The FSA issued some regulations on the calculations of PLC and ARC late last month. This notice provides a good overview of how the FSA will determine the payment calculations under PLC and ARC. ARC is broken down into ARC at the County Level (ARC-CO) and ARC at the farm level (ARC-IC). We had provided an analysis last week as to the difficult choice between ARC-CO and ARC-IC when the farm's yields are slightly higher than the county averages. We received some feedback on the fact that ARC-IC payments will be based upon 65% of base acres, however, benchmark revenue and related payment calculations will be based upon actual farm revenue weighted by the amount of revenue each crop will provide.
For example, if a farmer is growing corn and soybeans and the per acre revenue for corn is $800 and the per acre revenue for soybeans is $400 and it is planted in a 50/50 rotation, then the benchmark revenue is $600 ($800 times 50% plus $400 times 50%). This $600 times 86% is the revenue guarantee of $516. If the actual revenue generated by corn and soybeans in the same % allocation is less than this number, then a payment will be made.
This can lead to additional complexities to the election between ARC-CO and ARC-IC since soybeans will most likely not have a payment under ARC-CO while corn is most likely going to have a payment. Therefore, by mixing soybeans into the ARC-IC calculations, the breakeven point for ARC-IC versus ARC-CO may be decreased.
I am currently traveling to West Yellowstone to speak at the two-day conference on Thursday and Friday on farm income and estate tax planning. It is not too late to sign up for this class. If interested, please follow this link.
When I get back, I will update my detailed examples on ARC-CO versus ARC-IC.