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DAVID KRUSE

By Staff | Aug 17, 2009

I have a number of thoughts of my own on ACRE, the alternative revenue safety net written into the farm bill. If they were as complicated as this program’s formula, I’d have a splitting headache. Lawyers tend to write contracts that only they can understand so that we have to pay lawyers to interpret them. I don’t know who exactly benefited from such a complicated farm safety net alternative by writing ACRE as done. I’m trying to sort out what’s pertinent about ACRE from the noise to share with you.

First, it’s a 4 year commitment, so you’d need to control the land enrolled for the duration. You lose 20 percent of your direct payment and there is a 30 percent reduction in loan rate. You trade your benefits in the counter cyclical program for ACRE protection. ACRE payments are made when two conditions are met for a commodity. The first condition is met when the actual state revenue falls below the state ACRE guarantee. The second condition is met when the actual farm revenue falls below the farm ACRE guarantee. Producers may elect to enroll one FSA farm in the program and not enroll others, so producers may elect the ACRE alternative on a farm-by-farm basis.

This is good because payment limits could likely be hit at 1400 acres. Cornbelt corn/soybean/farms larger than that have to cherry pick farms chosen to enroll. The ACRE payment limit is $65,000 plus the 20 percent decrease in direct farm payments maxing out the total at $73,000 per entity. Signing up for ACRE trades the known for something unknown. It trades a portion of a sure payment for something that may never pay. Yet, CARD and other analytical firms have concluded that payments, when earned, may be large enough to cover the contribution required to enroll in the four-year program, in one year’s ACRE payment.

Most farmers, it seems, will not enroll in ACRE the first year as they “wait and see.” If a big payment is generated, there will be in a rush to sign up next year, but they may have missed the payout. We’d sign up the easy farms, the acres you own or fully control. Confronting landlords with complicated program decisions is something most farmers want to avoid. My experience is that you never really understand something until you participate, so you should certainly sign up something to enroll in the program.

I noted a letter to the editor locally lambasting the USDA for handing out $73,000 in subsidies to each farmer instead of funding healthcare. We wouldn’t want to disappoint the writer by not signing up. He didn’t like farmers getting direct payments either. If farmers get $73,000 in any ACRE payment, prices and revenue may be low enough that they are actually losing money farming. That’s a concept some city folk who think that the USDA just hands out cash to farmers find hard to grasp.

Last year, Iowa averaged 171 bushels per acre (bpa) corn and 46 bpa of soybeans. I’d bet yields this year will best 180 and 52 bpa. If you are fully hedged, have revenue crop insurance and get signed up for ACRE, the lower prices go, the better. If farmers have done little forward marketing then ACRE provides them some needed revenue protection.

We have a crop insurance and risk management company here at CommStock called AgriVantage. In response to many, many requests for our thoughts on ACRE, Rod Petersen, our risk management specialist, put together the following thoughts and recommendations for his crop insurance and marketing clients:

“August 14th is the deadline for signing up at your local FSA office for the ACRE Program. At this point sign up nation-wide has been extremely low, primarily due to the inability of the government to finalize decisions on many important questions concerning the ACRE Program. However, at this point we are satisfied with the answers we have received concerning the Acre Program and we recommend that producers sign up for this program as soon as possible.

Crop insurance yields may be used to determine yields for each farm number. If corn or soybeans were not grown in any year from 2004 through 2008 yield plugs are provided by your local FSA office. You can take your Federal Crop Insurance database to the FSA office and they will be able to calculate your yields for any farm unit.

Presently the State ACRE guarantee (IA) is estimated to be $635.61 (171 bpa state yield & $4.13 X 90% = $635.61) For 2009 if Iowa averages 175 bpa an average price of $3.63 or less would trigger an ACRE payment at the state level.

The state ACRE guarantee on a year to year basis can only vary + /-10 percent ($63.56 per acre) from the preceding year. So in the event of a major price collapse in any given year, the ACRE Program should serve as a very functional safety net.

Trade offs include a 20% reduction in Direct payments, no Countercyclical payments and a 30 percent reduction in government loan rates. However, “ACRE Payments” should be realized before a Countercyclical payment would be issued, and payment limitations are the same for the DCP program and Acre Program. Acre payments are capped at 25% of the state’s acre guarantee for any given year. For 2009 Iowa’s estimated cap would be 25 percent of $635.61 or $158.90 per acre.

We believe the ACRE Program is the best “Game In Town” and encourage producers to sign up.

If you have questions, we invite you to contact our in-house Crop Insurance Agent and Risk Management specialist, Rod Petersen.

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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