The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Which is Better - ARC or PLC Plus SCO
Feb 06, 2014
Crop farmers will have two program options to consider under the new Farm Bill. Option # 1 is Agricultural Risk Coverage (ARC) which covers the risk of the farmer not receiving targeted revenue between the 76% and 86% band. If "actual" revenues calculated by the USDA fall within this band, then the farmer will collect a payment. If revenues are greater than 86%, then no payment is made. If revenues are less than 76%, then the maximum 10% of benchmark revenue will be paid. However, there is an overall $125,000 per farmer ($250,000 for married farmers) limit. If the calculated payment is greater than $125,000/$250,000, it will be limited to this amount.
Option # 2 is Price Loss Coverage (PLC) in conjunction with a crop insurance Supplemental Coverage Option (SCO). PLC will make a payment if the calculated US average price for a crop falls below certain targets. For example, the corn target price is $3.70. If the price falls below this level, then a payment will be made. SCO provides additional county level insurance coverage that cannot exceed the difference between 86% and the coverage level in the individual policy. Since this is a form of crop insurance, there are no overall payment limits on the amount that can be received, however, unlike ARC, you must pay an additional premium for this coverage (although the USDA will cover 65% of the premiums cost). Only the payments received under PLC, if any, will be subject to the $125,000/$250,000 limit.
SCO is not available until the 2015 crop and if a farmer does not make an one-time timely election in 2014 between PLC and ARC, they are automatically enrolled in PLC and they WILL NOT receive any payment for the 2014 crop year. Also, if the farmer elects ARC coverage, then SCO is not available to the farmer for the 2014-2018 crop years.
For both county level ARC and PLC coverage, the payments are made based on 85% of your base acres for those crops enrolled. You an elect on a crop by crop basis between ARC and PLC for county coverage, however, if you want ARC coverage on your farm, you will need to enroll all crops into this program and any payments will be based upon 65% of base acres, not the higher 85%.
Until we see a premium schedule regarding the SCO option, it is probably a little tough right now to decide which coverage is best. Perhaps, larger operations may opt toward PLC with SCO to take advantage of no limits on crop insurance payments. Smaller farmers growing corn, wheat, and soybeans and related type crops would probably lean toward ARC at the county level.
Until we get guidance from the USDA, things are in a state of flux, but we will try to keep you posted.