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.

CropARC-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):

For example, York County irrigated corn (irrigated and non-irrigated are combined) shows a 2021 Guaranteed Revenue of $745.35. The 2021 Benchmark Yield (which is an Olympic average yield from 2015-2019) is 234.24. Taking 745.35/234.24=$3.18. Based on these numbers, an ARC-CO payment would not be triggered for corn in York County unless the price went down to $3.18. This is in comparison to PLC in which the trigger is $3.70 for the corn price. This helps with decision making as it leans towards enrolling in PLC for corn. (Again, no guarantee of a payment even with PLC depending on the MYA price). The Trigger will adjust depending on what the final guaranteed yields end up being. So, trying other figures (such as 240 bu or 220 bu vs. the 234.24) can show you how the ARC-CO price trigger adjusts based on final yields. You can use this same calculation for other crops and compare the prices obtained vs. the PLC reference price for that crop. In this case, even sorghum and soybeans would be favored by PLC.

Additional Resources:

About jenreesources

I'm the Crops and Water Extension Educator for York and Seward counties in Nebraska with a focus in irrigated crop production and plant pathology.

Posted on January 24, 2021, in Farm Bill and tagged , , . Bookmark the permalink. Leave a comment.

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