This article was first published by Nebraska Farmer on Feb. 1, 2022, and is excerpted here with permission.
As crop producers make final production and management decisions for 2022 before the growing season begins, the outlook seems generally favorable with stronger commodity prices — but also more challenging with higher input costs driving up breakeven prices and risk.
Producers have multiple tools to manage production and marketing risk, including farm bill commodity programs, crop insurance policies and, of course, marketing tools to build their risk management strategies.
The Agricultural Risk Coverage and Price Loss Coverage programs continue for 2022, but with the now annual opportunity to change the enrollment decision between ARC and PLC. Producers could keep their existing enrollment — which has tended to lean toward PLC for corn, grain sorghum, wheat and many other commodities, and toward ARC for soybeans under the 2018 Farm Bill.
However, with much higher market price expectations at present (new-crop futures prices above $5 for corn, $7 for wheat, and $13 for soybeans as of late January), the protection provided by either ARC or PLC is far below the market, meaning substantial risk for the producer before either farm program safety net would kick in.
The PLC program offers income support if the national marketing year average price drops below the effective reference price. Using corn as an example, the effective reference price of $3.70 works much like a put option to cover price losses below a $3.70 national marketing year average cash price all the way down to the $2.20 national average loan rate that would cover further losses.Full Article via Nebraska Farmer