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2014 Farm Bill – Agricultural Risk Coverage – Individual Level (ARC-IC)

November 4, 2019


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>>Good morning. Thank you for joining us today for this important 2014 Farm Bill webinar.
It’s a pleasure for us to be with you. I am Bobby Coats, professor in the Department of
Agriculture, Economics and Agribusiness in the University of Arkansas’ Division of Agriculture.
With me today, from the state Farm Service Agency office in Little Rock, Arkansas, to
answer Farm Service Agency related questions is Tony Franco, chief of the Farm Program
Division. And Anita Wilson, Agricultural Program Specialist in the Farm Program Division of
the Arkansas State Farm Service Agency office at Little Rock, Arkansas, joins me in the
studio. Anita will now discuss the ARC individual
level or Agricultural Risk Coverage individual level program. Anita, we look forward to your
presentation>>Thank you, Bobby. Good morning. We’re glad
you joined us today in the sixth of the series of webinars that we have been conducting in
partnership with Cooperative Extension Service. In the first few webinars we talked about
some general provisions, basic information that you need to get started with your decisions.
We want to remind you that this program is a three-phase program. Part 1 is what we’re
in the middle of right now. And that is updating yields, counter-cyclical yields. And base
reallocation decisions. Whether you want to retain your current bases. Or reallocate those
bases. Or whether you can increase those counter-cyclical yields which will now be called PLC yields.
The deadline for that, remember, is February 27th. So if you don’t have an appointment
with your local FSA office yet, you want to do that right away.
Yield updates and base reallocations, very important.
Following those yield updates and base reallocations, the Part 2 of our three-phase process is a
program election There’s three programs that are offered. The Price Loss Coverage Program.
Which is a price protection program. We covered that in a previous webinar. And the Agricultural
Risk Coverage county level, which we covered in the immediately preceding webinar.
And today, the third program, is the Agricultural Risk Coverage individual level or whole farm
coverage. So I want to remind you that if you have questions as I’m going through this
presentation, please click on your question and answer button and submit those questions
and we’ll address those at the end of the session.
If we feel like we need to do a little research or get more information from you, we’ll follow
up with you individually. Let’s get started on Agricultural Risk Coverage
individual level. A little background on that. And I’m going
to be using the acronym ARC-IC. That’s Agricultural Risk Coverage individual coverage.
The ARC program is a revenue-based program. And it covers — it’s a shallow loss program.
It covers a portion of the farmers out-of-pocket loss That shallow loss being from 76 to 86%.
And it’s when current revenues fall below benchmark revenue levels.
There’s no requirement to purchase crop insurance. It’s not required. Nor is revenue from indemnities
that are assessed to the farm’s revenue included in that benchmark revenue calculation.
ARC-IC is elected for all covered commodities at the farm level. What that means is if you
elect ARC county or PLC, that is a base-by-base decision on a farm. You can select one program
for one base. You can select one program for another base.
If you elect ARC-IC, though, you’re electing ARC-IC for all of the covered commodities
at the farm level on that farm. PLC and ARC county cannot be elected on this
farm. So it’s a whole farm decision for Agricultural Risk Coverage individual coverage.
ARC-IC revenues and payments are based on a farm’s having been both elected and enrolled.
I mentioned a three-part process. Part 1 being updating yields and reallocation of bases.
No. 2 being a program election and the decision to decide on PLC, ARC county or ARC individual.
And the third phase is an enrollment phase. That’s when you’ll actually come into the
office, sign a contract, state the shares, what your risk is in the farm, and enroll
for a particular crop year. And our enrollment this year will run from
mid April to midsummer. And we’ll be enrolling both 2014 crop year as well as 2015 crop year.
So ARC-IC revenue and payments are based on the farm’s having been both elected into the
ARC-IC program and enrolled for the current crop year.
It includes all ARC-IC farms that are elected and enrolled in that program in the state.
So in the state of Arkansas, if you have more than one farm that you choose ARC individual
coverage, then you’ll elect and enroll for those farms to draw payments there.
Your ARC-IC benchmarks, guarantees and payment rates, are calculated at the farm level. And
they are weighted to the producer’s share. And we’ll talk about that in a minute. But
weighted to the producer’s share of the covered commodities that are planted on that ARC-IC
elected farm. This weighting to the producer’s share is
called the bucket concept. You’ll hear me refer to the bucket concept through this presentation.
ARC individual coverage requires an election of the program into ARC-IC. And enrollment,
as I stated before, for the current crop year for 2014 as well as for the upcoming 2015
crop year. And it also requires planting of covered commodities.
Now, prevented planted acres are not included in ARC individual calculations, unless you
are 100% prevented from planting all covered commodities on the farm.
Production reports are required under the ARC-IC program for those covered commodities
that are planted. ARC-IC is a revenue based farm level program.
Whole farm program Weighted to the producer share level across all ARC individual farms
that are enrolled in the state of Arkansas. Revenue loss occurs when the actual farm revenue
falls below the benchmark guarantee, which is 86% of the farm benchmark.
The farm benchmark revenues are the five-year Olympic average of revenues. Not the Olympic
average yields and Olympic average prices, as we discussed in the previous webinar for
the ARC county level coverage. This is where this program is different
We take the farm benchmark revenues, a five-year Olympic average of those revenues. And what
Olympic average means is we drop the high revenue. We drop the low revenue. And we average
the three in the middle. As they are weighted based on the planting acres on the farm.
The six steps are similar to our ARC county level. However, they are calculated differently.
But let’s look at those six steps. Step 1 is to calculate a benchmark revenue.
And we’ll talk about that. Step 2 is to calculate the ARC individual
guarantee. Step 3, we’ll calculate the actual crop revenue.
Step 4, we’ll look at that actual crop revenue and compare it to the guarantee to determine
if a revenue loss occurred. Step 5, we’ll determine if that revenue loss
exceeds 10% of the benchmark revenue, which is the payment cap.
And Step 6, we’ll calculate an ARC-IC payment rate. And that’s our producer bucket.
The ARC-IC benchmark revenue is calculated using the five-year Olympic average of annual
revenues for each covered commodity as weighted. That five years is the immediately preceding
five years from the current program year that we’re calculating payments for.
The annual revenue for each covered commodity is calculated by multiplying the covered commodity’s
annual yield, and this is actual production, annual yield. And it’s the higher of that
individual farm yield. Or a substitute yield, which is 70% of the transitional yield.
Multiplied times the covered commodity’s annual price. And that annual price is the higher
of the Market Year Average price or the reference price for that covered commodity. So that
annual revenue is calculated by multiplying the annual yield, which is your actual yield
or a substitute yield, times the price, which is the higher of the Market Year Average price
or the reference price. The ARC-IC weighted benchmark — farm benchmark
revenue is the value of the applicable covered commodity’s ARC-IC farm benchmark revenue.
And that’s based on the number of acres planted to each covered commodity on the farm. We’ll
look at an example here. It’s in comparison to the total number of
acres planted to all covered commodities on that same ARC-IC enrolled farm.
Here is the example of ARC-IC weighted farm benchmark revenue. And the example here is
for a producer that gets a 100% share. The planted acres of corn is 110 acres 50 acres
of soybeans are planted. So the total planted acres to covered commodities on the farm is
160. So we get a weighted percentage. And that
percentage is calculated by taking that 110 acres of corn divided into the 160 — excuse
me; divided by the 160 total planted acres. And that gives us a 68 and three-fourths percent
to corn. The 50 acres of soybeans divided by that 160
total acres gives us 31 and a quarter percent. And we’re going to apply then that percentage.
The calculation of the weighted farm benchmark revenue in this 100% share producer example
is that we’ll take that 6875% factor and multiply it times the corn benchmark revenue of $579.47.
So that gives us a corn benchmark revenue of $398.39
We’ll do the same thing for soybeans. And we’re going to take 31.25% times that soybean
benchmark revenue of $418.36. And that gives us $130.74.
We’re going to add those two numbers together And that gives us our weighted farm benchmark
revenue. And the total is $529.13. This example indicates that it’s a producer
that has a 100% share of that benchmark revenue. The ARC-IC guarantee is calculated at 86%
of the ARC-IC benchmark revenue as weighted across all covered commodities. And it’s recalculated
each year, 2014 through ’18. It’s calculated on a per-acre level. So that
benchmark revenue guarantee is a per-acre dollar figure.
It’s weighted also to the producer’s share level.
The actual year revenue is calculated by multiplying the actual yield for the farm for each covered
commodity and it’s multiplied times the higher of Market Year Average price or the National
Loan Rate. And that’s a set in the law statutory rate for each covered commodity.
We’re going to sum those revenues of all covered commodities across all ARC-IC enrolled farms
that you have. We’re going to divide by the total planted acres of all covered commodities
of all ARC-IC enrolled farms in the state. And it’s weighted again to the producer’s
share level The Agricultural Risk Coverage individual
payment rate cap is 10% of the ARC-IC farm benchmark revenue calculated for the ARC-IC
enrolled farms. That 10% cap is weighted to the producer’s
share level. The ARC-IC payment shares are based on each
producer’s interest in the covered commodities that are planted on enrolled ARC-IC farms.
That reminds me to remind you that each producer has to agree to enroll in the ARC individual
coverage on the farm. It’s an all or nothing. It’s an all-in whole farm decision.
The payment shares are driven from the shares of the covered commodities as certified to
FSA on the crop certification form FSA-578. The payment shares are a blended share of
all covered commodities that a producer has an interest in on the applicable ARC-IC enrolled
farm. Producers, including owners who do not share
in covered commodities, are not eligible for the ARC individual payment.
So a landowner that cash rents his land out to a tenant would not be eligible to earn
a payment under this program. An example of payment shares looks like this.
If we have 110 acres of corn planted and the operator has a 100% share of that farm — excuse
me; of that crop and 50 acres of soybeans that are shared 50/50 with the landowner,
let’s look at what the payment shares would be.
You take the 135 acres total that the operator has. And the way we arrive at that 135 acres
is we take half of the acres of soybeans, since he has a 50% share. So 25 acres plus
the 100% of the 110 acres of corn, gives us a total of 135 acres that that operator has
and divided by the 160 total covered commodity planted acres. That gives us a percentage
of 84.38%. The owner, then, on the other hand, only has
50% of the 50 acres of soybeans. And that’s 25 acres divided by that 160 total acres planted
to covered commodities. So the owner has a 15.62% share. If the owner did not share in
the planted covered commodity, the owner will not receive an ARC-IC payment, as I stated
before. The producer payment rate or the buckets,
producer bucket, is each producer sharing in an ARC-IC covered commodity will have different
payment rates determined based on these weighted shares of the farm.
So it is possible for the operator to trigger an ARC-IC payment and the owner to not trigger
a payment on this same farm. A lot of considerations to make when making
an election for ARC-IC. The ARC-IC payments are triggered for a producer
when the actual farm crop revenue as weighted for the producer’s share is less than the
ARC-IC farm benchmark guarantee as weighted for the producer’s share for the year.
So if the actual crop revenue as weighted for the producer’s share is less than the
farm guarantee as weighted for the producer’s share, then we will a payment that will trigger.
We have a revenue loss. ARC-IC requires production reports so we have
to have actual yields from producers for both the benchmark revenues — benchmark remember
is five years immediately preceding that current crop year — and for actual revenues we’ll
need those production reports. And they are computed using farm level yield
data. Farm level yield data. ARC-IC payments are dependent on planting
of covered commodities. That’s another big difference between the ARC individual coverage
versus our ARC county level or Price Loss Coverage programs. They are not dependent
on planting of covered commodities. Payment trigger on the bases of the farms for PLC
and ARC county. But for Agricultural Risk Coverage individual
or whole farm coverage, the payments are dependent on planting of those covered commodities
The ARC-IC payment for a producer is the producer’s payment rate times each of the producer’s
ARC-IC enrolled farm’s total bases times 65% That’s another difference between this program
and PLC and ARC county. Those pay at 85% of the base. But ARC-IC pays at 65% times the
producer’s crop share on each ARC-IC farm enrolled in the state.
So the payment for the producer is the producer’s payment rate times each of the ARC-IC enrolled
farm’s total bases times 65% times the producer’s crop share on each ARC-IC enrolled farm in
the state. The ARC-IC payment rate for the producer is
the same for all ARC-IC enrolled farms the producer has an interest in. So one calculated
payment rate for all farms. A producer’s payment rate is capped at 10%
of the producer’s benchmark revenue. The ARC-IC farm level yield data stays with
the farm. So when that production is turned in, it’s going to stay with that farm, no
matter who remains on that farm in the future. Farm level yield data will remain, regardless
of who obtains that farm. If there’s a change of operator, an ownership change, the farm
level yield data will remain with that farm. The ARC-IC revenue calculations in both the
benchmark, the five years and the current year, do not included prevented planted acres,
with one exception. So no prevented planted acres are used in these calculations, except
for one situation. And that’s if prevented planting applies to 100% of the covered commodities
on the farm. So only when an ARC-IC farm is 100% prevented
planting of covered commodities. In that case, it would be an actual revenue
of zero in the calculation. The ARC-IC yield calculation, the individual
farm yield per planted acre for the covered commodity on the farm. The calculation is
for the current and most recent five crop years in the benchmark.
And the calculation — yield calculation remains with the farm, not the producer.
The yields are based on individual farm yields, the actual production. Or a substitute yield,
which is arrived at 70% of a transitional yield. That’s available for each county for
each farm. Or an assigned yield at 100% of the county
NASS yield Those are how the yields are based. Either
individual actual production, a substitute yield, or an assigned yield if there’s no
history of that crop. The 2014 benchmark yield example where all
planted acres or substitute yields were 113. This is corn. So 113 bushels per acre. The
farm yield for 2009 is 180. 2010 is 194. For 2011 it’s 191. And in 2012 there was some
type of a disaster event that caused the yield to be lower at 110. So the substitute yield
or 70% of the transitional yield comes into play for 2012. But for 2013, the yield is
131. So looking at that, we see that we’re going
to use the substitute yield for 2012 We’re not taking an average yet of these yields.
Let’s go a little bit farther. Here is an example, though, of assigned yields.
If we have no actual production during the years for corn, ’09, ’10, ’11, ’12 and ’13,
then we have an assigned yield of 100% of the county average yield. And that assigned
yield is 160. And we use that same assigned yield for all five of those benchmark years.
Let’s look at the benchmark price calculation. The benchmark price of each of the five most
recent years will be the higher of either the Marketing Year Average price — we have
talked about this Marketing Year Average price in earlier webinars. That’s the 12-month average
price for each covered commodity that we have. It’s a national rate.
And that marketing year price for the covered commodity. Or the reference price. The higher
of those two numbers. Our reference price is also set in the law. It stays the same
for the entire life of the Farm Bill. The market year price is different for each year.
So our benchmark price is going to be the higher of the Market Year Average price or
the reference price for each of those benchmark years.
Let’s look at an example here. We have in 2009 it looks like the price of
corn in this example, this is hypothetical, that the Market Year Average price was only
3.55 but the reference price was $3.70. So we use the reference price in this particular
year, 2009. In 2010 the Market Year Average price was
the higher of the two numbers at $5.18. For 2011 it was $6.22.
For 2012 it was $6.89. And for 2013 it was $4.50.
The ARC individual farm benchmark revenue is the five-year Olympic average of the farm’s
annual benchmark revenues. That’s the keyword here. Is the revenue. As weighted across all
covered commodities on the ARC-IC enrolled farm.
This farm benchmark revenue for each year for the covered commodity is calculated by
multiplying the yield, which, again, is the higher of the farm yield or the 70% T-yield
or substitute yield for the specific covered commodity on the farm times the price or the
higher of the Market Year Average price or reference price for that specific covered
commodity. So the benchmark revenue for each year is
calculated by multiplying the yield times the price to get a revenue for each year.
And it’s weighted to the producer’s share level.
Here is how it plays out. If we have in 2009 a 180 bushel yield times a reference price
being the higher of the two prices at $3.70 that gives us a — excuse me; a farm revenue
for 2009 of $666. And to follow through with each year, we have
194 times $5.18 to give us a revenue of $1,005. So on through ’11, ’12, and ’13.
Now that we have our ARC-IC farm revenues for each of those benchmark years, now we’re
going to take that Olympic average of the revenues.
So let’s look at those five revenues. We have $666. We have $1,005. We have $1,188
in 2011. We have $779 in 2012. We have $590 in 2013.
Let’s drop the high, which is going to be 2011. Let’s drop the low, which is going to
be 2013. And we’re going to average the other three years of revenues.
That’s going to give us an average of $817 as an average Olympic revenue.
Let’s get a guarantee for that benchmark revenue. If we have an Olympic average benchmark revenue
of $817, take 86% of that, our farm guarantee will be $703.
Let’s look now at the actual crop revenue or current year. That’s the current year revenue
for the program year we’re referring to. It’s calculated by multiplying that actual
farm yield for all covered commodities on that enrolled farm times the higher of the
Market Year Average price or the National Loan Rate.
This time we’re going to look at the Loan Rate and compare that to the Market Year Average
price for that current year. The higher of the two numbers.
So we’ll take our actual farm yield, which in this hypothetical example is 165 bushels
per acre. And we’ll look at the Market Year Average price and the National Loan Rate and
get the higher of those two numbers. So if the Market Year Average price is $4 in our
example and the National Loan Rate, which is set in the law is $1.95 per bushel, then
the $4 Market Year Average price will be our price to multiply times the actual farm yield.
That’s going to give us an actual crop revenue of $660 per acre
So to look at the ARC-IC producer payment calculation, we’re going to take the producer
payment to be equal to 65% of the farm’s total base acres. We’re going to add all of the
base acres together and multiply times 65%. Times the producer’s calculated payment rate.
Times the producer’s blended shares of the covered commodities as reported to FSA on
the crop acreage report the FSA-578. So if we have a guarantee in this corn example
of $703 per acre we have an actual crop revenue of $660 per acre, we’re looking at a revenue
loss here of $43 per acre Now, remember, we have to check to make sure
that does not exceed the 10% of the benchmark revenue cap. And in this case, since our benchmark
revenue was $817, our — 10% of that or our cap is $81.70 per acre.
Since our revenue loss is $43 in this example and it’s under that cap, then our revenue
loss of $43 will be calculated in our final payment calculation.
So we’re looking at the total base acres on the farm. And in this example it’s 126 and
a half acres. We take 65% of that. That makes 82.2 acres. And in this example we have used
the producer share to be 100%. With a revenue loss of $43 per acre. And that gives us a
producer payment of $3,535. This is a simple calculation. It gets a lot more involved when
you involve more than one farm and more than one crop and more than one producer’s share
on the farm. But to hopefully give you an overview, we
wanted to through that example. Now, as a reminder, the six steps that we
follow through for ARC individual is to calculate a benchmark revenue. We calculate a benchmark
guarantee. We calculate an actual crop revenue. We look at it to see if a revenue loss occurred.
We compare that to the 10% of the benchmark revenue to make sure it does not exceed the
cap. And Step 6 is that we calculate the payment rate or the producer bucket.
That benchmark revenue is calculated by multiplying the five years of average yields And these,
again, are actual production yields. It’s the higher of those actual yields or 70% of
the county transitional yield, which is a substitute yield. Times five years of prices
using the higher of the Market Year Average price or the reference price for that covered
commodity. The Olympic average of five years of farm
revenues for each covered commodity. And it’s weighted to the producer’s share level. That’s
Step 1. That’s how we calculate the farm benchmark revenue.
Step 2 is that we get a guarantee. So we take 86% of that farm benchmark revenue calculation.
And it’s recalculated each year, 2014 through ’18.
Again, weighted to the producer’s share level. Step 3 is we calculate an ARC-IC farm actual
year revenue. And we do that by multiplying the actual farm yield for the covered commodity
times the higher of the Market Year Average price or the National Loan Rate for the covered
commodity. And again, it’s weighted to the producer’s share level.
Step 4, we look at the actual revenue and compare it to the benchmark guarantee to determine
if a revenue loss occurred And that’s calculated by subtracting the producer’s share level
of that farm’s actual revenue from the producer’s share level of the farm’s guarantee.
If it’s a negative number or no loss at all, then there is no revenue loss in the calculation.
Therefore, no payment would trigger. Step 5, we determine if that revenue loss
exceeds the 10% payment cap. The payment rate cannot exceed 10% of the weighted producer’s
share of the farm’s benchmark revenue. If the calculated revenue loss is greater
than 10% of that benchmark revenue or cap, then the 10% payment rate is used.
So it can be no higher than 10% of the benchmark revenue.
And Step 6, we look at the producer bucket. We calculate a farm payment. The producer
ARC-IC payment rate per acre times the total covered commodity base acres of the farm times
65%. So the total commodity base acres added up
together times 65% times that payment rate. The producer bucket is based on the producer’s
weighted percentage of planted acres across all enrolled farms into the ARC-IC program.
You can get additional information on our FSA Web site. Our public site is found at
fsa.usda.gov. When you go to that site, click on — under
popular topics, click on the Agricultural Risk Coverage/Price Loss Coverage link. It
will take you to a lot of information. It will remind you of deadlines that we have.
It will provide some county level yields, payment rates, a lot of different tools that
you can use in making some of your decisions that you’re facing.
As well as the FSA Web site, you can also go to the Cooperative Extension Service Web
site. And you can find that by going to uaex.edu/farmbill. You can find a lot of FSA information, Farm
Bill information, decision aid tools, as well as the recordings and the PDF versions of
the presentations that we’ve been making in these webinars.
So that concludes my presentation on Agricultural Risk Coverage individual coverage. ***
This is being provided in a rough-draft format. Communication Access Realtime Translation
(CART) is provided in order to facilitate communication accessibility and may not be
a totally verbatim record of the proceedings. ***

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