Before deciding whether you want to sign up for the farm bill's new ACRE program, or stick with the counter-cyclical program, be sure to do your homework, says John Robinson, Texas A&M Extension economist for cotton marketing.
The ACRE program, or Average Crop Revenue Election “is essentially a voluntary substitute choice for the counter-cyclical program,” Robinson said during a recent Ag Market Network teleconference. “You can choose to stay with the same type of farm programs you've had, or you can substitute the ACRE program for the counter-cyclical program (CCP).”
Currently, the new farm bill, the Food, Energy and Conservation Act of 2008, is in USDA's rules and regulatory writing phase, “so a lot of what we will know about the farm bill, including ACRE, won't actually be decided on for quite a while,” Robinson said.
But Robinson has found one thing is for sure. “The ACRE program doesn't lend itself very well to verbal or written description. A lot of tedious information is involved.”
The ACRE program concept is similar to a crop revenue coverage type program in that it insures a level of gross revenue. Under a CRC program, you multiply price and yield to see if your gross revenue falls below an insured level. To participate, you pay an upfront premium.
“ACRE is more complicated, but in essence, it is still a revenue insurance program,” Robinson said. “To pay the premium on the program, you agree to give up 20 percent of your direct payment. In addition, you take a 30 percent cut in the loan rate. In other words, the loan rate you have under the ACRE program is 70 percent of the level you would have under the counter-cyclical option.”
That may not be bad for grain farmers, Robinson says, “because they haven't had loan rates at high enough levels to be beneficial to them. Seventy percent of nothing is still nothing. So grain producers might not care about a 30 percent cut in loan rates.
“On the other hand, 70 percent of the cotton loan rate is 36.4 cents per pound. That may give a lot of cotton growers pause. But nevertheless, that's what we're operating with. So if you go with ACRE on cotton, and if the outlook for cotton is steeply falling prices, keep in mind your loan rate protection, which our whole marketing system is built around, would be drastically lowered.
“Lastly, don't forget that ACRE is a substitute for our CCP, so you would be foregoing counter-cyclical payments,” if payable.
USDA has not yet released information about sign-ups for ACRE, which will become an option beginning with the 2009 crop.
According to a publication released by the Center for Agricultural Development at Iowa State University, all farmers who sign up for ACRE become potentially eligible for payments “when state revenue falls below the state revenue guarantee.” To receive an ACRE payment, these potentially eligible farmers must also suffer a farm loss.
“Both conditions have to be in play for you to quality for payments,” Robinson said. “In other words, if the state had a big loss in revenue, and you had a bumper crop at normal prices, you might not collect on the program.”
Conversely, if the farmer has a big loss, and the state had a bumper crop at normal prices, you also might not collect on the program, according to Robinson.
According to ISU figures, the state guarantee equals 90 percent of the product of the ACRE yield and the ACRE price. The ACRE yield is the average of the state yields during the previous five years after the highest and lowest yield in the five years are eliminated. For example, if state yields for corn in 2004 through 2008 were respectively 180, 140, 150, 160, and 100 bushels per acre, the ACRE yield for 2009 would be 150, which is the average of 140, 150, and 160.
The ACRE price is the average of the two previous years' season average prices as reported by the National Agricultural Statistics Service. So for 2009, the ACRE price used to set the 2009 guarantee will equal the season average prices for the 2007-08 marketing year and the 2008-09 marketing year.
Actual state revenue equals the product of the state average yield and the season average price. For example, in 2009, actual state revenue will equal the state average yield for the 2009 crop multiplied by the season average price for the 2009-10 marketing year.
If you meet the conditions for a payment, you collect the difference between the actual state gross revenue and the state revenue guarantee. Your actual individual loss is not a part of the payment computation.
Farmers could receive payments on 83.3 percent of their planted or considered planted acres between 2009 and 2011 and 85 percent in 2012. Payment acres could not exceed the total base acres on the farm.
Each grower needs to evaluate ACRE program carefully. “You have to pencil it out in great detail,” Robinson said.
To that end, there are several online resources you can use including www.agmanager.info, which includes calculations on how many times in the last 25 years the ACRE program would have paid out for crops in each state. “Those studies indicated there were about 7 or 8 years when it actually would have paid, and the average payment was about $10 an acre.”
The Cotton Economics Research Institute at Texas Tech University has developed an informative bulletin about ACRE located at: http://www.aaec.ttu.edu/ceri/NewPolicy/Publications/BriefingPapers/ACRE_BriefingPaper_08.pdf.
“They pulled information from two dryland cotton farms and two irrigated cotton farms in Texas and did calculations on whether the farms would have been better off under the ACRE program or the counter-cyclical program. The upshot was that these farms would have been better off under the counter-cyclical program, particularly the irrigated farms,” Robinson said.