What is agriculture risk coverage

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How Agriculture Risk Coverage (ARC) Protects Your Operation

  • Similar to the old ACRE program;
  • Triggered by shallow revenue losses at the county or individual level;
  • Pays on base acres if actual revenue in a given year falls below a benchmark guaranteed level of revenue;

More items…

Full
Answer

What is individual agriculture risk coverage (arc-IC)?

Individual Agriculture Risk Coverage (ARC-IC) program payments are issued when the actual individual crop revenue for all covered commodities planted on the ARC-IC farm is less than the ARC-IC guarantee for those covered commodities. ARC-IC uses producer’s certified yields, rather than county level yields.

What are the agriculture risk and price loss coverage programs?

The Agriculture Risk (ARC) and Price Loss Coverage (PLC) programs provide financial protections to farmers from substantial drops in crop prices or revenues and are vital economic safety nets for most American farms. [This page has been archived.] Enrollment for the 2021 crop year for ARC and PLC closed on March 15, 2021.

What is the risk in agriculture?

Risk in Agriculture. Price or market risk refers to uncertainty about the prices producers will receive for commodities or the prices they must pay for inputs. The nature of price risk varies significantly from commodity to commodity. Financial risk results when the farm business borrows money and creates an obligation to repay debt.

What are the specific policy recommendations on agricultural risk?

The specific policy recommendations on agricultural risk, including disasters, are discussed in Section 5. As for the alleged market failure, farmers can already buy private crop insurance covering hail, crop fires, and strong wind.

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How ARC & PLC Programs Work

Under the 2018 Farm Bill, farmers and landowners can choose between three commodity title alternatives: ARC-CO (payment based on county revenue), ARC-IC (payment based on individual farm revenue), and PLC (payment based on market year average). Program details for each are outlined below.


Program Eligibility, Election, & Enrollment

All farm producers with interest in the cropland must make a unanimous election in 2019 of either ARC-CO or PLC on a crop-by-crop basis. Farmers can also choose Individual Agriculture Risk Coverage (ARC-IC) for all covered commodity base acres on a farm.


Program Details

Covered commodities include wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, seed cotton, dry peas, lentils, small chickpeas, large chickpeas, and peanuts.


Find Your Local Service Center

We are committed to delivering USDA services to America’s farmers and ranchers while taking safety measures in response to the pandemic. Some USDA offices are beginning to reopen to limited visitors by appointment only. Service Center staff also continue to work with agricultural producers via phone, email, and other digital tools.


What is the risk of farming?

Risk in Agriculture. Risk is an important aspect of the farming business. The uncertainties inherent in weather, yields, prices, Government policies, global markets, and other factors that impact farming can cause wide swings in farm income.


What are the types of risk?

Five general types of risk are described here: production risk, price or market risk, financial risk, institutional risk, and human or personal risk. Production risk derives from the uncertain natural growth processes of crops and livestock. Weather, disease, pests, and other factors affect both the quantity and quality of commodities produced.


What is financial risk?

Financial risk results when the farm business borrows money and creates an obligation to repay debt. Rising interest rates, the prospect of loans being called by lenders, and restricted credit availability are also aspects of financial risk. Institutional risk results from uncertainties surrounding Government actions.


What are some examples of government decisions that can have a major impact on the farm business?

Tax laws, regulations for chemical use, rules for animal waste disposal, and the level of price or income support payments are examples of government decisions that can have a major impact on the farm business.


When do producers have to file an acreage intention report?

Second, producers will now have the option to file an ARC/PLC acreage intention report on their acreage reporting date or if their acreage reporting date has already passed by March 15, 2019.


When will RMA cancel?

First, all producers will have a chance to cancel their SCO policies by March 15, 2019. This allows producers, particularly those who intend to elect ARC for all their acres, to no longer incur crop insurance costs for coverage in which they will not be eligible.


What percentage of farm acres does ARC-IC pay?

ARC-IC pays on 65% of base acres and covers all program commodities on all of the producer’s farms (FSA farm numbers) enrolled in ARC-IC. ARC-IC depends on actual production and requires you to report production.


When is the deadline to enroll in farm programs?

The deadline to enroll in Farm Programs is quickly approaching on March 15, 2021. Producers have the option to change enrollment between Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC). But the question is, “which one should I choose?”


What is ARC CO?

ARC-CO is a more complex program that relies on 5-year Olympic average county trend adjusted yields and national marketing year average prices to estimate a “benchmark revenue.” The ARC revenue guarantee is then equal to 86% of the benchmark revenue. The calculation for 2021 will rely on 2015-19 data to calculate the benchmark. When a county’s actual revenue falls below the guarantee (86% of the benchmark), a per acre payment is made. All farms in a county with base acres enrolled in ARC-CO will received the same payment per acre. Each county has a different benchmark revenue.


What is the effective reference price for corn in 2021?

For the 2021 crop, the “effective reference price” for corn is $3.70 per bushel. Thus, the national marketing year average price of corn would have to be below $3.70 per bushel to trigger a payment. Payments are made on the farm’s PLC yield. PLC yields cannot be changed at this time.


Is ARC IC a viable option?

ARC-IC may be a viable option for individuals looking for additional revenue protection. However, one must consider the tradeoff between the individual protection and the reduced payment rate.


What are the risks of agriculture?

The United States Department of Agriculture’s (USDA) Economic Research Service identifies five different types of farming risk: human and personal risk (such as human health), institutional risk (regarding governmental action), financial risk (such as access to capital), price or market risk, and production risk (such as weather and pests). Of these, policymakers usually focus on the last two types.


How much does crop insurance cost?

The commodity programs and the federal crop insurance program cost taxpayers about $15 billion a year. These are major costs, but they are only part of the problems with subsidies, as has been explained.


Why are farmers so well suited to farming?

Farmers Are Generally Well-Equipped to Handle the Loss of a Crop. There is a myth that agricultural risk is unique in part because farmers can be devastated due to the loss of a single crop. Farmers typically diversify their operations so that this does not happen. The USDA has developed a typology for various family farms. The four types of family farms identified that on average have positive farm earnings [41] produced an average of three to four commodities in 2011. [42] Even about half (47 percent) of low sales farms (which on average have negative farm earnings) produced at least two commodities. [43] Further, farmers should generally be expected to diversify, or to hedge their market risks, especially if they are dependent on farm earnings.


Why is it important to put risk in perspective?

Putting risk in perspective is important. By having to minimize or eliminate potential losses, a business is encouraged to develop new solutions and evolve to remain competitive. This helps the business by finding new ways to be profitable; consumers also benefit from new and improved goods and services. It also helps the economy by weeding out inefficiency and bad ideas, allowing resources to be put to better use. Riskier actions and investments can often mean greater rewards. When protected by taxpayers from risk, businesses are encouraged to remain complacent and discouraged from learning how to manage risk on their own—something farmers generally can do very well. When subsidies are present, businesses, including farms, will divert resources and attention away from risk management because taxpayers are already protecting them against risk. Further, when evaluating actions and possible investments, the level of risk can be distorted for businesses, turning an otherwise unacceptably risky and unwise action into something that may be acceptable from the perspective of a business, because it will not feel the full downside of its decision.


How do farmers manage risk?

There are many ways that farmers, through private means, can effectively manage risk. Farmers know their operations and the relative risks better than anyone. They can make decisions that will best meet their needs as opposed to government-created cookie-cutter policies that handle risk as if agricultural producers are homogeneous in nature. When discussing risk management in agriculture, crop insurance often dominates the discussion. However, crop insurance is merely one tool to address risk. Further, it is also only one type of insurance; farmers purchase many different types of insurance, from hail insurance to property insurance. The following lists many important risk-management tools (beyond insurance), but it is far from exhaustive. Through sensible practices, agricultural risk can be greatly reduced and many potential problems connected to risk can be eliminated.


What is multiple peril crop insurance?

Multiple peril crop insurance is merely one way to manage risk and only one type of insurance (farmers buy other insurance, such as crop-hail insurance and property insurance). One of the primary ways that farmers manage risk is through off-farm income, as mentioned previously.


Why should agriculture be treated as a priority?

There is an underlying assumption that agriculture should receive special treatment because it is more important than other sectors of the economy. This assumption is likely due to the fact that agriculture offers a basic necessity to the public (i.e., food). Therefore, the farmer is seen as more important, for example, than the restaurant owner. The government should not, however, be in the business of picking winners and losers by figuring out what industry or business is more important than others and therefore more worthy of subsidies.


Do producers have to enroll in ARC?

A. No. All producers with a share in a covered commodity must jointly enroll or not enroll in ARC/PLC for each covered commodity. Only enrolled covered commodities on the farm may qualify for ARC/PLC payments.


Does a farm have to elect ARC or PLC?

A. Electing ARC or PLC does not cause a farm to be ineligible for STAX coverage. However, STAX coverage is affected by ARC/PLC enrollment decisions. Enrolling seed cotton base on a farm in ARC/PLC makes that farm ineligible for STAX.

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Differences Between 2014 and 2018 Arc-Co Programs


Benchmark Revenue For Arc-Co in The 2018 Farm Bill

  • ARC-CO is a county revenue program that will make a payment when county revenue is below an ARC-CO guarantee. The ARC-CO guarantee is 86% of benchmark revenue, with benchmark revenue equaling benchmark yield times a benchmark price. The calculation of the guarantee will be illustrated for non-irrigated corn in Champaign County for 2019. Both the be…

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Arc-Co Payments

  • ARC-CO will make payments whenever county revenue is below the ARC-CO guarantee. County revenue equals county yield times MYA price. Take the corn example given above with a $698.45 per acre ARC-CO guarantee. Table 4 shows the calculations of the ARC-CO payments. A 190 bushel per acre county yield and a $3.50 MYA price will equal $665 per acre in county revenue. U…

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Summary

  • We provide a summary of ARC-CO in this article. Future articles will provide summaries of PLC, making choices between ARC-CO and PLC, and ARC-IC. Farmers can run payment calculation scenarios for their farms using the Gardner-farmdoc too, available here: https://fd-tools.ncsa.illinois.edu. Our next webinar on programs will be offered on September 27th at 8:00 …

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