covered commodity's national average marketing year price is below its reference price, the new term instead of target price. (See Table 1.) Payments will be made on a crop by crop basis. Under PLC, the payment is the difference between the national average marketing year price and the reference price multiplied by the payment yield and 85% of the base acres.

Table 1: Reference prices ($); set in 2014 farm bill.

Wheat 5.50/bu
Corn 3.70/bu
Grain sorghum 3.95/bu
Barley 4.95/bu
Oats 2.40/bu
Long grain rice 14/cwt
Med. grain rice 14/cwt
Soybeans 8.40/bu
Other oilseeds 20.15/cwt
Peanuts 535/ton
Dry peas 11/cwt
Lentils 19.97/cwt
Small chickpeas 19.04/cwt
Large chickpeas 21.54/cwt

Agricultural Risk Coverage—County (ARC-County)

In the county coverage option, crop revenue is estimated using average county yields. A payment is made if the ARC-County actual crop revenue is less than the ARC-County revenue guarantee. The ARC-County actual crop revenue is the actual county yield times the maximum of the national marketing year price or the loan rate specified in the farm bill. (The loan rate is $1.95 per bushel for corn, $5.00 for soybeans, and $2.94 for wheat.) The guarantee under the ARC-County coverage is 86% of the ARC-County benchmark revenue. The ARC-County benchmark revenue is the product of the most recent 5-year Olympic-average county yield and the most recent 5-year Olympic-average marketing year price. (The Olympic average is calculated by dropping the highest and lowest yield or price from the most recent 5-years and calculating the average based on the remaining 3 yields or prices.) Under the ARC-County choice, the payment rate per acre is the difference between the ARC-County guarantee and the actual revenue, but the payment rate cannot exceed 10% of the benchmark revenue. The ARC-County payment for a covered commodity is the ARC-County payment rate for that commodity times 85% of the farm's base acres for that commodity.

Agricultural Risk Coverage—Individual (ARC-Individual)

Under ARC-Individual coverage, a payment is made if the actual revenue from all covered commodities is less than the ARC-Individual guarantee. The actual revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price, summed over all covered commodities and divided by the farm's planted acreage that year. The ARC-Individual guarantee is 86% of the ARC-Individual benchmark revenue. The ARC-Individual benchmark revenue is the most recent 5-year Olympic-average of the revenue from all covered commodities weighted by the ratio of the acreage planted to a covered commodity and the total acreage of all covered commodities. The revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price. The ARC-Individual payment rate per acre is the difference between the ARC-Individual guarantee and the ARC-Individual actual revenue, but the payment rate cannot exceed 10% of the ARC-Individual benchmark revenue. Under the ARC individual farm coverage program, the payment for a farm is the ARC-Individual payment rate for that farm times 65% of the farm's total base acres (compared to 85% for ARC-County based coverage).

Mix and match?

Farmers can choose PLC for some crops and ARC-County for other crops. For example, a farm can choose PLC for corn and wheat and ARC-County for soybeans.

The ARC-Individual option covers all covered commodities on the farm. PLC or ARC-County are not options for any crop on a farm enrolled in ARC-Individual.

The Supplemental Coverage Option (SCO) can be chosen only for those crops enrolled in PLC. If either ARC option is chosen, the crop or farm is not eligible for SCO.

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