Finally more details on ACRE released

For the full article, click on the headline above. 

The much anticipated Average Crop Revenue Election (ACRE) program rules were announced by USDA. ACRE is a new program birthed out of the 2008 Farm Bill designed to help provide producers revenue risk protection.

During the Farm Bill debate the Administration argued for a revenue-based safety net, but then had a less positive response to the program once it appeared the program could make huge payouts to participants.

Since signing of the 2008 Farm Bill, Congress and grower groups have protested the notion that USDA would use 2006 and 2007 crop year prices for the price targets as a way to save money. In the end USDA decided to side with the original intent of the law and use the two most previous crop years.

The American Soybean Association figures based on the Season Average Price for 2007 soybeans of $10.70/bu. and the current ERS estimated SAP of $9.85/bu. for 2008, the revenue guarantee for 2009 crop soybeans will be based on an average two-year price of $10.13 per bushel.

"Based on average yields, the guaranteed price of $422.00 per acre is $71.00 higher than the level that would have applied if USDA had used 2006 and 2007 SAPs for soybeans," said ASA President Johnny Dodson.

Art Barnaby, ag economist at Kansas State University, said the decision to use the 2007 and 2008 crop prices for the 2009 sign-up year may actually provide more uncertainty for producers looking to sign-up in the program.

Sign-ups will begin June 1, but the marketing year price runs from Sept. 1, 2008 to Aug. 31, 2009. Determining the average strike price to trigger payments will be difficult for producers to get a grasp on, whereas if 2006 and 2007 prices were used, those prices would be known at the time of sign up.

Barnaby added the price guarantee lowered significantly from what people thought it would be after the recent drop in prices.

ACRE setbacks

Once producers sign up for the program, it is irrevocable for the remainder of the farm bill. Barnaby explained giving up the 20% in direct payments each year may not be made up in ACRE payments. The sooner you enroll, the more direct payments are at chance of being lost if the state or farm doesn't meet the payout triggers.

The farm level benchmark could prevent some producers from collecting on payments. Barnaby said to collect payments, producers have to have state and farm level losses.

As an example, the wheat crop in Kansas was the third worst out of the last 28 year years, but ACRE wouldn't have paid. Farmers in the northwest part of the state had some of the best yields ever, which eliminated those farmers because of the higher yields. Central Kansas had zero yields, but they too wouldn't have collected because with a short wheat crop, market prices went up.

So although the idea behind the program was to protect farmers in years when low yields eliminated the ability to capture higher prices, the change of a state-level trigger eliminates the risk revenue protection originally sought for in the program.

In addition, producers sign up by serial farm number. The program is more advantageous for corn, soybean and wheat producers, but less for cotton and rice.

Landlord and tenants each have to agree to participate in the program, and the complexity of the program might make it a harder sell to landlords, Barnaby said.

Producer signup will depend on where market prices go in 2009, Barnaby said. "A large sign up will be contingent on whether the market is going in the tank or will rally up some."

If corn prices go to $2, more people will sign up. However, if prices are expected to be $4-5, ACRE won't provide much incentive to take the cut in direct payments.

"There is no reason to believe $2 corn or $6. Certainly $4 new crop corn futures are not out of the realm of possibilities," Barnaby said.

Barnaby suggested waiting as long as possible (June 1, 2009) before signing up for ACRE. Wheat producers will have a great advantage at this point in time before crop condition reports will be released at that point, but corn and soybean yields will have no idea of crop conditions at that point in time.