Cornbelt farmers will soon have a decision to make, and it will be more difficult than what to buy for Valentine's Day. The decision that beckons is whether or not to sign up for the ACRE program. That is the new farm program option offered at the Farm Service Agency office that was developed for the 2008 Farm Bill. ACRE is an acronym for Average Crop Revenue Election, and will require some head scratching, some finger crossing, and a bit of body English - that is, unless you become familiar with the program. ACRE familiarity is straight ahead.
ACRE has been well digested in the farm media, and its concepts should come as no surprise to you. The issue is whether you think it will help with your management of revenue risk compared to the direct payments and counter-cyclical payments in the 2002 farm bill that remain as options to you. Beginning with the 2009 crop you will have a choice of signing up for ACRE or remaining with the conventional programs.
To help with the decision, Ohio State University agricultural economist Carl Zulauf provides a decision aid fact sheet which attempts to help you answer the question: "Does ACRE's state revenue program improve management of revenue risk enough, compared to the price counter-cyclical program, to compensate for the 20 percent reduction in direct payments and 30 percent reduction in marketing loan rates?" The trade-off for signing up for ACRE is loss of a portion of the old payments.
Zulauf says ACRE helps you address risks that you have no control over, and those are a decline in state average crop revenue and a decline in the U.S. cash price for grain. Both of those variables are included in the ACRE formula to determine the amount of a farm program payment. For corn, beans and wheat, Zulauf says the ACRE revenue coverage is estimated to be at least 80 percent more than what would be received in the Counter-cyclical program. He made that calculation for the state of Ohio, which could be close to the balance of the Cornbelt, but not exactly. Zulauf says the benefits include:
- ACRE updates yield annually and 2009 will be above the historical counter-cyclical yield.
- ACRE updates price annually and 2009 exceeds the fixed counter-cyclical price.
- ACRE's update of revenue coverage is important when costs are increasing faster than productivity, which has happened since 2005.
- Since ACRE payments cannot decline more than 10 percent a year, they will be more than Counter-cyclical payments through 2012.
- ACRE payments are tied to planted acres, not base acres, but cannot exceed base acres.
That is the good news, and there must be some trade-offs, which Zulauf calls the "risk management costs."
- Direct payments per bushel of grain will be reduced by 20 percent, $3-$4 per planted acre.
- ACRE comes with a 30 percent cut in the loan rate, but he says variable production costs currently exceed the loan rate, and if prices drop that low, planting will decrease and prices will rise.
- ACRE's revenue is not fixed, and if market revenue declines, so will ACRE payments, and Zulauf says if that is the case, the likelihood of direct and counter-cyclical payments will increase. This decision has to include the next four years, since an ACRE sign-up this year locks in the farm through 2012.
The new ACRE option in the 2008 farm bill attempts to provide revenue risk management assistance with current changes in state revenue, U.S. cash prices and other elements that improve over the direct and counter-cyclical payment programs. ACRE provisions are set to benefit farmers whose costs are increasing faster than productivity. Farmers will have to make a decision soon on whether to opt for the ACRE program through 2012 or stay with the conventional program and maybe select ACRE in a future year.