3 Rules Of Thumb For Choosing ARC or PLC

By Sam Ingram

The deadline for electing which coverage option from the 2014 Farm Bill is March 31, 2014 and unlike reallocating base, I do not believe this deadline will be extended. The coverage options of PLC (Price Loss Coverage) or ARC(Agricultural Risk Coverage) are not easy to choose from in every situation, but to help with the situation, 3 rules of thumb are listed below. This information was from an AgWeb article written by Ben Potter.

PLC

• PLC is a risk management tool that addresses deep, multiple year price declines.
• Payments on covered commodity are made if the effective price for the crop year is less than the reference price (see table below), or if the effective price is the higher of the midseason price or the national average loan rate for the covered commodity, whichever is higher.
• PLC Payment Rate = Reference Price – Effective Price
• PLC Payment Amount = Payment Rate X Payment Yield X Payment Acres (85% of base acres)

ARC-CO

• ARC is a risk management tool that addresses revenue losses.
• Producers who elect ARC must unanimously select whether to receive county-wide coverage (ARC-CO) on a commodity-by-commodity basis or choose individual coverage (ARC-IC) that applies to all of the commodities on the farm.
• You must incur a 14% loss before coverage will start (guarantee revenue)
• ARC coverage occurs between 76% to 86% of benchmark revenue
• ARC has a maximum limit of 10% of benchmark revenue unlike PLC which has not limit (until loan rate is hit)

Rules of Thumb

•  Always elect PLC on highest-yielding acres first.
• Always elect ARC-CO on lowest-yielding acres first.
• You can mix PLC and ARC-CO. For example, if you are bumping up against payment limits, elect PLC after maximizing ARC-CO payments.

Farmers can also choose ARC-IC – however, that does not appear to be a popular option, according to Paul Neiffer, The Farm CPA.

Source:uga.edu