Calculating Agricultural Risk Coverage - County (ARC-CO)

The information below was provided by the Andrew County FSA office.

This is the second of two posts related to the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs authorized under the 2014 Farm Bill. An election to participate in ARC and / or PLC must be made between November 17, 2014 and March 31, 2015. In this post, the ARC-County option will be discussed.

Agricultural Risk Coverage – County (ARC-CO)

ARC-CO is a revenue-based program that covers a portion of producer’s “out of pocket” losses when crop revenues fall below established benchmark revenues. The decision to elect ARC-CO is made at the base crop level on each farm. Payments are made on base acres and ACR-CO is not dependent upon what is actually planted on the farm. ARC-CO does not require production reports from producers. Benchmark revenues and actual revenues are computed using “County” yield data, not individual producer / farm yield data.

Payments are issued when the actual crop revenue of a covered commodity is less than the ARC-CO guarantee for the covered commodity. ARC-CO payment calculation is summarized in the following 6 steps.

Step 1 – Calculate the Benchmark Revenue

• 5 year Olympic average yield in the county (higher of the county yield or 70% of the county transitional yield) times the 5 year Olympic average price (higher of the Market Year Average Price or the Reference Price for the covered commodity).

Step 2 – Calculate the ARC-CO Guarantee

• Calculated at 86 percent of the ARC-CO Benchmark Revenue (Step 1). This is recalculated each year, 2014 – 2018.

Step 3 – Calculate Actual Year Revenue

• Calculated by multiplying the actual average county yield times the higher of the Market Year Average Price or National Loan Rate for the covered commodity.

Step 4 – Determine if a Revenue Loss Occurred

• Calculated by subtracting the ARC-CO Actual Year Revenue (Step 3) from the ARC-CO Guarantee (Step 2). If this amount is negative, then no loss occurred.

Step 5 – Determine if the Revenue Loss Exceeds 10% Max Payment Cap

• ARC-CO payment rate cannot exceed 10% of the Benchmark Revenue (Step 1) calculated for the covered commodity. If the calculated revenue loss is greater than 10% of the Benchmark Revenue, then the 10% cap payment rate is used.

Step 6 – Calculate Payment

• 85% of the commodity base acres times ARC-CO payment rate (smaller of Step 4 or Step 5) times the producer’s share on the ARC-CO enrollment contract.

Basic Example:
Joe Farmer has 100% interest in all crops on Farm #5 in County A.

Step 1 – Calculate the Benchmark Revenue

• Olympic Average Yield = (163 + 183 + 155) / 3 = 167


• Olympic Average Price = ($5.18 + $6.22 + $4.46) / 3 = $5.29


• Benchmark Revenue = 167 x $5.29 = $883.43

Step 2 – Calculate the ARC-CO Guarantee

• $883.43 x 86% = $759.75

Step 3 – Calculate Actual Year Revenue

• 190 x $3.40 = $646

Step 4 – Determine if Revenue Loss Occurred

• $759.75 - $646.00 = $113.75

Step 5 - Determine if the Revenue Loss Exceeds 10% Max Payment Cap

• $883.43 x 10% = $88.34

Step 6 – Calculate Payment

• 100 base acres x 85% x $88.34 x 100% = $7,516.55

Available Resources
Online tools are available at www.fsa.usda.gov to assist owners and producers with the decision making process. To view these tools, select “Programs and Services” and then select “ARC/PLC Program”. Once on the page, there are multiple resources under the “I want to heading” and also two web tools designed to allow owners and producers to run various scenarios on their own individual farm, to assist with the decision making process.

In relation to ARC-CO, USDA price projections can be found at this website.
Producers are encouraged to run one or both of the web tools to assist with the decision making process.