Will FAV Favor ARC-IC

• February 13, 2015
• Paul Neiffer

For  farmers who grow vegetables (sweet corn, sugar beets, green peas, etc.), a reduction in their base acres for payments may occur each year.  FAV (fruits and vegetables) requires farmers to reduce their base acres for acres planted to either fruits or vegetables.  Since the new programs do not make payments on all base acres, farmers are allowed to plant some acres to FAV and not reduce their base.  Also, if the FSA farm has excess cropland acres above base acres, these acres are also allowed to be planted to fruits and vegetables.  As prices for covered commodities continue to shrink, having more acres planted to FAV makes a lot sense for many farmers.

For farmers electing PLC or ARC-CO, they can grow approximately 15% of their acres to vegetables and not have any reduction in base acres.  For farmers electing ARC-IC, they are allowed to grow 35% or more vegetables and not have a reduction in payments.

Let’s review an example:

Farmer Kincaid has 950 crop acres with a total base of 875 acres.  He would like to grow the maximum number of acres this year to not reduce his base, but wants to plant some green peas.  How many acres can he plant to green peas?  To arrive  at the answer, we multiply 875 times 85% to arrive at 744 acres.   We then subtract 744 from 950 to arrive at 206 acres that can be planted to green peas.  However, if Farmer Kincaid had enrolled in ARC-IC, he now multiplies 875 times 65% to arrive at 569.  This means he can plant 381 acres of green peas and not lose any base acres.

Farmers who normally plant 30-50% of their crop each year to some type of fruit or vegetable (most likely vegetable) rotation should seriously consider electing ARC-IC.  Even though they have a maximum payment on 65% of base acres, the reduction for FAV will bring base acres down to this payment level each year any way.  Electing PLC or ARC-CO would effectively bring them down to the ARC-IC level or lower and with ARC-IC, they may be able to maximize the payment due to their higher yields compared to the county.

As an example:

Suppose Farmer Kincaid grows irrigated corn that averages 225 bushels per acre.  The county average is 180 bushels per acre.  The maximum corn ARC-IC payment is $119 while the maximum ARC-CO is $95.  He plans on growing 35% of his base acres to vegetables each year.  If he has 875 base acres, under ARC-CO, his maximum payment is $54,000.   Under ARC-IC his maximum payment would be $68,000.  Also, if he lucks out with his crop rotation (all corn), he would net $68,000 but only $27,000 if his base was split 50/50 corn and beans (assuming beans did not make a payment).

One last comment on ARC-IC.  I have read some announcements from local FSA offices indicating confusion on what crops needed to be planted on ARC-IC to qualify.  The mis-conception was that if a farm had corn, wheat, oats and soybean base acres, then each year, the farmer would be required to plant all four crops to qualify for a payment.  This is wrong.  Farmers are only required to plant at least ONE covered crop each year.  So, in Farmer Kincaid’s example, if he planted 875 acres of corn, he gets a payment based on all corn.  He is not required to plant any beans.

Paul Neiffer, CPA

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