The Agriculture Improvement Act of 2018–better known as the 2018 Farm Bill–is a piece of legislation that provides a safety net support to farmers who have base acres through the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. Every year farmers must make an election and enrollment decision by March 15 for the upcoming crop year. The current decision is for base acres established in Alabama for the 2022 crop year, which is between June and September.
Effective Reference Price
The first piece of information needed to make a decision on enrollment in ARC or PLC is the Effective Reference Price (ERP). The ERP is used to calculate payments for both PLC and ARC-County (ARC-CO). While the ERP may change in future years based on an established formula, it has not changed since it was created in the 2018 Farm Bill. Table 1 below shows the ERP for crops with base acres in Alabama.
Table 1. Effective Reference Price for 2022 Crop Year
Source: Based on data from USDA FSA as of 12/9/21
Note: Seed cotton is a weighted average price of the cottonseed price and lint price.
Price Loss Coverage Decision
PLC is a price-based safety net program. Payments are triggered when the national marketing year average price falls below the ERP. To decide whether to choose PLC, one needs to consider the potential this to occur. While professionals do not have a crystal ball to determine prices for next year, there is little indication that prices will be significantly different from the current 2021 crop year. Given this, people can consider what commodities would be eligible for PLC payments for this year. Currently, payments are only projected on peanut base acres, at $60 per ton per acre. No other commodity with base acres in Alabama is expected to yield a PLC payment for the 2021 crop year. The same is expected in 2022 and as peanut contracts have increased this year, the payment rate on those base acres may also further decrease.
Agricultural Risk Coverage – County Decision
The ARC-CO program is a revenue-based program, which is a combination of county yields and the national marketing year average price. Payments are triggered when the revenue falls below the revenue guarantee. This can occur because of a lower yield compared to the benchmark yield, a lower price compared to the benchmark price, or a combination of the two. At the current price levels, with little expectation for lower prices in 2022 crop year, the ARC-CO program is likely to only pay out if yields fall significantly below the county benchmark. Since this is a county-by-county determination, one needs to look at the individual county data. The links to PDF files below contain county level data for consideration.
One will find the benchmark yield, benchmark price, and computed revenue guarantees. Additionally, assumptions are presented to illustrate the point where a minimum or maximum payment rate may be achieved. If one assumes a marketing year average (MYA) price as shown, then the county yield must fall below the specified level to achieve a minimum payment rate. If the county yield fell even further, that would result in a higher payment rate up to the maximum. Alternatively, if one assumes a county yield equal to the benchmark yield, then the MYA price level needed to achieve a minimum payment is shown. It is likely that prices won’t fall to those levels, thus one needs to consider how far county yields would have to fall to trigger a payment at these given price projections.
Implications on Crop Insurance
When making the ARC/PLC decision, one needs to also remember the implications on crop insurance decisions. If the Supplemental Coverage Option (SCO) was chosen for planted crop, those base acres can only elect and enroll in PLC. Crops with ARC enrollment are not eligible for SCO on planted acres. For seed cotton, any enrollment in ARC/PLC is also ineligible for STAX.
Bottom Line
The bottom line for the 2018 Farm Bill safety nets for farmers with base acres is that higher commodity prices are reducing the payment eligibility for the 2022 crop year, to be paid in October 2023. With increasing costs of production, that does not speak to margins that are being squeezed at these higher prices. However, the present structure of these programs is that rising input costs are not considered.
Source : aces.edu