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Extension > Agriculture > Agricultural Business Management > Farm bill > Agriculture Risk Coverage: ARC—Individual

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Part 6 of the Agricultural Act of 2014 series

Agriculture Risk Coverage: ARC—Individual

Kent Olson, Applied Economics, March 2014

The "Agricultural Act of 2014," commonly called the farm bill, creates the Agriculture Risk Coverage—Individual farm coverage (ARC-Individual) program which is described below. Other fact sheets in the series describe other parts of the bill. Please note that the final rules and interpretations will come from the USDA at a future date.

In the Agriculture Risk Coverage (ARC) program, farmers can choose between county coverage and individual farm coverage. If either ARC option is chosen, the farm is not eligible for the Supplemental Coverage Option (SCO) under the crop insurance options in the farm bill.


Under ARC-Individual coverage, a payment is made if the actual revenue from all covered commodities is less than the ARC-Individual guarantee.

The actual revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's loan rate (set in the farm bill), summed over all covered commodities and divided by the farm's planted acreage that year.

The ARC-Individual guarantee is 86% of the ARC-Individual benchmark revenue. The ARC-Individual benchmark revenue is the most recent 5-year Olympic-average of the revenue from all covered commodities weighted by the ratio of the acreage planted to a covered commodity and the total acreage of all covered commodities. The revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price.

Table 1: Reference prices ($); set in 2014 farm bill.

Wheat 5.50/bu
Corn 3.70/bu
Grain sorghum 3.95/bu
Barley 4.95/bu
Oats 2.40/bu
Long grain rice 14/cwt
Med. grain rice 14/cwt
Soybeans 8.40/bu
Other oilseeds 20.15/cwt
Peanuts 535/ton
Dry peas 11/cwt
Lentils 19.97/cwt
Small chickpeas 19.04/cwt
Large chickpeas 21.54/cwt

The ARC-Individual payment rate per acre is the difference between the ARC-Individual guarantee and the ARC-Individual actual revenue, but the payment rate cannot exceed 10% of the ARC-Individual benchmark revenue.

Under the ARC individual farm coverage program, the payment for a farm is the ARC-Individual payment rate for that farm times 65% of the farm's total base acres (compared to 85% for ARC-County based coverage).

For an example, let's start with determining the ARC-Individual benchmark revenue and guarantee. We start with calculating the revenue for each crop in each of the five most recent years. The revenue for each year is determined by the individual farm's yield multiplied by the maximum of the national marketing year price and the crop's reference price.

The 5-year Olympic average revenue for each crop is then calculated ignoring the highest and lowest revenues in these five years. For this example farm, the 5-year Olympic average revenues are calculated to be $957 for corn and $570 for soybeans (as shown in Table 2 below).

The ARC-Individual benchmark revenue is the most recent 5-year Olympic average revenue from each covered commodity on the farm weighted by the ratio of the acreage planted to that covered commodity and the total acreage of all covered commodities.

In this example, the farm has a total of 100 base acres and planted 60 acres of corn and 40 acres of soybeans, the ratio for corn is 0.6 and 0.4 for soybeans. The benchmark revenue for the farm is then the sum of the 5-year Olympic average of the revenue multiplied by each crop's weight or ratio.

As shown in Table2, the benchmark revenue is $802 which is the 5-year Olympic average revenue for corn ($957) multiplied by the weight for corn (0.6) plus the 5-year Olympic average revenue for soybeans ($570) multiplied by the weight for corn (0.4).

The ARC-Individual guarantee is $690 in this example which is 86% of the ARC-Individual benchmark revenue.

Under ARC-Individual coverage, a payment is made if the actual revenue from all covered commodities is less than the ARC-Individual guarantee.

The actual revenue for each year is determined by the farm's yield multiplied by the maximum of the national marketing year price and the crop's loan rate, summed over all covered commodities and divided by the farm's planted acreage that year. For this example farm, the actual revenue is estimated to be $631 per acre (as shown in Table 3 below).

In this example, the estimated actual revenue of $631 is less than the ARC-Individual guarantee of $690 so a payment is triggered.

The ARC-Individual payment rate per acre is the difference between the ARC-Individual guarantee and the ARC-Individual actual revenue. In this example, the difference is $59 (=690-631) per acre. The payment rate cannot exceed 10% of the ARC-Individual benchmark revenue which is $80.20 in this example.

Under the ARC individual farm coverage program, the payment for a farm is the ARC-Individual payment rate for that farm multiplied by 65% of the farm's total base acres (compared to 85% for the county based coverage). Thus, in this example the ARC-Individual payment is $3,835.

$3,835 = 59 x (0.65 x 100)

Table 2: ARC-Individual: example calculation of benchmark revenue and guarantee

Corn
Year Yield MYA price Revenue
2009 195.0 3.70* 722
2010 184.7 5.18 957
2011 178.0 6.22 1,107
2012 154.0 6.89 1,061
2013 189.5 4.50** 853
5-year olympic average revenue $957
Benchmark revenue If the example farm has 100 base acres planted 60 corn and 40 soybeans:
$802 = (957 X 0.6) + (570 X 0.4)
Guarantee $690 = 802 X 0.86
Soybean
Year Yield MYA price Revenue

*The 2009 MYA price of $3.55 is replaced by the reference price of $3.70 following the rules in the 2014 farm bill.
**$4.50 and $12.95 are the current estimates of the MYA prices for the 2013 corn and soybean crops.

2009 50.5 9.59 484
2010 42.6 11.30 481
2011 49.5 12.50 619
2012 46.4 14.40 668
2013 46.8 12.95** 606
5-year olympic average revenue $570
Benchmark revenue If the example farm has 100 base acres planted 60 corn and 40 soybeans:
$802 = (957 X 0.6) + (570 X 0.4)
Guarantee $690 = 802 X 0.86

Table 3: ARC-Individual: example calculation of actual revenue for current year

Commodity Planted acres Farm yield* Current MYA price** Crop revenue per acre

*Estimated
**Estimated for this example. Final determination of MYA prices for the 2014 crop year will be made after the end of the marketing year August, 2015, for soybeans, and September, 2015, for corn.

Corn 60 192 3.90 749
Soybean 40 47 9.65 454
Weighted actual revenue for whole farm $631 = (749 X 0.6) + (454 X 0.4)
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