Crop producers have until June 3 to decide whether they will participate in the Average Crop Revenue Election plan or continue with the regular Direct and Counter-Cyclical Payment Program.
Both programs, administered by the U.S. Department of Agriculture's Farm Service Agency, are intended to help protect farm revenues.
Under DCP, there are two types of payments: direct and counter-cyclical. Each is calculated using base acres and payment yields established on individual farms. But DCP only protects against low prices, and added farm payments under DCP would not start unless the U.S. average farm price for the 2013 corn crop dropped below $2.35 per bushel and soybeans below $5.56 per bushel.
Producers who choose ACRE could receive revenue-based payments instead of the price-based counter-cyclical payments under DCP. Revenue-based means that either low prices or low yields could trigger payments. ACRE participants are still eligible for 80 percent of their normal direct payments.
"ACRE can provide large payments if yields or prices should be very low," Purdue Extension agricultural economist Chris Hurt said. "Thus, it can provide considerable protection under low-revenue situations."
For example, if Indiana corn yields are near normal, ACRE payments would kick in if the U.S. average farm price drops to about $4.50 per bushel, or lower. If the price drops to $4 per bushel, ACRE payments could be near $70 per acre.
With near-normal soybean yields, ACRE payments could begin if the U.S. average farm price drops below about $11.75 per bushel. If farm prices dropped to $10 per bushel, ACRE payments would be about $50 per acre.
Odds pretty low
"Right now, I would put the odds of triggering soybean ACRE payments for the 2013 crop due to low prices at maybe 20-30 percent," Hurt said. "For corn, the odds of triggering an ACRE payment might only be 10-15 percent."
It takes two triggers for ACRE payments to happen. First, the state actual crop revenue for corn or soybeans has to be lower than the state revenue guarantee, which currently is $712 per acre for Indiana corn and $546 per acre for soybeans.
Second, an individual farm has to have lower revenue than the ACRE revenue guarantee for that farm.
When growers enroll in ACRE, they are enrolling all of the crops on that farm, including corn, soybeans and wheat, but payments are made to individual crops. For example, there could be an ACRE payment on soybeans, but not wheat.
According to Hurt, the biggest cost associated with enrolling in ACRE is the 20 percent reduction in direct payments.
"Purdue estimates this is about $2 to $3 per acre for soybeans and about $4 to $6 per acre for corn on average-quality land," he said. "The potential benefit is protection against low revenues that could come from low yields, low prices or a combination of the two."
What makes the decision challenging is that producers can't possibly know by the enrollment deadline whether ACRE or DCP will have the highest returns. That won't be determined until crop yields and prices are known after harvest.
"This spring, the best producers can do is look at the cost to be in ACRE, examine the odds that prices or yields will be low enough to trigger ACRE payments and decide if they are willing to forego some of their direct payments for the added revenue protection that ACRE provides," Hurt said.
"The odds of triggering ACRE payments for 2013 appear to be low, but if they do trigger, payments could be high — especially if prices collapse."