For county ARC, payment is based on the 5-year Olympic average yields, where the highest and lowest yields are thrown out of the equation. Average yields are multiplied by the average Olympic price, again with the highest and lowest prices removed.

The result is a benchmark revenue, Coppess says. ARC provides a guarantee of 86% of the benchmark. When actual revenue is below the benchmark, the guarantee cannot exceed 10% of the benchmark revenue. Then, payment is made based on 85% of base acres. 

agricultural risk coverage

This example looks at county ARC usage in McLean County, Ill.  ARC payments are based on 5-year Olympic average yields and prices. Multiplied, they produce a “benchmark revenue.” Payment is made on 85% of base acres. When actual revenue is below benchmark, the guarantee may not exceed 10% of the benchmark revenue.

Graphic courtesy Jonathan Coppess, U. of IL. 

Individual ARC operates on the sum of all covered crops on all farms enrolled, Coppess says. Calculations are based on the grower’s share of production on all farms in the state enrolled in individual ARC. “Crop-year planted acres determine the weights used to calculate the actual and benchmark revenue,” he says. “Payments are made on 65% of base acres for all program crops on the farm.”

Carl Zulauf, Ohio State University ag economist, says ARC establishes a revenue target. “But this target will change with the market, although a floor exists on the revenue target due to the reference price being the minimum price for any year in the Olympic average,” he says.

“More importantly, the ARC coverage range is 10%, so its payments are capped on a per-acre basis. It does not lock in revenue, although it does help manage revenue risk.”