ARC-IC Calculations Apply to All Elected Farms in the State

• October 23, 2014
• Paul Neiffer

Most producers who elect ARC will do at the County level (ARC-CO).  However, many producers with yields substantially in excess of county levels will elect ARC at the Individual Crop level (ARC-IC).  All of these elections are on a farm-by-farm basis and on a covered crop-by-covered crop basis except ARC-IC which requires all covered crops to be included in the election.  Additionally, if a producer elects ARC-IC on multiple farms in the state, then all of these farms will be aggregated in calculating both benchmark revenue and actual farm revenue for the year to determine the amount of payment.  Once that payment amount is determined, then FSA will pay that amount on 65% (not 85%) of total base acres covered by all state related ARC-IC elections.

Let’s go through an example:

Farmer Stevens has six farms listed with the FSA office in Buchanan County, Iowa.  Each of the farms has corn and soybean base acres.  On two of the farms, he elects ARC-CO for corn and PLC for soybeans (you are allowed for each farm to elect either ARC-CO or PLC for each covered crop).  On one farm, he elects PLC for corn and ARC-CO for soybeans  (he is hedging his bets on whether prices will go very low for corn).

On the other four farms registered in the county, he elects ARC-IC for each farm.  His yields for these farms are substantially higher than the county average and he is willing to get paid on 65% of base acres instead of 85% of base acres.  Additionally, each of these farms had very low corn base acres and very high soybean base acres.  He  now intends to farm all of these four farms on corn-over-corn basis and by electing ARC-IC, he will be paid based upon corn revenue, not soybean revenue (unlike ARC-CO and PLC, ARC-IC pays based on what is planted).

Now, when the FSA calculates his benchmark revenue for these farms, they are all added together to arrive at benchmark revenue.  Let’s suppose farm one has an Olympic yield of 240 bpa, farm two is 235 bpa, farm three is 250 bpa and farm four is 275 bpa.  The weighted average of all of these yields is 250 bpa.  Benchmark revenue for 2014 (and 2015) is $5.29 a bushel.  This results in benchmark revenue of $1,322.50.  His maximum payment will be 10% of this or $132.25.

After harvesting the crop, his weighted average yield is 235 bpa and the corn MYA is $4.25 for total actual all farm revenue of $998.75.  The difference of $323.75 is the gross claim, however, he is limited to $132.25.  His payment will be equal to all base acres (1,500) on the four farms times $132.25 times 65% or $128,943.75.  Now, if he had enrolled these four farms in ARC-CO, the maximum payment allowed based on estimated county Olympic average yield of 165 times $5.29 times 10% would be $87.28.  However, only 20% of his acres for these four farms was corn base acres (300 acres), therefore, his ARC-CO corn payment would only be $22,256.40 or over $126,000 less than his ARC-IC payment.  He would not have qualified for a soybean payment under ARC-CO.

As you can see, even though ARC-IC only pays on 65% of base acres, there are many cases where a farmer will gladly elect ARC-IC instead of ARC-CO to take advantage of much higher yields or crop rotations that will lead to higher payments.  Also, as you can see from the example, you are required to aggregate all AR-IC elected farms in arriving at both benchmark and actual revenue.

Paul Neiffer, CPA

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