Editors' Notebook

Decisions, Decisions: End of March Deadline Looms for ARC or PLC Choice

Cheri Zagurski
By  Cheri Zagurski , DTN Associate Editor
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OMAHA (DTN) -- To ARC or to PLC, that is the question.

(Apologies for sampling Mr. Shakespeare. Please don't sue me.)

As the end of March deadline for choosing your farm program poison nears, DTN's Ag Policy Editor Chris Clayton and Executive Editor Marcia Zarley Taylor have been all over this topic. Check out their respective blogs -- DTN's Ag Policy Blog and Minding Ag's Business Blog -- along with news items on the Farm Business and Ag Policy home pages and in Ag News.

www.dtnpf.com

I wanted to give a quick explanation of the differences between ARC, or Ag Risk Coverage, and PLC, or Price Loss Coverage, but I don't trust my own brain in this matter. Good thing I'm not a farmer. And a good thing I have Chris and Marcia to steer you to -- they know what they are talking about.

We asked DTN readers and participants in our email reader consulting group if they had chosen yet, what they had chosen and why. We also slipped a crop insurance query in, the topic being mitigating risk with the government. What follows are their answers.

Only one respondent hadn't made a decision when we enquired last week. Scott Wallis, of Princeton, Indiana, wrote: "Haven't been in to make the choice yet; leaning towards ARC-CO. Insurance we bought the same level as last year."

Decisions vary, of course, based on where you live and what you grow. Brandon Whitt, near Murfreesboro, Tennessee, told us: "Mostly ARC county here in Tennessee."

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From the wheat belt, Doug Zillinger, of Logan, Kansas, wrote: "I have upped the crop insurance coverage and am hopefully planting fewer acres of spring crops due to the moisture situation. ...

"We will go to the FSA office on Thursday and make the final decisions, but it appears that we will be in PLC on wheat and ARC on grain sorghum. The farm bill has been a strain on all involved. Hope they give that some thought in Washington before they do this again."

Crawford McFetridge, from the Finger Lakes Area of New York, also had some comments on the farm bill and its authors: "As for the two worthless farm programs -- I went with ARC. Why? Only to get my payment from the last farm bill that is now 2 years late. Could also get a payment this year. Got to go for the money.

"There is talk about changing the farm bill. Well I don't think they could make it much worse to get a payment. I am to the point that if they cancelled it, we farmers might be better off. Especially if government left us alone. I could have used that payment this year. I am beginning to think that those in Congress really hate us. I have been in or on the sidelines of farming all of my life. This new farm bill is the biggest joke I ever saw in a government program."

In the Eastern Corn Belt, Dan Hiller of Hardin County, Ohio, has made his decision and he has an idea for southern producers. He wrote: "I took ARC county because PLC has a lower chance of paying anything. ARC individual, you have to plant the acres to get paid, so you are discouraged from shifting acres. The max you can get paid for is the base acres on the farm. If you are hit with a wet spring and do not get the crop planted and take prevented planting you lose the ARC individual payments.

"I have insured at the max in the past and will do so this year. For the record, prevented planting for corn looks to be the most profitable route this year if the weather cooperates. Would not be surprised with the wet cold spring down south (if) they opt for prevented planting if they can. Would not take many acres to change the corn price outlook."

Also in the Eastern Corn Belt, Adam Stonecipher of Danville, Illinois, is an ag banker and he has thoughts about what MIGHT happen. He wrote: "... I can tell you the large majority of our clients are taking the County ARC option on the new farm bill, and updating base acres if it favors more corn acres.

"Like most bankers, I have some strong opinions on crop insurance. First of all, all of my clients carry some sort of coverage. The majority carry at the 85% level and I'm encouraging them to stick with that for 2015. Looking at 2015 margins, it's ridiculously tight and guys are looking for anywhere to trim expenses, and I know reducing coverage from 85% to 80% can help the expense side of the cash flow statement significantly.

"BUT ... What if? What if we plant 2 million less acres of corn (as many are suggesting) AND only grow an average national yield, of say, around 160 (historically very likely when coming off a year where we blow past trendline). IF demand stays the same, now we could be trimming ending stocks back down to 1,200M bushels. Suddenly, you could make a case that the harvest price could be north of the $4.13. Now, do NOT bet on this with your marketing plan, because downside risk is real and we need to be happy with profitable prices when they're available. But this strikes me as a very possible scenario. The higher coverage of crop insurance gives us more protection and increases the chance of payout (over and above the increased premium) if this scenario plays out, which will be a MUCH-needed bonus if we actually grow sub-average yields, but have already locked in breakeven prices based on average yields.

"Like anything, the right choice may be different for someone else. So many decisions ... isn't farming fun?!!"

Now to the Western Corn Belt. Pete Bardole of Jefferson, Iowa, was very succinct in his answer: "We chose ARC and updated what we could, we are keeping the same crop insurance as last year, margins are very tight."

Robert Lowery is a long-time farmer and 19-year branch manager and market analyst for the Price Futures Group in Auburn, Nebraska. He wrote:

"As I talk with producers from Nebraska to Illinois, the majority of producers have signed up for the county ARC program, trying to capitalize on the higher payout the first two years. Crop insurance is a must this year with the high input costs mostly due to the high cash rent. We have seen some cash rent starting to come down an average of 10% to 15%. The average cash rent is running from $250 to $350 across the three-state area ..."

Last, but certainly not least is the northern Corn Belt. Jason Willemarck of Baraboo, Wisconsin, wrote: "ARC or PLC; well we chose ARC-CO. Seems to be the best choice for your operation. Looks to have some revenue for at least two-three years of the five but again as the politicians continue to change their minds, one never knows what the future will bring. Crop insurance is at 80% level this year compared to 85% last year. A slight change from last year but when cost inputs are high and returns low any small change could make a difference in the fall."


If you'd like to be a part of our email reader consultant group, drop me a line at cheri.zagurski@dtn.com

(SK)

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Comments

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Bonnie Dukowitz
3/27/2015 | 7:24 AM CDT
I get a kick out of, changing the Farm Bill. The end result is still in the crystal ball stage. As there is only 3 years remaining of the Act, any discussions of change should be focused on getting the next food bill enacted prior to being outdated when final passage occurs.
G. Sean O'neill
3/25/2015 | 8:42 PM CDT
Nice read. Great article. Appreciate helping get the word out.