We got the following question from a reader:
"I enjoyed your article regarding ARC-IC calculations. I’m wondering if you could further explain how ARC-IC is paid on planted acres vs. base acres. Everything that I have read states that ARC-CO & ARC-IC are paid on 85% and 65% of Base Acres and that planted acres are used to allocate the revenue trigger each year only. Can you comment on that or give me the some background from the Farm Bill Legislation that states ARC-IC is paid on 65% of planted acres and not 65% of base acres? Thank you for the information."
I have gotten similar questions along this same line and will attempt to explain my reasoning.
It is true that ARC-CO and PLC pays based on 85% of base acres and it does not matter what the producer plants. Therefore, if the farmer has 500 corn base acres and 500 soybean base acres, then they will be paid each year on 425 corn and 425 soybean acres (500 * 85%).
However, if the farmer elects ARC-IC, it is true they will only be paid on 650 total acres ((500 500) * 65%). But each year the payment per acre will be paid based on the corp that the farmer plants, not his normal base allocation. For example, if the farmer grows 1,000 acres of corn in 2014, they will be paid based upon the total corn production and lets assume that payment is calculated at $120 per acre. Therefore, they will get a payment of $78,000 (650 * $120). The soybean and corn base acres are added together and multiplied by 65%. This results in the number of payment acres, but the actual payment per acre is based upon what is planted (on a weighted basis).
If they had elected to get payments based on ARC-CO, the corn payment would be more likely $90 per acre (lower yield for county) times 425 acres or $38,250. There would be no payment for soybeans since the price never got low enough to create a payment. This results in about $40,000 less for ARC-CO than ARC-IC.
I hope this explains how I use the term that a producer will be paid based on what they plant for ARC-IC.