Part 5 of the Agricultural Act of 2014 series
Agriculture Risk Coverage: ARC-County (ARC-CO)
The "Agricultural Act of 2014," commonly called the farm bill, creates the Agriculture Risk Coverage—county coverage (ARC-CO) program which is described below. Other fact sheets in the series describe other parts of the bill.
If the ARC-CO option is chosen for a covered commodity, that commodity is not eligible for the Supplemental Coverage Option (SCO) under the crop insurance options in the farm bill.
In the ARC-CO option, crop revenue is estimated using average county yields. A payment is made if the ARC-CO actual crop revenue is less than the ARC-CO revenue guarantee.
The ARC-CO actual crop revenue is the actual county yield times the maximum of the national marketing year price or the loan rate specified in the farm bill.
The guarantee under the ARC-CO coverage is 86% of the ARC-CO benchmark revenue. The ARC-CO benchmark revenue is the product of the most recent 5-year Olympic-average county yield and the most recent 5-year Olympic- average marketing year average (MYA) price. (The Olympic average is calculated by dropping the highest and lowest yield or price from the most recent 5-years and calculating the average based on the remaining 3 yields or prices.)
Under the ARC-CO choice, the payment rate per acre is the difference between the ARC-CO guarantee and the actual revenue, but the payment rate cannot exceed 10% of the benchmark revenue. The ARC-CO payment for a covered commodity is the ARC-CO payment rate for that commodity times 85% of the farm’s base acres for that commodity.
Table 1: Reference prices ($); set in 2014 farm bill.
|Long grain rice||14/cwt|
|Med. grain rice||14/cwt|
For an example, let's start with determining the ARC-CO benchmark revenue for corn and work back to the guarantee and then actual revenue and the potential payment.
In Table 2, we see five years of MYA prices and county yields for our example farm. The high and lows are not used to calculate the 5-year Olympic average price or yield. Thus, average price of $5.29 is calculated using the prices of 5.18, 6.22, and 4.46 and the average yield of 176.4 is calculated using 183, 180.4, and 165.7.
In this example, the ARC-CO benchmark revenue is $933 which is the product of the most recent 5-year Olympic-average marketing year price (5.29) and the most recent 5-year Olympic-average county yield (176.4).
The guarantee for the 2014 crop year under the ARC-CO coverage in this example is $803 which is 86% of the ARC-CO benchmark revenue.
Table 2: ARC-CO: corn calculation example
|Year||MYA price||County yield|
The 2009 MYA price of $3.55 is replaced by the higher reference price of $3.70 following the rules in the 2014 farm bill.
|5-year olympic average||5.29||176.4|
|Benchmark revenue||$933 = 5.29 X 176.4|
|Guarantee||$803 = 933 X 0.86|
In this example, a payment is made if the 2014 ARC-CO actual crop revenue is less than this ARC-CO revenue guarantee of $803.
Suppose the 2014 MYA price for corn turned out to be $3.40/bu and the actual county yield turned out to be 189 bu/acre.
The ARC-CO actual crop revenue is $643 in this example which is $3.40 multiplied by 189 bu/ac. Since $643 is less than the guarantee of $803, a payment is triggered.
Under the ARC-CO choice, the payment rate per acre is the difference between the ARC-CO guarantee and the actual revenue, but the payment rate cannot exceed 10% of the benchmark revenue.
In this example, the difference between actual revenue and the guarantee is $160 which is greater than 10% of the benchmark revenue of $93.30. So the ARC-CO payment for corn is set at $93.30.
Our example farm has 350 acres of corn base, so this farm's ARC-CO payment is the ARC-CO payment rate of $93.30 multiplied by 85% of the farm's base acres for corn, or $26,170.65:
ARC-CO Payment = $93.3 x (0.85 x 350) = $27,756.75.