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New Farm Bill, New Decisions, New Tools

Alejandro Plastina (plastina@iastate.edu)

The Agriculture Improvement Act of 2018 (2018 Farm Bill) introduced major changes to the Agricultural Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs, and Iowa State University Extension and Outreach has developed new tools to help farmers and landowners make informed decisions about these programs.

ARC/PLC

The 2018 Farm Bill re-authorized the ARC and PLC programs for 2019–2023. Farm operators still have to elect one program and enroll annually in ARC/PLC; however, Congress introduced several tweaks to add flexibility and improve the probability of receiving higher payments for producers affected by low commodity prices or crop failures.

ARC is offered at the county level (ARC-CO) and at the individual level (ARC-IC), and ARC program payments are triggered by actual revenue dipping below the revenue guarantee. ARC-CO uses historical county yields and national cash prices to determine the revenue guarantee. ARC-IC uses farm-specific historical yields across all farms enrolled in ARC-IC in the state operated by the same farmer and national cash prices to determine the revenue guarantee for that farmer. The revenue guarantees in both programs amount to 86% of their respective 5-year Olympic average revenue. While, at first, ARC-IC seems to be more relevant to managing risk at the farm level than does ARC-CO, the payment acres in the ARC-IC program are only 65% of the farm’s total covered commodity base acres, while ARC-CO payment acres are 85% of the farm and commodity specific base acres. Furthermore, while ARC-CO is a commodity-specific program (in the sense that corn base acres in a farm can be enrolled in ARC-CO while soybean base acres on the same farm can be enrolled in PLC), ARC-IC averages out all sources of revenue across all covered commodities and all ARC-IC enrolled farms in the state to calculate the revenue guarantee and the actual revenue. From 2015 to 2018, about 98% of all corn and soybean base acres in Iowa were elected into ARC-CO. PLC payments are triggered when annual commodity prices fall below specific reference prices.

One of the major changes introduced by the 2018 Farm Bill is shortening the period in which a farm is tied to a particular program. Farmers can now switch programs for a particular farm before the end of the life of the farm bill. A farm can be elected into ARC or PLC for 2019 and 2020 before the March 15, 2020, deadline. However, starting in 2021, program election will be an annual choice.

Another major tweak is the one-time opportunity in 2020 for farmland owners (not tenants) to update farm PLC yields for payment years 2020–2023. As producers can now switch programs during the life of the farm bill, updating the PLC program yields before the September 30, 2020 deadline may prove beneficial later on. The choice to update yields is one that owners and operators should consider closely.

Minor changes introduced to program payment formulas that tend to increase the probability of occurrence and the amount of program payments if market conditions improve through time, include the use of higher “plug” yields, the use of trend-adjusted yield factors, and a reference price “escalator.”

The calculation of the ARC-CO revenue guarantee involves the five-year Olympic average county yield. In the 2014 formula, any year when county yields were below 70% of the transitional yield, the latter would be used as a “plug” yield instead of the actual yield. In the 2018 formula, the new “plug” yield is equivalent to 80% of the transitional yield. Furthermore, the 2018 formula uses county-specific trend-adjusted yield factors (similar to the ones used in crop insurance) instead of observed county yields in the revenue guarantee calculation, potentially resulting in “inflated” guarantees for some counties.

The calculation of the ARC-CO revenue guarantee also involves the five-year Olympic average price for each commodity. The 2018 formula allows the use of the Effective Reference Price (ERP) as a price “plug” in years when the commodity price is lower than the ERP. In turn, the ERP is the highest of the 2014 Statutory Reference Price ($3.70 for corn and $8.40 for soybeans) and 85% of the five-year Olympic average price, up to 115% of the Statutory Reference Price ($4.26 for corn and $9.66 for soybeans). Starting in 2019, the ERP is effectively the new triggering price point for PLC payments. Although current price projections for 2020–2023 seem to suggest that ERP will equal the Statutory Reference Price over the life of the 2018 Farm Bill, the tweaking of the price formulas allows for a built-in reference price “escalator” mechanism for whenever prices shoot up.

The 2018 Farm Bill left the crop insurance program mostly unchanged, but explicitly allows the use of cover crops as a “good farming practice,” and indicates that cover crop termination does not affect the insurability of a subsequently planted insurable crop when terminated according to USDA guidelines (or those of an agricultural expert).

New Decisions, New Tools

The ISU Extension and Outreach Farm Management Team has been educating farmers and landowners about the new decisions required by the 2018 Farm Bill using the following seven-step program, which is centered around two new decision tools:

  1. Find your farm’s base acres and existing PLC yields on the FSA 156-EZ form.
  2. Evaluate whether to update the PLC program yield using 2013–2017 crop production evidence and Ag Decision Maker File A1-35. The information required to use this tool is actual farm yields for 2013–2017 on a planted acre basis and the existing PLC yield. Form CCC-867 must be signed with USDA Farm Service Agency offices to complete the process by September 30, 2020. The update will become effective for the 2020 crop.
  3. Guesstimate your county yields for both the 2019 and 2020 crops.
  4. Project the national cash price averages for both the 2019/20 and 2020/21 marketing years.
  5. Place this information into an ARC/PLC Payment Calculator. The ISU calculator includes links to USDA and FAPRI price projections and uses reported and projected prices from USDA Farm Service Agency and Risk Management Agency to project payments per base acre (after sequestration) for ARC-CO and PLC.
  6. Compare the potential ARC-CO vs. PLC payments for both 2019 and 2020 crops by crop and FSA farm number.
  7. Elect and enroll each farm for two years (2019 and 2020) in the ARC-CO and/or PLC program by crop by Farm Service Agency farm number at USDA Farm Service Agency offices by March 15, 2020.

A major drawback of most ARC/PLC calculators is that they lack the capabilities to evaluate the potential payments from ARC-IC. The reason behind the omission is the wealth of farm-specific information required to implement the calculations, especially when farmers operate multiple FSA farms. ARC-IC should definitely be considered by farmers who experienced prevented planting in 2019, and those at risk of experiencing it in 2020 (such as farmers in Northwest Iowa), because the program considers the resulting revenue on those acres equal to zero, and the payment will equal the whole ARC-IC revenue guarantee, up to a cap, if prevented planting was declared in the entire farm. The University of Illinois has recently released the 2019 ARC-IC Payment Calculator, along with an explanatory video.

Information on past ARC-CO and PLC payments by counties in Iowa is available on the CARD website. More information about the 2018 Farm Bill is available.