Direct and countercyclical payment programs and the state-based revenue program known as ACRE were eliminated by the 2014 farm bill. A farmer now can choose one of two new farm programs starting with the 2014 crop: Price Loss Coverage or Agriculture Risk Protection.

Price Loss Coverage, or PLC, is a program that makes a payment to a producer when the market price for a covered crop is below a fixed reference price. Agriculture Risk Protection, or ARC, makes a payment when either the farm’s revenue from all crops or the county’s revenue for a crop (the farmer may choose which alternative) is below 86 percent of a predetermined or benchmark level of revenue. The maximum coverage band is 10 percentage points (76 percent to 86 percent of benchmark revenue).

These two programs are designed to supplement crop insurance by providing support in periods of multi-year price declines and helping producers cover the crop insurance policy’s deductible. Together these two farm programs are projected to spend substantially less than the programs they replaced.

Farm bill adds new insurance products

The Stacked Income Protection Plan, or STAX, is for upland cotton acreage only. Cotton producers are not eligible for ARC or PLC. STAX is an additional area revenue plan that a cotton producer can use alone or in combination with an underlying policy or plan of insurance. STAX is similar in design to the existing area plan called Area Revenue Protection, or ARP, and is to be made available for sale no later than the 2015 crop year.

STAX is to be available in all counties with cotton production or in larger geographical areas for counties that lack sufficient data. STAX covers revenue losses of not less than 10 percent and not more than 30 percent of expected county revenue. An indemnity is paid based on the amount that expected county revenue exceeds actual county revenue as applied to the individual coverage of the producer, except that indemnities may not include or overlap the producer’s selected deductible.

Producers receive a premium discount equal to 80 percent of the STAX premium, and on behalf of the producer, an administrative and operating expense payment of 12 percent of premium is paid to the crop insurance companies to compensate for a portion of delivery expenses. Because STAX replaces major farm programs for upland cotton producers but will not be in place for the 2014 crop year, producers will receive a transition payment for 2014. A smaller transition payment will be made for 2015 for areas where STAX is not available.

The Supplemental Coverage Option, or SCO, provides all crop producers with the option to purchase area coverage in combination with an underlying individual policy or plan of insurance that would allow indemnities to be equal to a part of the deductible on the underlying policy or plan of insurance. SCO is to be made available for sale beginning with the 2015 crop year on a county-wide level or on the basis of a larger area in counties that lack sufficient data.

SCO indemnities are triggered if losses in the area exceed 14 percent of expected levels, with SCO coverage not to exceed the difference between 86 percent and the coverage level selected by the producer for the underlying policy. SCO coverage is not available for crops enrolled in ARC as well as acreage enrolled in STAX. Producers receive a premium discount equal to 65 percent of the SCO premium, and on behalf of the producer, an administrative and operating expense payment of 12 percent of premium is made to the crop insurance companies to compensate for a portion of delivery expenses.

Find out more at “Crop Insurance: Just the Facts."