What You Should Know About ACRE
The decision to enroll is a classic insurance question, says one economist
Compiled by staff
Published: Jan 14, 2009
At press time, USDA lawyers had yet to write a fair amount of the procedure that will govern implementation of the Title I commodity provisions of the 2008 Farm Bill. USDA may not finalize the procedures until after the new administration takes over in Washington.
Still, enough is known about the Counter-Cyclical Program provisions and its Average Crop Revenue Election to allow you to begin rounding up data you'll need to make decisions. Here, Kevin McClure state production adjustment specialist for USDA's Farm Service Agency in Iowa, compares CCP with its optional ACRE election.
CCP
Payment is based on 85% of the crop acreage base established on each crop for the farm number.
Yields per crop were established with the 2002 Farm Bill. The 2002 bill allowed farmers to update yields at that time using a percentage of the producer's average yield between the years 1998 and 2001. Established yields per "Base" crop from 2002 remain in effect and will be constant through the end of the 2008 Farm Bill.
Congress set target prices for each "Base" crop and are used in the payment calculation.
USDA will issue payments if the "Effective Price" is less than the "Target price" for each "Base" crop on the farm. The effective price is calculated by using the national 12-month average price for the "Base" crop plus the direct payment rate. The national 12 month average is determined using the marketing year of the crop. Corn and Soybeans use September 1 through August 31. For example, the corn target price is $2.63. The direct payment rate for corn is 28 cents, so the National 12-month average corn price must be below $2.35 for USDA to issue a CCP.
CCPs are not based on planted acres of the crop on the farm each year. Again, CCPs are based on "Base" crops.
ACRE
Payment is based on 83.3% of "actual" planted and considered planted acres for the year enrolled not to exceed the sum of all "Base" acres on the farm.
Yields used in the ACRE calculation are current and based on the farm's production. Yields will vary each year.
Two triggers must be met in order for USDA to issue an ACRE payment. First, the State ACRE Guarantee must exceed the Actual State Revenue. Second, the Farm ACRE Benchmark Revenue must exceed the Actual Farm Revenue. FSA will use crop production records, per farm number, in the Farm calculations. The Farm's Expected Yield will be calculated using the previous five-year Olympic average planted yield from the "actual" farm. The Actual Farm Revenue will be calculated using the farm's "actual" yield. Procedure has not yet been established as to what the producer will be required to provide with regard to the six years worth of records.
USDA will recalculate the ACRE revenue guarantees each year. Guarantees cannot change more than 10% up or down each year.
The election of the ACRE option will be by farm number. Once you elect the ACRE option on a farm, you cannot switch back to CCP.
Farms enrolled in ACRE will have a 20% reduction in direct payments and a 30% reduction in the marketing assistance loan rates.
USDA will base ACRE payments on the crop's planted and considered planted acres of the crop on the farm and not on the "Base" acres on the farm.
Should I choose ACRE?
"The decision of whether or not to enroll in ACRE is a classic insurance decision," says William Edwards, Iowa State University economist. Producers will give up a fixed 20% of their direct payment and 30% of their marketing loan rate in exchange for a possible ACRE payment in a year when gross revenue is low. Payments could be zero in all four years, or they could be sizable.
"One key factor is the level of guarantee established for the 2009 crop," he says. "The 2008 marketing year price will not be known until September 2009.
However, it seems likely that the beginning guarantees will be quite high by historical standards, and they cannot decline by more than 10% each year afterward. This would make the ACRE election attractive, especially since target prices and loan rates are essentially frozen at the levels established in the 2002 Farm Bill."
Some discussion centered on using the 2006 and 2007 marketing year prices to establish the 2009 guarantee in advance of the signup period. Using those two years would likely result in marketing prices for ACRE of around $3.52 for corn and $8.42 for soybeans, and lower guarantees for 2009 and beyond.
"The other key factor is the likely price trend over the next four years," explains Edwards. "If production is stable and prices either trend upward or remain steady, no ACRE payments are likely, and the producer will simply lose part of the direct payment. However, if prices trend downward, ACRE will provide an important safety net for gross revenues. Each individual producer will have to assess his or her expectations for the future and need for financial risk protection before making the ACRE decision."
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