Economic Tidbits

Farm Bill Programs—What’s the Right Decision?

Nebraska farmers have until March 15 to make their 2021 farm bill program decisions at their local USDA Farm Service Agency (FSA) offices. The decision concerns farm program coverage for the 2021 crop with payments to be received in the fall of 2022.

In past years, farmers were locked into a program decision for the five-year life of the farm bill. Now, the current farm bill allows farmers to make program decisions each year. The look and function of the programs, Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC), remain the same with each program offering different coverage types. The PLC offers price risk protection. The ARC offers revenue protection covering both price and yield risks.

Given the changes in market conditions over the past eight months, the chances of producers actually receiving farm program payments (not ad hoc payments distributed over the past few years) is low. For example, the PLC program offers payments to corn producers when the national marketing year average corn price drops below the effective reference price of $3.70 per bushel. The latest USDA forecasts peg the average corn price this marketing year at $4.30 per bushel. Prices for the next crop year 2021/22 are tougher to call, but market conditions would hint that prices will be higher than the reference price, thus not triggering a payment. The same scenario exists for most row crop commodities.

ARC (both county and individual) provides revenue protection tied to a benchmark revenue using benchmark prices and yields. The benchmarks are based on five-year Olympic averages with a revenue guarantee of 86 percent of benchmark revenue. Given the current price outlook, the yield reductions necessary to trigger payments would need to be significant, and the higher the prices, the greater the yield reduction necessary. So, again, a payment would appear unlikely.

Where does this leave farmers? Analysis by the University of Nebraska-Lincoln Agricultural Economist Dr. Brad Lubben suggests the chances of payments under either PLC or ARC are quite low given current price and revenue expectations. Lubben notes, “Analysis using either of the online tools tends to show PLC will pay more, and more often, assuming normal yield and price risks going forward. But, if a producer has concerns about greater downside yield risk due to drought, ARC could be more relevant, and ARC-IC might even be preferred if farm-level yield risk is greater than the county as a whole.”

Remember, regardless of this year’s decision, unlike previous years, the decision can be changed next year. For further information, visit the FSA website under the Resources tab on the FSA ARC/PLC Program page at fsa.usda.gov to utilize their Farm Bill decision making tool.

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