Area Revenue Protection

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Area Revenue Protection

ARP is available in select counties and states for the following crops: barley, corn, cotton, grain sorghum, peanuts, rice, soybeans, and wheat.

ARP will trigger a payment if the final county revenue is less than the trigger revenue elected by the insured. The guarantee and final revenue are based solely upon the performance of the county revenue and payments do not reflect what happened on the grower’s farm. The insured could have a loss on their farm and not receive a payment if the county did not experience a loss. On the other hand, a grower could receive a payment if the county has a loss even if they did not experience a loss in their operation.

ARP uses a Projected Price and Harvest Price to determine if a price loss has occurred during the growing season. The Projected and Harvest Prices are determined by averaging a futures contract price from a board of trade over a given period of time known as the “Discovery Period”. There is a limit on upward movement of the Harvest Price - it cannot exceed 2 times the Projected Price - but there is no limit on downward movement. The parameters outlining the futures contract price, board of trade and discovery period can be found in the Commodity Exchange Price Provisions (CEPP).

The ARP policy guarantee is based upon the higher of the Projected or Harvest Price and the guarantee will increase in a year in which the Harvest Price is higher than the Projected. There is no additional premium charged when this occurs.

Coverage Levels

The Coverage Level is used to calculate the Trigger Revenue used to determine if an indemnity is due and ranges from 70% to 90% in 5% increments. The insured may elect a different coverage level for each crop, type and practice.

Protection Factor

The producer elects a Protection Factor between 80% and 120% in 1% increments (unless otherwise specified in the Special Provisions). This factor allows producers to purchase protection below, equal to or above the county average represented by the Expected County Yield. The producer may elect a different Protection Factor for each crop, type and practice.

ARP Indemnity Example

To be eligible for an indemnity on the ARP plan, the Final County Revenue must be less than the Trigger Revenue.

150 Expected County Yield
$5 Greater of Projected or Harvest Price
X 90% Coverage Level
$675 Trigger Revenue
   
110 Final County Yield
X $4 Harvest Price
$440 Final County Revenue

Since $440 is less than the $675 Trigger Revenue an indemnity will be due.

Area Revenue Protection Indemnity

Step 1: Calculate the Final Policy Protection
150 Expected County Yield
X $5 Greater of Projected or Harvest Price
X 120% Protection Factor
X 100 Acres
X 100% Share
$90,000 Final Policy Protection ($900 per acre)
Step 2: Calculate the Payment Factor
$235 Loss ($675 Trigger – $440 Final County Revenue)
/ $540 Trigger Rev. of $675 – 135 ($750 Exp. Cty. Rev. X .18 Loss Limit Factor)
.435  
Step 3: Calculate the Indemnity
$ 90,000 Final Policy Protection
X .435 Payment Factor
$ 39,150 Indemnity