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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, November 2014

The "Agricultural Act of 2014," commonly called the farm bill, requires producers and owners who receive a share of the crop 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.

Here's a warning: If all the producers and owners who receive a share of the crop on a farm fail to make a unanimous election of which program to elect, 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 a payment 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 marketing year average (MYA) price and the effective price multiplied by the payment yield and 85% of the base acres. The effective price is the maximum of the MYA price and the loan rate. The PLC program is explained in more detail in Part 4 of this series: Price Loss Coverage.

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-CO actual crop revenue is less than the ARC-CO revenue guarantee. The ARC-CO 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-CO coverage is 86% of the ARC-CO benchmark revenue. The ARC-CO 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-CO choice, the payment rate per acre is the difference between the ARC-CO guarantee and the actual revenue, but the payment rate cannot exceed 10% of the benchmark revenue. The ARC-CO payment for a covered commodity is the ARC-CO payment rate for that commodity times 85% of the farm's base acres for that commodity. The ACR-C program is explained in more detail in Part 5 of this series: Agriculture Risk Coverage—County.

Agricultural Risk Coverage—Individual (ARC-Individual)

Under ARC-IC coverage, a payment is made if the actual revenue from all covered commodities is less than the ARC-IC 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-IC guarantee is 86% of the ARC-IC benchmark revenue. The ARC-IC 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-IC payment rate per acre is the difference between the ARC-IC guarantee and the ARC-IC actual revenue, but the payment rate cannot exceed 10% of the ARC-IC benchmark revenue. Under ARC-IC, the payment for a farm is the ARC-IC payment rate for that farm times 65% of the farm's total base acres (compared to 85% for ARC-CO based coverage). The ARC-IC program is explained in more detail in Part 6 of this series: Agriculture Risk Coverage—Individual.

Mix and match?

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

The ARC-IC option covers all covered commodities on the farm. PLC or ARC-CO are not options for a farm enrolled in ARC-IC.

If either ARC option is chosen, the crop or farm is not eligible for the Supplemental Coverage Option (SCO).

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