Farmers face an ACRE of indecision both literally and figuratively in 2009.
Literally speaking, a big decision this coming year will involve what to do — or not do — about ACRE, the Average Crop Revenue Election Program.
A decision should be reached only after farmers have closely assessed the value of the program based on their own farming situation and an inventory of other federal farm assistance programs, advises one expert.
ACRE, a program that replaces counter-cyclical program payments, may or may not be a good bet for producers, according to James Novak, an Alabama Cooperative Extension System economist and Auburn University professor of agricultural economics.
"ACRE replaces the counter-cyclical program," Novak says. "It's a total replacement."
"You get ACRE or you get counter-cyclical payments, but you don't get both."
Also, there is no turning back once you've signed up for the ACRE program, at least not for the length of this farm bill.
"You can opt into ACRE in any year — 2009 through 2012 — but once you're in, you're locked in for the duration of the farm bill," Novak says, adding that once farmers select ACRE, they must take a 20 percent reduction in direct payments and a 30 percent reduction in loan rates.
If farmers decide to stay with the current farm program (counter-cyclical program), they do not take a reduction in the direct payment or the loan payment rates, he says.
ACRE also works somewhat differently than traditional counter-cyclical payments.
Counter-cyclical payments followed a straightforward formula.
"Traditional counter-cyclical payments are based on a national price, and if the national price falls below a certain level, this results in a payment," Novak says.
On the other hand, ACRE is based on both national price levels and yields.
An advantage of ACRE is that it's based on state-level and farm-level revenue risk rather than a single national price risk.
"In cases where you're facing a statewide yield wipeout, ACRE might be an advantage, because it likely would trigger a payment, while a counter-cyclical payment would not.
"In this respect, it's more a form of risk management protection because it factors in both yield and price," Novak says. It also takes into account and encourages crop insurance participation.
However, there's also a farm-level trigger. A farm could have a wipeout and not receive a payment under ACRE because the state had a good revenue situation.
The risk management features associated with ACRE may benefit some producers, he says, but each individual will have to figure this out based on their own situation.
Novak says the key consideration remains the reductions in direct payments and loan rates associated with ACRE — a potentially big factor during crop years in which commodity prices dropped sharply.
With the exception of cotton, commodity prices have generally been good — a trend that may hold up, Novak says, though he cautions farmers to be mindful of the weakness of the economy and a potentially sharp drop in farm exports next year.
"ACRE is a complicated program, and producers should look at the entire picture," he says.
"State and farm historic yields and national prices enter into figuring whether it's right for them."