Making 2021 ARC/PLC Decisions

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

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Enrollment for the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) program for the 2021 crop year is underway at your local USDA Farm Service Agency (FSA) office. That decision is by FSA farm number and the historical base acres of crops on that farm and tract. The signup period runs through March 15, 2021.

ARC/PLC is one of the USDA farm safety-net programs that can help producers with fluctuations in either revenue or price for certain commodity crops. These include barley, canola, large and small chickpeas, corn, crambe, flaxseed, grain sorghum, lentils, mustard seed, oats, peanuts, dry peas, rapeseed, long grain rice, medium and short-grain rice, safflower seed, seed cotton, sesame, soybeans, sunflower seed, and wheat.

Local FSA offices are encouraging producers to take time over the next few months to evaluate their program elections and enroll for the 2021 crop year. ARC provides income support payments on historical base acres when actual crop revenue declines below a specified guaranteed level. PLC provides income support payments on historical base acres when the final national average cash price for a covered commodity falls below its effective reference price. For 2021, that’s at $3.70 per bushel for corn and $8.40 per bushel for soybeans, respectively.

2021 election and enrollment

Producers can elect coverage for the 2021 crop year and enroll in crop-by-crop ARC-County (ARC-CO) or PLC. Another choice is to enroll the entire farm in the ARC-Individual (ARC-IC) program. Although election changes for 2021 are optional, enrollment (a signed contract) is required for each year of the program. If a producer has a multi-year contract on the farm and makes an election change for 2021, it will be necessary to sign a new contract.

Key to this decision will be the national average cash price outlook for the 2021-22 marketing year. That is because the final national average cash price by crop will not be known until late September 2022. It must fall below the effective reference price for a PLC payment to be triggered. Most analysts expect those national cash price projections to be roughly $4.00 per bushel for corn and $10.00 per bushel for soybeans based on larger US planted acres, normal growing conditions, and strong US export demand. Since these projected prices are above the effective reference prices, then PLC payments would not be triggered for the 2021 crop year. Based on these current projections, most producers will likely elect and enroll both their corn and soybean base acres in the ARC-CO program to increase the likelihood of triggering a payment.

ARC-CO program payments are triggered when the actual county crop revenue of a covered commodity is less than the ARC-CO guarantee for the crop. The actual county revenue and the revenue guarantee are based on county-level yield data for the base acres’ physical location of the farm and tract. ARC-CO payments are not dependent upon the planting of a covered commodity or planting of the applicable base crop on the farm. Some producers could elect the ARC-IC program that combines the entire farm’s crop base acres, perhaps noting a higher risk of yield loss for 2021. ARC-IC farm eligibility is contingent on the planting of a covered commodity.

Signup deadline is March 15

If your ARC/PLC decision is not submitted to your local FSA office by March 15, 2021, the election defaults to the current election for crops on the farm from the prior crop year. For each crop year 2022 and 2023, you can make new elections annually during those sign up periods that end March 15. Farm owners can’t enroll in either program unless they have a shared interest in the crops on their farm.

Rather than waiting until the March 15 deadline, producers are encouraged to work with their local FSA office to make their election and enrollment decisions early. This will help spread out the workload for your FSA office and allow more time to focus on any crop insurance changes for your 2021 crops. 

New crop insurance product

A new county-based crop insurance product called Enhanced Coverage Option (ECO) can be added to your traditional multi-peril crop insurance coverage beginning in 2021. Note that ECO can be purchased regardless of your base acres having been enrolled in the ARC or PLC program. The Supplemental Coverage Option (SCO) product can not be purchased unless the base acres on that farm were enrolled in the PLC program.

The ECO offers producers a choice of 90% or 95% trigger levels of county-based coverage for a portion of the underlying crop insurance policy. If you choose revenue protection, then ECO covers revenue losses. ECO provides a band of coverage between these elected levels and 86%. Expect most producers interested in buying ECO in 2021, may plan to enroll in either ARC or PLC and then buy-up their farm-level revenue protection to the 80% or 85% levels. That’s because of the subsidy levels and premiums to be paid for the underlying crop insurance products.

Educational programs on the 2021 Farm Bill sign-up decision will be offered virtually in early 2021 from ISU Extension and Outreach. Watch the Ag Decision Maker Farm Bill page for details.

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Considerations for Adding SCO Crop Insurance

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Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

The decision to purchase Supplemental Coverage Option (SCO) crop insurance in 2020 must be confirmed with your crop insurance agent on or before March 15, 2020. This deadline for making crop insurance changes for spring planted crops now becomes the same deadline for electing and enrolling annually in the ARC/PLC program at your local USDA Farm Service Agency (FSA) office.

The SCO product is available to producers who elect and will enroll in the Price Loss Coverage (PLC) commodity crop program on a farm in 2020. With the ongoing election/enrollment in the ARC/PLC program this winter, the expectation of many experts is that most farmers will choose the PLC program on their corn base acres. However, the ARC-County (ARC-CO) program will be the choice for most soybean base acres.

The SCO band of coverage is based on the county revenue given that the underlying COMBO crop insurance product, likely Revenue Protection (RP) is also purchased. SCO provides a protection in a band at an 86% maximum level down to the coverage level selected for RP. An example would be a farmer who selects a 75% coverage level for RP and adds the SCO product. Thus, SCO could provide county-based revenue coverage from the 86% to the 75% level, or 11% total SCO.

To trigger an indemnity claim the actual county revenue must fall below 86% of the county revenue guarantee before SCO would trigger a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP product downward (65%, 70%, 75%, 80% and 85% levels) while county-level coverage provides between 86% and the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a large revenue loss while SCO will not trigger a payment. It’s also possible that the farm does not have a loss while the county-based SCO product triggers a payment. Note that if an SCO indemnity payment is made, the farmer will not receive it until the June following harvest when USDA’s Risk Management Agency (RMA) releases the final county yields.

The primary advantage of purchasing an RP-SCO combination product is a lower overall farmer-paid premium. However, consider if your county yields are typically less variable than your farm’s yields. This could result in fewer indemnity claims for a county-based product than for that farm-level product at the same coverage level. SCO has a government subsidy rate of 65% which is higher than the rate for RP at the 85% coverage levels using enterprise units. This 65% subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50%.

Farmers who typically purchase RP at high coverage levels (80% and 85%) will likely find a slightly lower farmer-paid premium by adding SCO. But consider a couple cautions before you add the SCO product in 2020. First, make sure your farm’s yields are reflecting your county’s yields. Second, if an SCO indemnity payment is triggered, don’t expect to receive those proceeds until the June following harvest.

Be aware of the time constraints that both FSA county office staff and crop insurance agents will have as this March 15, 2020 deadline approaches. Prepare now to elect and enroll in the ARC/PLC programs for your farms and perhaps update your PLC yields that will be effective for the 2020 crop. Then discuss with your agent the crop insurance changes you’ll be making in 2020 including the possibility of adding the SCO product if you will be enrolling in the PLC program for that crop.

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Supplemental Coverage Option for 2019 Crops

Contributed by Steve JohnsonFarm Management Specialist, Iowa State University Extension and Outreach, sdjohns@iastate.edu

Headshot of Steve JohnsonSupplemental Coverage Option (SCO) crop insurance was introduced in the 2014 Farm Bill but was limited to acres enrolled in the Price Loss Coverage (PLC) commodity program. SCO was not available when Agricultural Risk Coverage (ARC) was chosen by crop by FSA farm number. ARC was the choice for nearly 98 percent of the Iowa’s base corn acres and over 99 percent of the base soybean acres from 2014 through 2018.

As a result, SCO was not a crop insurance choice for very many farms through 2018. Similar to the 2014 Farm Bill the 2018 Farm Bill again gives farmers a choice by crop by FSA farm number to elect and enroll in either the ARC-County or the PLC program.

However, with the 2018 Farm Bill being implemented in 2019, the expectation of some experts is that many farmers will eventually enroll in the PLC program for the 2019 and 2020 crop years, especially on their corn base acres. That’s because of the potential for the PLC program to trigger payments should the final national average cash price fall below the $3.70 per bushel reference price. Enrollment in PLC will lead to more insured crop acres being eligible for the purchase of SCO. For 2019, SCO premiums appear very attractive as compared to Revenue Protection (RP) at higher coverage levels.

Coverage based on county revenue

The SCO band of coverage will be based on the county revenue given that the underlying crop insurance product is RP. SCO provides a protection in a band at an 86 percent maximum level down to the coverage level selected for RP. An example would be a farmer who selects a 75 percent coverage level for RP in addition to the SCO product. Thus, SCO could provide county-based revenue coverage from the 86 percent to the 75 percent level.

To trigger an indemnity claim, a county-based revenue must fall below 86 percent of expected revenue before SCO makes a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP product downward while county-level coverage provides between 86 percent and the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a loss while SCO will not trigger a payment. It’s also possible for the farm to not have a loss while the county-based SCO product triggers a payment.

Premiums under RP-SCO combinations

The primary advantage of using SCO is a lower farmer-paid premium. The costs of an RP-SCO combination product will usually be lower than the 85 percent RP product alone for two reasons.

First, the county yields are typically less variable than the farm yields, resulting in fewer payments for a county-based product than for a farm-level product at the same coverage level. Lower payments then result in a lower premium. Second, SCO has a subsidy rate of 65 percent which is a higher than the RP at the 85 percent coverage levels using enterprise units. This 65 percent subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50 percent. These government paid premiums are reflected in Table 1 below.

table showing premium assistance levels on farm-level products

Who should consider SCO?

Farmers who typically purchase RP at high coverage levels could find SCO useful, particularly if a lower coverage level is selected that might result in a lower farmer-paid premium. However, the farmer should have the intention of eventually electing and enrolling those crops on those farms in the PLC program. Farmers interested in SCO coverage for 2019 should discuss premiums and choices with their crop insurance agent before the March 15 sales closing deadline on spring planted crops.

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