2021 ARC-CO Calculation
Background: Ultimately, PLC offers price protection. If your MYA price is less than the reference price ($3.70 for corn; $8.40 for soy; $3.95 for sorghum; $5.50 for wheat), a PLC payment is triggered. ARC-CO is a revenue safety net with price and yield protection, and it takes into account a 5-year Olympic average of prices and yields (for this 2021 decision it looks at 2015-2019).
We’ve had good market prices recently. However, remember ARC-CO is based on a 5-year Olympic average where the high and low are thrown out. This average is based on 2015-2019 (2020 doesn’t come into the picture until the 2022 decision. And, if it’s the high, it gets thrown out then…so it may take a couple years of high prices). And, the reality is that PLC corn price of $3.70 may also not trigger depending on the MYA price. Another consideration for the 2021 election is county yields for ARC-CO payments (looking at years 2015-2019 where the high and low are thrown out).
So as things set today, it’s possible there will be no ARC-CO nor PLC payment for corn or soybean for 2021. Corn tends to favor a PLC decision. Wheat favors PLC. Sorghum traditionally has favored PLC. Soybean could be selected either way, particularly depending on if the county has irrigated/non-irrigated split or not. What can impact this is if we see major yield or price losses from current expectations. Because different weather events hit portions of counties, and because some counties have separate payments for irrigated and non-irrigated acres, it’s important to look at your individual county data to make decisions.
Calculation: One way to look at ARC-CO vs. PLC decision for your county based on crop is to do a simple calculation. Take your 2021 County Guaranteed Revenue for a specific crop and divide that by 2021 County Benchmark Yield for that crop. I’ve provided screenshots from several counties where I’ve helped individuals with farm bill decisions in the past. If your county isn’t listed, you can find your county information here: link to download a USDA excel spreadsheet.
How to Use the Calculation: Essentially, the calculation shows similar triggers for all crops. The ARC-CO trigger for corn is essentially 86% of the Reference Price (except this isn’t the case for soybean when considering individual years where MYA was higher than the Reference Price). Thus, what these numbers currently say is that prices have to drop much lower than the reference prices in order to trigger ARC-CO payments. This makes PLC elections more favorable for all the crops. What can change the ARC-CO trigger would be if there’s a change in the 2021 benchmark yield for that specific county.
|Crop||ARC-CO Trigger (prior to final yields)||PLC Reference Price|
For the screenshots below, I’ve added a column to the right (yellow) where I’ve done the calculation. As you will see, the ARC-CO price trigger is similar for counties for each crop. However, that assumes no fluctuation in yield from the 2021 Benchmark Yield, which should approximate a county trend yield projection. If the actual yield is higher or lower than the benchmark, then the effective trigger price goes down or up. If the trendline yield ends up changing, it will impact the ARC-CO price trigger. Thus, you can adjust by increasing and decreasing the guaranteed yield in the calculation to determine how that could impact your ARC-CO trigger.
Example that can be applied to the other County screenshots (please click on images to enlarge):
- 2021 ARC/PLC recorded webinar
- JenREES ARC-CO Calculation Blog Post
- JenREES 2021 Farm Bill Decision Tools
- 2021 Crop Production Clinic Farm Bill Presentation
- USDA FSA Farm Bill Info.
- USDA County Yield and Revenue Excel Spreadsheet for ARC-CO decision (Download. NE data shown. Unhide cells to see other states.)
Posted on January 24, 2021, in Farm Bill and tagged 2021 arc-co calculation, farm bill, farm bill calculation. Bookmark the permalink. Leave a comment.
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