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Crop Insurance Series: ARC vs PLC · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: We are back today, Friday in part three of our crop insurance series.
• 0:28
  SPEAKER_01: I've got Lucas with us.
• 0:29
  SPEAKER_01: How's it going today?
• 0:31
  SPEAKER_01: It's going well, Mike.
• 0:32
  SPEAKER_01: Good deal, good deal.
• 0:33
  SPEAKER_01: Well, what a rough little go on the grain markets here, so I'm happy we can talk about crop insurance today.
• 0:39
  SPEAKER_01: Lucas, what do you want to talk about?
• 0:41
  SPEAKER_00: Yeah, so uh I guess based on the crop markets, the grain markets here the lot well this week uh especially, we're gonna need all the support we can get in 2024, the way it looks.
• 0:53
  SPEAKER_00: And so one decision that uh has been kind of grouped into the crop insurance decision the last few years is our farm uh program, farm bill election uh decision, and uh that is the ARC or PLC decision uh that we've had to make annually here for the last three years, and we'll see what happens next year since hopefully we do have a new farm bill for uh for next year, but uh we'll worry about that later by March 15th.
• 1:22
  SPEAKER_00: Uh you have to make your 2024 decision.
• 1:25
  SPEAKER_00: Uh also a side note if you uh don't make a decision, uh your cover or whatever your election was for 2023 will automatically roll forward uh for 2024.
• 1:36
  SPEAKER_00: Uh so keep that in mind.
• 1:38
  SPEAKER_00: But I guess I thought uh we'd we'd talk about it briefly and kind of start with what each program is.
• 1:44
  SPEAKER_00: Uh so we have ARC and PLC, and and I'm gonna start with PLC because that's the easy one.
• 1:49
  SPEAKER_00: Price loss coverage.
• 1:51
  SPEAKER_00: What it does is it sets a reference price, and if the national marketing year average uh price comes in below the benchmark, um well then, or the reference price with PLC, uh, then PLC issues a payment.
• 2:06
  SPEAKER_00: And if it's above, there is no payment.
• 2:08
  SPEAKER_00: And for 2024, those reference prices have increased a little bit.
• 2:12
  SPEAKER_00: Uh corn is at 401, and soybeans are at 926.
• 2:17
  SPEAKER_01: So definitely not high.
• 2:19
  SPEAKER_00: Not high, uh, although they are getting a little more realistic every day, it seems like.
• 2:24
  SPEAKER_00: But a couple years ago, it was pretty unbearably low, wasn't it?
• 2:28
  SPEAKER_00: Correct.
• 2:28
  SPEAKER_00: So in the past, uh, well, not that many years ago, there were plc payments on corn.
• 2:33
  SPEAKER_00: Uh soybeans has never had a plc payment, um, so keep that in the back of your mind.
• 2:38
  SPEAKER_00: But uh, we we talked about uh SEO uh on the last um little episode there.
• 2:44
  SPEAKER_00: Uh that's where SEO and PLC kind of work hand in hand.
• 2:48
  SPEAKER_00: And so if you are electing PLC, uh I would encourage you to look at that SEO coverage, but one of the reasons why in our discussion on SEO we uh weren't a big fan of it for 2024 was because the ARC program looks to be a lot better in 2024.
• 3:08
  SPEAKER_00: And so, what is the ARC program?
• 3:10
  SPEAKER_00: It's uh area risk coverage, it's a basically a revenue coverage on the county that's gonna trigger at an 86% um trigger point on county revenue, and the county revenue is gonna be based off of a county yield, and we talked about that with SEO uh and uh the ECO coverage, which we'll talk about on Monday.
• 3:34
  SPEAKER_00: Uh, they will use county yields, so does ARC.
• 3:37
  SPEAKER_00: Uh, but the price ARC uses is going to be different than crop insurance.
• 3:42
  SPEAKER_00: The uh ARC uses a reference price, and the reference price on corn this year is 485 and soybeans is 1112.
• 3:50
  SPEAKER_00: Pretty decent.
• 3:51
  SPEAKER_00: So this is kind of why we our decision uh has been probably go Arc County in 2024.
• 3:59
  SPEAKER_00: Which people probably were last year, anyways, right?
• 4:01
  SPEAKER_00: I would say it was uh heavy Arc County.
• 4:04
  SPEAKER_00: It Art County has been the heavier of the programs for for a number of years.
• 4:09
  SPEAKER_00: Um, but this year, especially with a 485 price on corn, you know that that is a marketing year average price.
• 4:18
  SPEAKER_00: Well, right now our board price is well below that.
• 4:21
  SPEAKER_01: And so 449 today here in December 24.
• 4:26
  SPEAKER_00: Yeah, so it I mean, any sort of of continuation around those price levels is is should cause an ARC county payment, um, as in uh even with average yields across the county, and then you any sort of yield loss uh tied in with that is gonna increase the the payment of ARC.
• 4:46
  SPEAKER_00: Now that is one downside of ARC is the payments do become capped at 10% of the benchmark revenue.
• 4:54
  SPEAKER_00: Most of our counties on corn uh that's gonna be uh between 80 and 90 dollars an acre, and on soybeans it's gonna be in that$55 to$65 an acre.
• 5:05
  SPEAKER_00: So keep that in mind that it isn't unlimited.
• 5:08
  SPEAKER_00: Uh PLC uh actually does not have a cap.
• 5:11
  SPEAKER_00: So that is one advantage for PLC, and kind of when we ended our SEO discussion, maybe that's more of a thought for 2025, depending on where price levels uh shake out uh during that year.
• 5:24
  SPEAKER_00: So uh with a 10% cap, uh with that uh in that in mind, it's essentially a band of coverage, about a 10% band of coverage from 86% down to roughly 75% of the county revenue.
• 5:38
  SPEAKER_01: That's kind of the punchline, isn't it?
• 5:40
  SPEAKER_00: That's that's kind of our band of coverage you're gonna get with Art County.
• 5:45
  SPEAKER_00: Um and with the prices being where they're at and the yields keeping up to it to decent yields for what we expect as farmers in the county, it's a nice program.
• 5:55
  SPEAKER_00: One of the downsides of the program is you aren't gonna get any uh payments from it until October of 2025 for the 24 crop year.
• 6:05
  SPEAKER_00: Um, so keep that in mind of it's not something that's gonna settle like your crop insurance policy right after uh right after you get done harvesting.
• 6:15
  SPEAKER_00: There is also an ARC individual coverage.
• 6:18
  SPEAKER_00: We don't talk much about that.
• 6:20
  SPEAKER_00: Um that but one I was reminded this week uh with talking with a customer, uh, you know, all these decisions are done with the farm bill elections uh on a farm number by crop.
• 6:34
  SPEAKER_00: Not all farm numbers have to be the same, not all crop have to be the same.
• 6:38
  SPEAKER_00: If you have a farm number that is a uh maybe a single field, a single farm number that's uh maybe a little bit of an outlier for your operation, maybe it has a tendency to be prevent plant, um, maybe it's really dry or has a tendency to have losses on the crop insurance side, that might be something to consider putting that farm number into arc individual and kind of keep it separate.
• 7:03
  SPEAKER_00: Uh, and I don't want to go into the individual coverage because it's uh a whole other topic, but that would be one of the only times I would use that recommendation for the program.
• 7:12
  SPEAKER_00: But for 2024, uh Arc County does seem to fit a lot of guys, it seems to complement uh your overall risk management plan for 2024.
• 7:23
  SPEAKER_00: You got your crop and your base crop insurance revenue protection, you put Arc County on top of it.
• 7:29
  SPEAKER_00: And then if we need more coverage, which we might, uh there's going to be a few things we can look at, but we will talk about those coming up in the next few days.
• 7:37
  SPEAKER_01: All right.
• 7:38
  SPEAKER_01: Sounds good.
• 7:38
  SPEAKER_01: I have a feeling that ARC will get talked about here towards the end of this series as well as we start talking about decision making.
• 7:45
  SPEAKER_01: Thank you, Lucas.
• 7:46
  SPEAKER_01: And thank you to all our listeners.
• 7:48
  SPEAKER_01: Please reach out to us at professionaleggmarketing.com.
• 7:52
  SPEAKER_01: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 7:57
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 8:03
  SPEAKER_01: See you next time.