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DAVID KRUSE

By Staff | Feb 20, 2009

(This column on the ACRE program was written by Rod Petersen, agent and risk management specialist with AgriVantage Crop Insurance, of Royal.)

Looking at the 2009 growing season, U.S. farmers are facing many challenges and uncertainties. Dramatically higher production costs coupled with lower commodity prices have many producers’ balance sheets reflecting extremely tight profit margins at today’s price levels.

Decisions based on calculated strategies have become increasingly important as we look forward, as mistakes made in today’s economic environment could be financially devastating.

Concerning the new Farm Bill, farmers and farm groups have pushed for a revenue-based safety net. The new Average Crop Revenue Election program, provides revenue support to farmers as an alternative to the present price support format.

Eligible crops for ACRE are corn, soybeans, wheat, cotton, sorghum, barley, rice, oats, peanuts, other oilseeds, dry peas, lentils and chickpeas. For 2009-2012, farmers may choose to remain enrolled in the present farm program or choose to switch to the new ACRE program.

Either way, producers must apply at their local county FSA office to be enrolled in either farm program. As usual, there are tradeoffs to consider before making an informed decision on the best program for each individual farming operation.

If a producer chooses ACRE, direct payments will be lowered by 20 percent, no counter cyclical payments will be paid and loan rates are reduced by 30 percent. As far as crop enrollment is concerned, it’s all or none, a farmer can not pick and choose which crops he wants enrolled in ACRE.

Once you are in ACRE, you are in through 2012. But you may choose to wait to enroll until next year or may wait even till 2012.

Not all ACRE details are finalized, but sign up is expected to start in April with June 1 being the projected deadline. ACRE’s actual functionality is quite similar to a Group Risk Income Protection policy.

The revenue guarantee is based on a state five-year “Olympic average,” which throws out the high and the low yield, times the two-year national average price based on 2007/2008 and 2008-2009. The state’s revenue guarantee equals 90 percent of the ACRE yield times the ACRE price.

To receive an ACRE payment, the state revenue must be triggered first followed by the farmer’s revenue guarantee. A producer’s revenue is determined also by the “Olympic average” planted yield, times the two-year national average price, plus the per acre producer-paid crop insurance premium.

A producer is not required to purchase Federal Crop Insurance to qualify for ACRE payments, but will receive a larger payment by doing so, if an ACRE payment is triggered.

Spread sheets or flow charts are available to project potential ACRE payments based on various yield and price scenarios. Bruce Babcock, director of Iowa State University’s Center for Agricultural and Rural Development, indicated that the ACRE program would be advantageous in the event of a sharp price decline.

Counter cyclical payments will not be triggered under the present Farm Bill until prices drop to $2.35 for corn, $5.56 for soybeans and $3.40 for wheat. Estimates from Babcock indicate ACRE payments could be triggered at $3.90 for corn, $9.94 for soybeans and $6.65 for wheat.

Some farm economists have cautioned producers they may want to wait a year before enrolling, because seasonal average prices won’t be confirmed till the crop year’s end.

Yes, there are some tradeoffs with the ACRE program versus the present farm program, and no one I know can accurately predict price or yields for the next four years, so how do we make the final decision? To sign or not to sign, that is the question.

So how do we proceed? According to Babcock, “it’s simple. Sign up. What you sacrifice is small to the potential revenue protection you gain.”

Based on prices at the end of January, Iowa producers have a 52 percent chance of an ACRE pay out for soybeans, and 33 percent chance for corn. A $5 per acre reduction in direct payments could create a chance to earn up to $125 per acre.

In my opinion, the new Farm Bill offers the best of both worlds, with solid risk management strategies taking precedence over guessing price and yield scenarios.

For 2009 I believe Iowa producers should purchase a revenue-based crop insurance policy that best meets their individual needs and goals, which will also qualify them for the SURE disaster program.

Sign up for ACRE, which has many similar functions to a federal crop insurance program, but is based on state yields versus county yields.

A producer will sacrifice $20 per acre of direct payments during the four-year period by enrolling in the ACRE program, while in return receives a revenue-based safety net that is similar to a GRIP policy only at a state level that is a fraction of the cost of an actual GRIP policy.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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