Content and photo courtesy of NDSU Extension
The Agricultural Revenue Coverage – Individual Coverage (ARC-IC) program received little interest under the previous farm bill, says Andrew Swenson, North Dakota State University Extension farm management specialist.
Nationwide, less than 1% of base acres were enrolled in ARC-IC, compared with 76% in the ARC-County and 23% in the Price Loss Coverage (PLC) program. However, in certain instances the ARC-IC may be the best option for 2019, Swenson believes.
“Producers should be able to determine whether an ARC-IC election will provide benefits from the 2019 crop year before the March 15, 2020, signup date,” he says. “ARC-IC uses yields from the enrolled farm, which should be known, in its calculations.”
Producers had several reasons for dismissing ARC-IC from consideration under the previous farm bill, Swenson notes.
“It is more complicated and requires more annual paperwork,” he says. “It requires the enrollment of the entire Farm Service Agency (FSA) farm, thereby losing the flexibility of choosing between ARC-County (ARC-CO) and Price Loss Coverage (PLC) on a crop-by-crop basis within the FSA farm. Also, it only pays on 65% of base acres instead of 85%, but there is more to this story.”
Because the ARC-IC payment rate is determined by a weighted average of all covered commodities grown on the enrolled farm or farms, it may be less likely to trigger a payment because strong revenue of some crops may offset weak revenue of other crops.
“Producers should be cautious about enrolling more than one FSA farm in ARC-IC because crop plantings on all enrolled farms, within a state, are combined to determine the per-acre payment rate,” Swenson says.
The most unique aspect of ARC-IC is that it is the only program option not decoupled from production; the payment calculation uses the producer’s yields from the covered commodities grown on the farm.
The per-acre payment rate is determined by the revenue guarantee and actual revenue using the farm’s yield history and current yield, respectively, of the covered commodities planted.
Conversely, ARC-CO uses county yields of crops for which the farm has base acres, regardless of what actually is planted on the farm. All three programs – ARC-CO, ARC-IC and PLC – rely on national average marketing year prices in payment calculations.
If ARC-IC generates a per-acre payment rate, it is applied to 65% of the total base acres of the farm. The crops for which the farm has base acres, for example corn, wheat and soybeans, is irrelevant with ARC-IC. It only considers the total base of the farm.
According to Swenson, producers must plant at least one acre of a covered commodity to be eligible for payment, with one exception. If the farm has zero plantings of covered commodities and has prevented planting of covered commodities, the farm would receive the maximum payment rate, 10% of benchmark revenue. Conversely, all prevented planting acreage is excluded from ARC-IC calculations if any covered commodities were planted on the FSA farm.
ARC-IC payments are made on 65% of all of the farm’s base acres, whereas ARC-CO and PLC payments are made on 85% of base acres for an individual crop base. In certain instances, this can be an advantage, according to Swenson.
For example, assume a farm has 1,000 base acres consisting of 300 acres of corn, 300 acres of wheat and 400 acres of soybeans. If only wheat triggers an ARC-CO payment, it will be made on 255 acres (300 x 85%) of base. However, if ARC-IC triggers a payment, it is made on 650 acres (1,000 x 65%). The probability and amount of the payment rate must be considered.
In addition, ARC-IC allows more acres of fruits and vegetables to be grown without sacrificing potential government payments. Under ARC-CO and PLC, a producer can plant nonbase and up to 15% of base acres in fruits and vegetables, compared with nonbase and up to 35% of base acres under ARC-IC. Plantings in excess of these amounts could be subject to a reduction in payments.
For the 2019 crop year calculation, the relevant years to determine benchmark revenue are 2013 to 2017, using the covered commodities grown in 2019 on the FSA farm or farms enrolled in ARC-IC. Each year’s (2013, 2014, 2015, 2016 and 2017) revenue is calculated by multiplying farm yield by the national average marketing year (MYA) price.
The Olympic average of the five years of revenue is benchmark revenue. If more than one crop was grown in 2019, the benchmark revenue of each crop is weighted by planted acres. The revenue guarantee is 86% of benchmark revenue. Actual revenue is the 2019 farm yield multiplied by the national MYA price.
The crop may not have been grown every year on the farm, from 2013 to 2017, to have a yield to determine revenue. In those instances, the trend-adjusted county average yield for the year is used. Also, in years the crop was grown, 80% of county transitional yield (T-yield) is used if it is higher than the actual farm yield, or if the farm yield is unknown.
Why and when might ARC-IC be the preferable choice? Here are five instances:
1.) If weather circumstances prohibited all plantings of covered commodities on the FSA farm, and everything was prevent plant – In this instance, a maximum ARC-IC payment would be determined on the combination of crops that were prevented planting, if 100% of the farm’s initially reported covered commodities are approved as prevent plant. If one or more acres of covered commodities are grown, all prevented plant acres are ignored in ARC-IC calculations.
2.) If a general yield shortfall occurred on an FSA farm in 2019 – Also, the low yields in 2019 should not reduce the possibility of payments for 2020 because benchmark revenue computation for 2020 will use yields from 2014 to 2018.
3.) If most of a farm’s base acres are for crops, such as soybeans, which are unlikely to trigger payments under the ARC-CO or PLC options in 2019 – Only the total base of an FSA farm matters with ARC-IC, not the individual crops that have base. The ARC-IC payment rate is determined by the crop or crops the farm grows.
4.) If the farm is generally less productive than the county average, ARC-IC may be favorable when farm yield history is lacking for crops grown on the FSA farm in 2019 – Yields from 2013 to 2017 are used in determining the revenue guarantee. For each year the farm did not grow the crop, 100% of the trend-adjusted county yield is used. This could provide a stronger revenue guarantee relative to the farm’s typical yields. For years the crop was grown, the higher of actual farm yield and 80% of the county T-yield is used.
5.) If a farm that has high historic yields but significant yield variability – The farm yields from 2013 to 2017 are used in determining the revenue guarantee for the crop grown. ARC-IC could provide additional protection, beyond crop insurance, for a poor production year on the farm.
“The concern with enrolling in ARC-IC is that you forgo any potential payments that could be received from enrollment in ARC-CO or PLC,” Swenson says. “For example, it probably should not be considered if a farm has substantial base acres of canola or wheat, which currently project strong payments under PLC.
“There are some instances where ARC-IC might work, but only proceed after careful analysis,” he adds.
A decision aid to evaluate ARC-IC is available at https://www.ag.ndsu.edu/farmmanagement/farm-bill.