Focus on Ag: 2020 PLC and ARC-CO payments will be limited

Kent Thiesse
Farm Management Analyst and Vice President, MinnStar Bank
Kent Thiesse

Under the current Farm Bill, crop producers have more options for annual farm program enrollment at local Farm Service Agency offices.

Producers initially made their program choice for the 2019 and 2020 crop years, and now they can make an annual farm program choice each year.

Farmers made their 2021 farm program choices earlier this year. A majority of producers have chosen the price-based, Price Loss Coverage (PLC) program on crop base acres for corn, wheat and other crops for 2018-2021, while the county yield-based Ag Risk Coverage (ARC-CO) farm program choice has been more popular for soybean base acres. Some farmers in areas with very low crop yields in 2019 chose either ARC-CO or ARC-Individual (farm-yield based) on their corn for 2019 and 2020.

2020 PLC payment potential

PLC payments are made anytime that the final “market year average” (MYA) price for a given crop drops below the reference price for that crop. The PLC payments are made in October in the year following the year that the crop was raised (for example, potential 2020 PLC payments will be paid in October 2021).

The established reference prices for the 2020 crop year were:

  • Corn: $3.70 per bushel
  • Soybeans: $8.40 per bushel
  • Wheat: $5.50 per bushel
  • Barley: $4.95 per bushel
  • Oats: $2.40 per bushel
  • Grain sorghum: $3.95 per bushel
  • Canola: $0.2015 per pound
  • Sunflowers: $0.2015 per pound

The 2020 MYA price for corn and soybeans is the national average corn or soybean price from Sept. 1, 2020 to August 31, 2021, with the MYA price being finalized on Sept. 30, 2021.

The MYA price is the 12-month national average price for a commodity, based on the average market price received by farm operators across the United States, which is then “weighted” at the end of the year, based on the volume of bushels sold in each month.

The price year for MYA prices for wheat and other small grain crops runs from June 1 in the year of harvest until May 31 the following year, with MYA prices finalized on June 30 each year.

Based on the end of the 2020-2021 marketing year on Aug. 31, 2021, USDA is estimating the 2020 MYA prices at $4.45 per bushel for corn and $10.90 per bushel for soybeans. The MYA price for wheat was earlier finalized at $5.05 per bushel.

The USDA price estimates are updated on a monthly basis in the USDA World Agricultural Supply and Demand Estimates (WASDE) report, which is usually released around the middle of each month. The current 2020-2021 MYA price estimates are $5.45 per bushel for corn, $12.90 per bushel for soybeans and $6.60 per bushel for wheat.

Based on the expected final MYA prices, there will not be a 2020 PLC payment for corn, soybeans, oats, grain sorghum or sunflowers; however, there will be a PLC payment of $0.45 per bushel for wheat base acres that were enrolled in PLC for 2020, as well as small payments for barley and canola.

By comparison, PLC payment rates for the 2019 crop year were $0.92 per bushel for wheat, $0.14 per bushel for corn, and zero for soybeans. There has been a PLC payment for wheat in every year from 2015 to 2020 and prior to 2020, there had been a PLC payment for corn in every year from 2015 to 2019. There has not been a PLC payment for soybeans since the initiation of the last Farm Bill in 2014.

2020 ARC-CO payment potential

ARC-CO payments for a given crop are paid when the actual county revenue for the crop falls below the county benchmark (BM) revenue guarantee for that crop. The county BM revenue guarantee is the county BM yield times the BM price for a given year times 86% (0.86).

The actual county revenue is the final county FSA yield for the year times the final market-year average (MYA) price for the same year.

The ARC-CO benchmark (BM) prices for the 2020 crop year were $3.70 per bushel for corn, $9.25 per bushel for soybeans and $5.50 per bushel for wheat. The BM prices are adjusted each year, using the USDA market-year average (MYA) price for the five years preceding the most recent year (2014-2018 MYA prices to calculate 2020 BM prices), then dropping the high and low MYA price and averaging the other three MYA prices.

The annual BM price for a given crop can never drop lower than the reference price for that crop. The current reference prices are $3.70 per bushel for corn, $8.40 per bushel for soybeans and $5.50 per bushel for wheat. Lower BM prices reduce the potential for ARC-CO payments. The 2021 benchmark prices are set at $3.70 per bushel for corn, $8.95 per bushel for soybeans and $5.50 per bushel for wheat.

The benchmark (BM) county yield for 2020 was calculated by taking the average county yields for the previous five years prior to 2019 (2014-2018), dropping the high and low yield, and the averaging the other three yields. The 2020 county BM revenue for a given crop is the 2020 county BM yield times the 2020 BM price, which is then multiplied by 86% (.86) to calculate the “County Revenue Guarantee”.

The county BM yields for corn and soybeans in many Upper Midwest counties has increased in recent years, due to fairly strong average county yields from 2015 to 2018. The increased county BM yields for 2020 increases the potential for ARC-CO payments; however, that gain has been largely offset by the large reduction in the BM corn and soybean price.

The USDA National Agricultural Statistics Service (NASS) releases the estimated average county yields for corn, soybeans and other crops in the spring of each year. These are not the final county yield used by FSA to calculate final ARC-CO payments for a given year; however, the NASS yields do give a pretty good indicator of ARC-CO payment potential for a year. 

Adjustments in the final county yields from the NASS yields that are made by FSA are usually quite small and many times result in lower final yields than the NASS estimates. This can potentially increase the likelihood or amount for ARC-CO payments in some counties. The 2020 NASS county yields are available on the NASS web site at:  http://www.nass.usda.gov/

Overall, 2020 ARC-CO payments for corn and soybeans are not likely in many portions of the Upper Midwest, due to 2020 crop yields that were close to or slightly above BM yields in many areas, as well as the higher final MYA prices that were well above the BM prices for corn and soybeans.

There are few counties in central Iowa that were impacted by the derecho storm in August 2020, as well as some counties in western North Dakota and South Dakota that may earn a corn ARC-CO payment for 2020. Virtually no counties are likely to qualify for a soybean ARC-CO payment in 2020.

Looking ahead to 2021 PLC and ARC-CO payment potential

At this point, it does not appear that there will be any PLC payments for any farm program commodity crops for the 2021 crop year.

All current MYA price estimates are running well above the established reference prices for the same crops. Of course, the 12-month marketing year for 2020-2021 for corn and soybeans just began on Sept. 1, 2021. It is too early to project corn and soybean ARC-CO payment potential for the 2021 crop year, as lower yield levels in some of the areas impacted by the drought in 2021 could potentially qualify for an ARC-CO payment.

Areas with near-average or above corn and soybean yields in 2021 are not likely to see an ARC-CO payment for either crop. Any 2021 PLC or ARC-CO payments would be paid in October 2022.

For additional information contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at (507) 381-7960 or kent.thiesse@minnstarbank.com, or visit www.minnstarbank.com.