Published: October 31, 2008 12:13 pm            

Farm Programs: New ACRE program offers choice for 2009

Originally published online on Oct. 31, 2008.

The Average Crop Revenue Election program is being implemented by the U.S. Department of Agriculture for the 2009 crop year, as part of the Food, Conservation, and Energy Act of 2008 — aka the new farm bill.

Beginning in 2009, eligible farmers will have the option to enroll in the ACRE program, as an alternative to the current Counter-Cyclical Payment program that was initiated in 2003 as part of the last farm bill. The ACRE program will offer the potential of “revenue-based” CCPs, based on yield and price, as compared to current “price-only” CCP calculations. Farm Service Agency offices will be holding information meetings and starting sign-up for the ACRE program in the coming months.

Enrollment in the ACRE program will be optional for 2009-12; however, once farmers decide on ACRE rather than the traditional CCP program, they must stick with the ACRE program through the 2012 crop year. Current CCPs, which will be continued as an option for 2009-12, are based on the 12-month national average price — which is from Sept. 1 in the year of harvest through Aug. 30 the following year for corn and soybeans — compared to an established target price minus the direct payment rate. The maximum CCP for a crop is the difference between that amount and the national loan rate for a given crop. The 12-month marketing year for wheat and other small grains is from June 1 in the year of harvest to May 31 the next year.

During the debate on the new farm bill, some farm organizations and several members of Congress stressed that the current CCP program was not adequate as a safety net for crop producers, as it addressed “price risk” but not “yield risk.” The ACRE program is based on a revenue guarantee (yield x price). Another concern with the current CCP program is that the target prices for most crops are well below current price levels, which makes the likelihood of producers earning a CCP low. In addition, the target prices in the new farm bill will likely be well below the cost of production for most program crops in 2009 and beyond. Details of the ACRE program are described below.

Eligible crops
Corn, soybeans, wheat, cotton, other small grains and other program crops are eligible for the ACRE program.

Producer option
Eligible producers who choose to enroll in the ACRE program for 2009 will be enrolled for all program crops. There is not an option to enroll in ACRE for some crops, yet stay with current CCPs with other crops. Once a producer chooses the ACRE program, they must stay in the ACRE program through the 2012 crop year. ACRE sign-up will be based on existing FSA “farm units.”

ACRE guarantees
The ACRE program uses a combination of state average yields, farm-level yields and the 12-month marketing year national average prices to determine revenue guarantees, and any potential ACRE payments for a given crop year. There are two “revenue triggers” that must be met before ACRE payments will be made, one based on state average yield, and the other based on actual farm-level yields. Both state and farm level guarantees will be recalculated each year (2009-12), based on changing average yields and prices.

Price guarantee
The price guarantee for all crops is the average national average price for the 12-month marketing period of the previous two years. The 12-month marketing periods for ACRE will be the same as the current CCP program. It appears that 2009 price guarantees will be based on the 2007 and 2008 crop years. Projected national average prices for the 2007 crop year were estimated at $4 per bushel for corn and $10.40 per bushel for soybeans. Note: The USDA has not officially finalized whether the ACRE price guarantees will be based on 2007 and 2008, or 2006 and 2007.

State revenue guarantee
The state yield guarantee will be the “Olympic average” state yield for the past five years (2004-08), with the highest and lowest yield being dropped, and the three remaining yields being averaged. (Example: With corn yields of 178, 165, 160, 155 and 138, the 178 high and 138 low are dropped, leaving an average yield of 160 bushels per acre.) The “state revenue guarantee” will be average state yield x two-year average price x 0.90.

Farm-level guarantee
The farm level revenue guarantee will be calculated based on the five-year (2008-12) “Olympic average” actual farm yield, times the two-year average price national price, plus the amount of crop insurance payments for the crop year.

Actual revenue
In order for a producer to receive a CCP under the ACRE program, the “actual revenue” for both the state and farm-level must be lower than the corresponding established revenue guarantees for a given year. The actual revenue is based on the actual 12-month average price (Sept. 1-Aug. 31 for corn and soybeans) for a crop in the year of production, times the actual state average yield, and actual farm yield, respectively. If both “revenue triggers” are reached, the ACRE payment will be the difference between the state guarantee and the actual state revenue.

ACRE payment adjustments
Following are adjustments to final ACRE payments.

• ACRE payment will be paid on 83.3 percent of crop base acres. (Same as for current CCPs and direct payments.)

• Base acres for ACRE payments cannot exceed existing CCP base acres.

• The total ACRE payment cannot exceed 25 percent of the state guarantee.

• The state revenue guarantee can be adjusted up or down, based on farm-level yields. (Example: Farm-level yields are 10 percent above the state average yield, the ACRE payment will be increased by 10 percent.)

• ACRE revenue guarantees cannot vary up or down by more than 10 percent from one year to the next.

Cost of ACRE
Although there is not a “stated cost” for ACRE program participation, producers who sign up for ACRE will give up the following.

• Producer will give up 20 percent of direct payments from 2009-12. (Approximately $3-$5 per base acre per year for most producers.) The remaining 80 percent of direct payments is guaranteed.

• Producers enrolling in ACRE are not eligible for any “price-based” CCPs.

• The national and county loan rates will be reduced by 30 percent for those in the ACRE program, which will affect the amount of revenue available from CCC loans, and will reduce the Posted County Price level where loan deficiency payments are earned. (Example: If county corn loan rate is $1.84/bu., there is a potential LDP when the PCP drops below that level. The LDP threshold level would be reduced to $1.29/bu. if a producer enrolls in the ACRE program.

Crop insurance
Even though the ACRE program guarantees may resemble crop insurance revenue-type policies (CRC and RA), there are some important differences.

• A significant portion of ACRE guarantees rely on average state level yields, while crop insurance guarantees are based on average actual farm yields (APH).

• ACRE guarantees are based on longer term price averages than crop insurance guarantees, so there is less year-to-year fluctuation.

• ACRE does not provide farm level protection when individual farm-level yields are reduced well below state average yields, due to hail, severe storms, etc.

• Enrollment in ACRE does not eliminate the need for crop insurance protection.

• Producers enrolled in ACRE are required to carry minimum levels of crop insurance coverage on those farm units (Premium amount is added to guarantee.)

Other ACRE program considerations
• ACRE program decisions will be based on “farm units,” so it will be possible to enroll some farm units in ACRE, and not others.

• The higher the guarantee is for the 2009 crop year, the more attractive enrollment in ACRE becomes, since ACRE guarantees can only decline by 10 percent per year. Higher average price levels will also make ACRE more attractive.

• If production levels are fairly stable in the next four years, and price levels are lower than guarantee levels, ACRE payments are likely; however, in years when price levels are higher, there will likely be no ACRE payments.

• In a year with high yields and low prices, there would likely not be any ACRE payments. (Example: In 2005, there were excellent corn yields and low prices, and eligible producers collected sizeable levels of LDPs and CCPs; however, there would not have been an ACRE payment, if ACRE had existed.)

• While the ACRE program will be attractive in many situations, it may not fit for all farmers, or on all farm units. Farmers will need to analyze the ACRE program on a farm-by-farm basis.

What’s next for producers regarding the ACRE program?
• Farmers will be receiving information on the new ACRE program from county FSA offices through newsletters and information meetings.

• Farmers will likely have a sign-up period of several weeks this winter to decide on whether or not to enroll in the ACRE program, so there will be plenty of time to make decisions regarding the ACRE program.

• In future columns, I will analyze various scenarios where the ACRE program may or may not be more beneficial, compared to the current CCP program.

Good news on “flex leases”
All “flexible cash leases” for land rental contracts will now be considered “cash leases” by the FSA for farm program payment determination during the 2009-12 crop years, according to preliminary revised regulations announced recently by the USDA. The revised regulations state that any rental contract with a guarantee plus a bonus will be considered a “cash lease,” regardless of how that bonus is set-up or structured.

Previously, the FSA considered any “flexible cash lease” that was based on actual farm yields, prices or revenues to be a “share rent lease,” which meant that the landlord had to receive a portion of all farm program payments. This requirement was restricting the use of “flexible leases” in many situations.

Farmers and landlords should continue to use caution with 2009 “flexible cash leases” until the USDA releases the final regulations in a month or so.

        

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