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

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_01: Welcome everybody to the Professional Egg Marketing Podcast.
• 0:27
  SPEAKER_01: I am your guest host today, Lucas Peters, and I'm kicking off our 2025 Crop Insurance Decision Time series, where we're going to take five different topics and record a short podcast on each topic.
• 0:41
  SPEAKER_01: The topics this year we're going to cover changes and updates for the program for 2025.
• 0:47
  SPEAKER_01: We're going to take a podcast and look at ECO coverage in 25, the ARC PLC decision, some add-on private products for crop insurance in 25, and then review some of the government program payments that got announced at the end of the year that will be hitting the farm country here in 2025.
• 1:06
  SPEAKER_01: Thanks for joining us and let's get started.
• 1:09
  SPEAKER_01: What about our ARC PLC decisions for 2025?
• 1:14
  SPEAKER_01: So when they extended the 2018 farm bill for another year and didn't get a new farm bill written, that created a decision that we've had to make here for the last few years.
• 1:27
  SPEAKER_01: We do have to decide on whether we want to sign up for ARC or PLC at the FSA office.
• 1:36
  SPEAKER_01: This is not a new decision.
• 1:37
  SPEAKER_01: Like I said, we've done it the last few years.
• 1:40
  SPEAKER_01: It is an annual decision.
• 1:48
  SPEAKER_01: So not all crops and all farm numbers need to be the same.
• 1:53
  SPEAKER_01: And so just kind of a quick review Arc County is a essentially a county-based revenue coverage using a county yield and a price.
• 2:07
  SPEAKER_01: And with it has an 86% trigger, meaning if we hit uh 86% or below of that uh county expected revenue, that's when there will be an Arc County payment.
• 2:21
  SPEAKER_01: Payments are maxed out at 10% of the projected revenue for Arc County, which for corn, a lot of our counties are going to be between uh 80 and 90 dollars an acre for 25, uh and soybeans are gonna be in that fifty-sixty uh dollar uh range, depending on of course where you're at and how high your county yields uh are.
• 2:44
  SPEAKER_01: Um PLC is price loss coverage, and so in order for PLC to pay, the price has to fall, the actual price has to fall below the reference price, and there is no max, uh, but the uh reference prices are pretty low this year compared to where uh Arc County is, especially, and so I I don't think PLC is gonna have uh much participation in 25, but we can get into some of the numbers here as well.
• 3:15
  SPEAKER_01: There is another option, ARC individual coverage.
• 3:18
  SPEAKER_01: We don't talk a lot about arc individual uh in our areas, and uh it essentially is a kind of a low-level um crop insurance revenue coverage for a farm number.
• 3:31
  SPEAKER_01: And where arc individual works really well is if you have a farm number at FSA that only has one field or a couple fields in it, and if they have a history of prevent plant, uh and potentially you think there might be a prevent plant situation in 25, then you could consider arc individual.
• 3:52
  SPEAKER_01: Um they work really well in prevent plant years because uh you're gonna have zero revenue coming off of that farm, and the arc individual payment will be pretty pretty good.
• 4:02
  SPEAKER_01: Uh in 25, I don't think we're gonna have a lot of arc individual coverage, um, but uh I'll kind of get into that uh thinking here uh next.
• 4:11
  SPEAKER_01: The I feel in 25 ARC County is going to be the most popular option.
• 4:16
  SPEAKER_01: Not surprising, that's kind of been the way uh it has been here in the last few years.
• 4:22
  SPEAKER_01: Um but the reason why is for Arc County, the prices are pretty high this year.
• 4:28
  SPEAKER_01: And when I say prices with the ARC and PLC programs, they are looking at a marketing year average price, uh, not a futures price or a crop insurance price.
• 4:38
  SPEAKER_01: It's the marketing year average.
• 4:39
  SPEAKER_01: Um, and so it's gonna go from like September through August.
• 4:43
  SPEAKER_01: Uh so the 24 price started getting averaged in in uh September of 24 and run through August 25.
• 4:51
  SPEAKER_01: So a different pricing mechanism than a lot of our other coverages we talk about or consider.
• 4:57
  SPEAKER_01: Um the other thing that ARC uses is an Olympic average, and that's helping us out this year.
• 5:02
  SPEAKER_01: On Olympic average, you throw out the high, you throw out the low, you average the uh numbers in between.
• 5:08
  SPEAKER_01: And this year we were able to throw out a low price and use a higher price.
• 5:14
  SPEAKER_01: So our ARC county prices for 2025 are 503 on corn, 12.17 on soybeans, and 672 on wheat.
• 5:26
  SPEAKER_01: Uh so those prices are pretty good, uh, especially when you compare them to well, cash price or uh futures price today, and that's gonna really, I think, make our county a popular choice.
• 5:37
  SPEAKER_01: The PLC reference prices this year are$426 on corn,$966 on soybeans, and$556 on wheat.
• 5:47
  SPEAKER_01: So you can see for PLC to pay, price has to fall below those levels, and that price would have to fall quite a ways to even approach those levels.
• 5:57
  SPEAKER_01: So that's going to limit the uh popularity of PLC this year.
• 6:02
  SPEAKER_01: Uh, one another item to consider on making our decisions is what if we take 86% of that ARC County price?
• 6:11
  SPEAKER_01: Uh meaning that uh Arc County would start triggering at 86%.
• 6:16
  SPEAKER_01: If yields are flat, well then we're going to need price to drop to trigger payments.
• 6:21
  SPEAKER_01: And so 86% of the 503 corn price gives us a 433 trigger on corn, a 1047 trigger on soybeans, and a 578 trigger on wheat.
• 6:35
  SPEAKER_01: When 86% of those arc prices are still higher than the PLC reference prices, I think it it even uh makes the decision easier to look at using Arc County.
• 6:49
  SPEAKER_01: Uh, in order for Arc County to reach a max payment and for PLC to overtake it, we would have to have prices falling below 370 on corn and below like 850 on soybeans.
• 7:04
  SPEAKER_01: You know, if they fall that low, Arc County is still gonna trigger a payment.
• 7:08
  SPEAKER_01: Uh, but then PLC would have a payment.
• 7:11
  SPEAKER_01: If they go lower than that, that's when PLC would pay more.
• 7:14
  SPEAKER_01: Uh again, I don't think that's likely on 25.
• 7:17
  SPEAKER_01: It seems like the more likely scenario is we have a slight lower price, and if if yields are flat to down, Arc County payments uh could be pretty good.
• 7:28
  SPEAKER_01: And I'd really uh consider Arc County uh kind of the default choice for 25.
• 7:34
  SPEAKER_01: If you are going to sign up for PLC because maybe you are a pretty bearish corn and soybean price, that's that's your decision, that's perfectly fine.
• 7:42
  SPEAKER_01: If you do that, I would consider buying the SCO crop insurance coverage option.
• 7:47
  SPEAKER_01: Uh SCO coverage, different than ECO, which we talked about.
• 7:52
  SPEAKER_01: SCO has an 86% trigger, it is county-based, and you cannot buy SEO if you sign up for Arc County.
• 8:01
  SPEAKER_01: Uh reason being is they are very similar programs.
• 8:04
  SPEAKER_01: And so one way uh producers can kind of hedge their bet on what's gonna pay more Arc County or PLC is you can sign up for PLC uh at the FSA office and buy SEO coverage from your crop insurance agent.
• 8:20
  SPEAKER_01: That way SEO is gonna have a revenue coverage uh similar to Arc County, same trigger point.
• 8:26
  SPEAKER_01: Uh and PLC will cover you if price uh goes down significantly.
• 8:31
  SPEAKER_01: Uh the kicker is SEO is gonna cost you premium.
• 8:34
  SPEAKER_01: And so if you're at 80% coverage, it's probably gonna cost six, seven, eight bucks an acre.
• 8:40
  SPEAKER_01: Uh, if you're you know a lower coverage level, the SEO is gonna cover more, so it's gonna cost you more premium.
• 8:45
  SPEAKER_01: Where Arc County right now doesn't cost you anything, you just have to make the decision.
• 8:50
  SPEAKER_01: So uh that is something to consider if you are looking at PLC.
• 8:54
  SPEAKER_01: Uh, I would encourage you to go in and buy SEO coverage, but as a general rule this year, I think Arc County is gonna be uh our best bet.
• 9:04
  SPEAKER_01: Uh, another uh important reminder on signup deadline.
• 9:08
  SPEAKER_01: All of these decisions are signed up for at the your local FSA office.
• 9:13
  SPEAKER_01: In the past few years, the deadline has been March 15th.
• 9:17
  SPEAKER_01: Uh, this year, the deadline is April 15th.
• 9:19
  SPEAKER_01: So you have another month to look at it if you need it.
• 9:23
  SPEAKER_01: But uh yeah, remember it's get into FSA before April 15th to make that ARC PLC decision.
• 9:30
  SPEAKER_01: If you have any questions on that or want to run scenarios or see how they might fit into your overall risk management plan, uh please reach out to us at Professional Egg Marketing and we'd be sure to help you out.
• 9:40
  SPEAKER_00: And thank you to all our listeners.
• 9:42
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 9:45
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 9:50
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 9:56
  SPEAKER_00: See you next time.