Payment formula differences led to varying Agricultural Risk Coverage and Price Loss Coverage selections for individual crops

The Federal Government operates a variety of programs that help crop producers manage risk due to unexpected changes in market prices and yields. These programs include Agriculture Risk Coverage-County (ARC-CO) and Price Loss Coverage (PLC), both introduced in the 2014 Farm Act. ARC-CO and PLC reduce the downside revenue risk facing producers of corn, soybeans, wheat, and other covered commodities. Differences in the two programs’ payment formulas can drive coverage selections for individual crops. For example, ARC-CO payment formulas update annually and account for county level yield and prices while PLC refers to a fixed reference price for the life of the farm bill. Farmers choose which program to enroll their crops in, but the one-time decision lasts the duration of the Farm Act. For this reason, farmers’ beliefs about future prices along with the programs’ different formulas likely explain the varying allocation of crops across the two programs. For example, higher corn and soybean prices around the time of the 2014 Farm Act likely led producers to enroll the vast majority of U.S. corn and soybean acres in ARC-CO, 93 percent and 96 percent of all base acres, respectively. Meanwhile, higher reference prices for rice and peanuts offered producers an incentive to enroll virtually all U.S. acreage of these crops in PLC. This chart appears in the August Amber Waves article, “Federal Commodity Programs Price Loss Coverage and Agriculture Risk Coverage Address Price and Yield Risks Faced by Producers.”

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