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All About ACRE

NOTE: For a complete range of maps showing state-by-state ACRE information, click on the download link at the end of this article.

ACRE is a revenue-based election under USDA's Direct and Countercyclical Program. It has both state and farm-level revenue guarantees. USDA's Farm Service Agency uses both yields and national average cash prices to calculate revenue guarantees

"A drop in actual revenue annually can trigger a payment for program crops," says Steven Johnson, farm & ag business management field specialist, Iowa State University Extension. FSA uses state revenue levels to determine actual ACRE payments.

If a producer opts to enroll in ACRE, it replaces the traditional Counter-Cyclical Program (CCP) payments. The CCP is only triggered when the national average cash price falls below $2.35 per bushel for corn or $5.56 for soybeans.

2010 state revenue guarantee estimates

The 2010 state revenue guarantee varies by state. In Iowa, the estimated revenue guarantee for corn is $589.44 per acre and $445.69 per acre for soybeans. These numbers reflect the state's benchmark yield for the Olympic average using the most recent 5-year period (2005-09).

For 2010, Iowa's benchmark corn yield is 171 bushels per acre and for soybeans 51 bushels. This yield is multiplied times the most recent two-year national average cash price; reflecting $3.83 per bushel for corn and $9.71 per bushel for soybeans. These prices were determined using mid points of projected price ranges in the Apr. 9, 2010, World Ag Supply and Demand Estimates (WASDE) prepared by USDA's World Agricultural Outlook Board.

"Prices for each crop can still change slightly as five months remain in the 2009-10 marketing year," says Johnson. "This state benchmark yield is multiplied times the most recent 2 years national average cash price times 90% to come up with the revenue guarantee estimates."

The annual ACRE benchmark yield varies by state and additional information can be found at Benchmark Yield.

A farmer can run that calculation in reverse to project the price at which falling markets would trigger a payment.

Early odds on 2010 ACRE payments

USDA forecasted 2010-11 national average cash prices of $3.60 for corn and $8.80 for soybeans at its Ag Outlook Conference Feb. 19, 2010.

"Assuming average 2010 Iowa yields equal the benchmark yields of 171 bushels for corn and 51 bushels for soybeans, the national cash price average would have to drop by more than 15 cents per bushel for corn, but only 8 cents per bushel for soybeans to trigger payments," says Johnson. "Thus the potential for 2010 ACRE payments is apparent with the rapid progress in planting this year's crops that may lead to increased yield potential but lower national average cash prices."

USDA will provide an update of potential 2010 planted acres, yield and the 2010-11 marketing year prices in its May 11 WASDE Report. That will give growers more decision making information prior to the June 1 ACRE sign-up deadline for 2010. However, the majority of the 2010 growing season lies beyond the June 1 deadline, making forecasting yield and price even more difficult than 2009 when the ACRE sign-up deadline took place in mid-August.

Advantages of ACRE

ACRE is a revenue-based program. "That means either a decline in yield or a drop in the national cash price can trigger a potential payment for a farm enrolled in ACRE," says Johnson. "In comparison, the CCP requires a drop in the national average cash price to much lower levels before a payment is made."

For example, suppose the 2010 Iowa yield equals the benchmark yield of 171 bushels per acre for corn. The 2010 soybean yield equals the 51-bushel benchmark. Then the national cash price will need to drop below 90% of the two-year national average cash price before triggering an ACRE payment at the state level. ACRE trigger prices for 2010 are estimated at $3.45 for corn and $8.74 for soybeans. Thus ACRE payments could be made at much higher national cash price levels than the $2.35 corn or $5.56 soybeans needed to trigger CCPs. Remember, a CCP on corn or soybeans has not been triggered since the 2005 crop year.

FSA allows the use of default yields to calculate the farm's benchmark yield. This yield is 95% of the county's average yield per planted acre for the crop years 2004 through 2008. The producer enrolling in ACRE can use the higher of the default or the actual farm yield. This is a benefit when a farm's actual yield is below the county's average yield.

Disadvantages of ACRE

Some farmers enrolling in ACRE may struggle to provide the farm's yields for the most recent five years. Farmers can use the farm's crop insurance Actual Production History for ACRE purposes. However, some farm's APH yields may have to reconcile to an FSA farm number.

Once enrolled in ACRE, a producer is required to provide the actual yields on that farm annually in order to compare the farm's actual revenue to the revenue guarantee. The final ACRE payment is not made until October, nearly one year following harvest, when the national cash price for that marketing year becomes final.

A farm enrolled in ACRE must also give up 20% of the farm's direct payment (DP) annually, or roughly $5 per acre. The decision to accept 80% of the DP under ACRE vs. 100% of the DP under the traditional programs annually adds to the complexity of the enrollment decision.

Risk management tool

Deciding whether to enroll in ACRE requires weighing the risk of giving up a portion of the DP vs. the reward of a payment should a loss in both state and farm revenue be triggered.

"Farmers can use ACRE to better manage revenue risk on a farm," says Johnson. "But don't view it as a means to make up for poor marketing or crop insurance decisions.

"A producer's bias as to the national average cash price comes into play as a part of the 2010 ACRE enrollment," he adds. "Forecasting yield is no doubt difficult, thus accurately projecting revenue at both the state and farm levels may seem daunting."

Finalizing 2010 ACRE enrollment

Remember ACRE payments are determined at the state level, but paid on planted acres for a farm and adjusted to 83.3%. The planted acres cannot exceed the total base acres on that farm. If so, then FSA will require a crop priority to be placed on planted acres should an ACRE payment be made.

Some farmers may lean toward upping acres of crops they believe are more likely to trigger an acre payment. Also consider which crop is likely to earn the most net revenue.

ACRE enrollment is by FSA farm number. Direct specific enrollment questions should to your county FSA office.

Benefits vary

Enrollment in the Direct and Countercyclical farm program and the ACRE election will vary across the nation. Economists Brian Briggeman, Federal Reserve Bank of Kansas City and Jody Campiche of Oklahoma State University, doubt that cotton, peanut and rice farmers will enroll in ACRE because they would forego high direct and counter-cyclical payments provided under the DCP program.

In contrast, corn, soybean and wheat farmers are more likely to enroll in ACRE because current prices are well above target prices that would trigger counter-cyclical payments in the DCP program. Farmers in states with more volatile yields, such as wheat farmers in Oklahoma, might be the most likely to enroll in ACRE.

"The decision to enroll in either DCP or ACRE will affect farm profits, which, in turn, could reshape farmland values and the overall costs of farm programs," says Briggeman. For those farmers remaining in DCP, the expected profit stream and capitalized farmland values have not changed. For farmers enrolling in ACRE, larger government payments would be expected when low prices or reduced yields cut farm revenues.

"Mitigating revenue shortfalls should underpin farmland values, but could significantly raise taxpayer costs," notes Campiche. "While ACRE provides a different type of farm revenue support than traditional farm programs, we expect its effect on total taxpayer costs to remain flat."