“Decision time” has arrived for the Average Crop Revenue Election program.

The ACRE program has been discussed in meetings and articles for months, and many university farm management specialists have done analysis and developed calculation spreadsheets for ACRE.

The recent drop in expected 2009 corn and soybean prices has seemed to make ACRE sign-up much more attractive. However, as of mid-July, less than 25 Minnesota farmers had enrolled in ACRE for 2009, and ACRE sign-up was slow throughout the country.

Farmers have until Aug. 14 to sign-up for ACRE at county Farm Service Agency offices.

The ACRE 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 (the new farm bill).

Beginning this year, eligible farmers 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 offers the potential of revenue-based payments, based on yield and price, as compared to current price-only CCP calculations.

Producers must sign-up for the 2009 farm program at county FSA offices, and must meet all farm program requirements in order to be eligible for ACRE. Producers who previously signed up for the 2009 Direct and Counter-Cyclical Payment farm program may switch over to the ACRE program option at any time until Aug. 14.

ACRE enrollment for 2009 locks in ACRE participation for crop years 2010, 2011 and 2012, as well. Once a farm unit is enrolled in ACRE, it cannot be switched back to the traditional DCP program until after the 2012 crop year.

Given the higher likelihood of ACRE payments, with the current 2009 corn and soybean price projections, why has ACRE sign-up been so slow to this point? Following are some of the main reasons that producers have listed for not enrolling in the ACRE program thus far.

• ACRE is new and is difficult to understand, especially for landlords.

• The “double-trigger” aspect of ACRE, requiring both a state revenue trigger and a farm-unit revenue trigger to be met before ACRE payments are made, is confusing to some producers.

• ACRE requires the signatures of all landlords on cash rented farm units, and some farmers do not feel prepared to discuss ACRE with their landlords.

• ACRE sign-up is a four-year commitment (2009-12), and some producers are concerned about the longer term ACRE enrollment beyond 2009.

• Some producers are worried about farm-level yield verification requirements that will be required to establish five-year average farm yields used to calculate ACRE guarantees.

• Some producers do not want to lose 20 percent of the direct payments, which is a requirement for ACRE enrollment. (Approximately $3.50 to $5.50 per crop base acre for most producers in Minnesota.)

• Producers are concerned about the 30-percent reduction in Commodity Credit Corp. loan rate required with ACRE enrollment, and the impact on the annual cash flow of their farm business. (The ACRE loan rate reduction in corn will be $0.53 to $0.56 per bushel in most Minnesota counties, which is a cash flow impact of well over $50,000 on 100,000 bushels of corn placed under CCC loan.)

• Some producers have decided to wait until the 2010 crop year to evaluate ACRE, due to the complexities of ACRE, and difficulty in understanding the new program.

Following are some key questions producers should ask themselves as they are deciding on whether or not to enroll in the ACRE program for 2009?

Do you think the 2009 12-month national average corn price (Sept. 1 to Aug. 31, 2010) will be lower than $3.70/bu., or that the 12-month national average soybean price will be lower than $9/bu.?

If a producer answers “yes” to this question, there is a high likelihood that they may be able to earn an ACRE payment on the 2009 corn and soybean crop, if the 2009 state yield for Minnesota is close to the five-year “Olympic average yield” for corn and soybeans, and if a farmer qualifies for ACRE at the farm-level. See the attached table regarding situations when 2009 ACRE payments are likely to occur.

Do you think that the statewide average corn and soybean yields for 2009 in Minnesota will exceed the five-year “Olympic average” yields of 161 bushels per acre for corn, and 41 bushels per acre for soybeans?

If the state yield for Minnesota for 2009 is 10 percent above the five-year “Olympic- average” yield (169 bushels per acre for corn and 45 bu./acre for soybeans), the price threshold to earn an ACRE program payment drops to near $3.50 for corn and $8.50/bu. for soybeans.

However, if 2009 statewide corn and soybean yields are reduced by 10 percent (145 bu./acre for corn and 37 bu./acre for soybeans), the price threshold to trigger ACRE payments would be about $4.10/bu. for corn and $10/bu. for soybeans.

Are my farm-level yields for 2009 likely to exceed my five-year “Olympic average” yields by more than 10 percent?

If not, your odds are greatly increased to meet the ACRE threshold at the farm level. Crop conditions in many areas of Minnesota look good to excellent in mid-July, and many producers are worried that the good corn and soybean yields in 2009 could keep them from meeting the farm-level trigger for ACRE payments.

If a producer is enrolled in Federal Crop Insurance for 2009, with premium of $20/acre or more, they should be able to have 2009 corn and soybean yields close to 10 percent above their five-year average yields at a 2009 12-month average price of $3.65/bu. for corn and $8.85/bu. for soybeans. If the 12-month average price drops to $3.40/bu. for corn and $8.25/bu. for soybeans, producers could have 2009 farm-level yields about 20 percent above their five-year average yields and still meet the ACRE threshold.

However, it should be noted that the level of the five-year proven yields will be a big factor as to whether or not above-average yields in 2009 are too high to reach the farm-level ACRE threshold for 2009.

Why not just wait until 2010 to evaluate sign-up for ACRE?

Many of the university farm management experts feel that the 2009 crop year may offer the best opportunities to earn ACRE payments for corn and soybeans during the next four years (2009-12), due to the current grain price projections for the 2009 crop.

The state-level and farm-level revenue guarantees are adjusted each year, based on the updated yield and price data, so the guarantees for the 2010 crop year will likely be different than the 2009 guarantees.

Are the potential benefits from ACRE worth the 20-percent reduction in direct payments over the next four years (2009-12)?

As was mentioned earlier, the reduction in direct payments for most Minnesota producers will likely be between $3.50 to $4.50 per crop base acre, depending on the mix of base acres. Farm units in extreme southern Minnesota that are 75 to 100 percent corn base acres may be near $6 per base acre, while farm units in central and northern Minnesota with a low percentage of corn base acres may be near $3 or lower per base acre reduction in direct payments.

Typically, corn base acres have the highest direct payment amount per base acre, while small grain crops such as oats have the lowest direct payment per acre. Assuming that actual 2009 statewide yields are close to the five-year state guarantee yields, the 12-month national average corn price for 2009 would have to drop below $3.60/bu., and the 12-month soybean price below $8.60/bu., in order to earn the entire four-year (2009-12) expected loss of direct payments from the anticipated ACRE payment on the 2009 corn or soybean crop.

How do I deal with my landlords regarding ACRE sign-up for 2009?

This is a difficult question. If one landlord on a farm unit refuses to sign the FSA ACRE enrollment form, the farm cannot be enrolled in ACRE. Once a farm is enrolled in ACRE, it remains in ACRE through the 2012 crop year, regardless if the farm is sold or cash rented to another farmer. It is not clear if having the farm enrolled in ACRE in 2009 will be a benefit or detriment to the land owner, as far as future land sales or cash rental agreements are concerned.

As a farmer, if you feel strongly about enrolling a cash rented farm in ACRE for 2009, you will need to work with the land owner on why enrolling in the ACRE program will be mutually beneficial.

What if I am unable to verify my farm-level yields?

If farm-level yields cannot be verified from actual production evidence, the FSA has assigned “county plug yields” for each crop to use for each year. The plug yields are NASS county average yield for a given year times 95 percent.

In years that producers suffered yield losses below that level, they can use the plug yield. The plug yield is also used if a given program crop was not raised on a farm in a particular year. Verifying five-year farm yields for corn and soybeans will be beneficial to most producers, and the FSA has made it fairly easy to verify farm yields.

Acceptable yield evidence includes crop insurance yield records, warehouse receipts and ledgers, load summaries, CCC loan and loan deficiency payments records, FSA bin measurements, etc. Farmers who feed corn, without pre-measurement, will have additional criteria to verify yields. Using the plug yields rather than verifying yields could result in reduction of the farm-level guarantee of 5 to 10 percent or more. Producers should check with their county FSA office regarding details on yield verification.

How do I adjust for the 30-percent reduction in the CCC loan rate with ACRE enrollment?

The 30 percent CCC national loan rate reduction for 2009 is $0.58/bu. for corn ($1.95/bu. to $1.37/bu.), and the 2009 national CCC soybean loan rate reduction is $1.50/bu. ($5/bu. to $3.50/bu.).

County loan rates in Minnesota are slightly lower than the national CCC loan rates, but the 30-percent reduction will be comparable ($0.53 to $0.56/bu. for corn and $1.40 to $1.48/bu. for soybeans). While the likelihood of earning LDPs for 2009 and beyond is probably fairy slim, many producers use the CCC loan program to meet short-term cash flow needs following harvest.

For example, signing up in the ACRE program in 2009 would likely result in $50,000 less available loan funds through a CCC corn loan on 100,000 bushels of corn. There is no lost income, but some adjustments in financial management are necessary.

Where are some resources that I can get more information on sign-up, yield verification and calculations for ACRE?

The county FSA office is the best resource to find out details on sign-up for the ACRE program, farm-level yield verification, reporting requirements, landlord requirements, etc. Many FSA offices are holding information meetings, sending out newsletters, etc. Attend the meetings, read the newsletters and find out all that you can about ACRE.

I have developed an ACRE Information Sheet, and ACRE Calculation Worksheet, and have links to several electronic ACRE spreadsheets. To receive any of this information, contact me at kent.thiesse@minnstarbank.com There are also many excellent websites with ACRE information and calculation spreadsheets. Here are some of the best:
• USDA farm bill: www.usda.gov/farmbill
• University of Minnesota: www.extension.umn.edu/agbusinessmanagement
• U of Missouri FAPRI: www.fapri.missouri.edu
• U of Illinois Farm Management: www.farmdoc.uiuc.edu
• Iowa State U Decision Maker: www.extension.iastate.edu/agdm
• Kansas State U Ag Manager: www.agmanager.info
• National Corn Growers Assn.: www.ncga.com/acre-resource-center

Bottom line

The ACRE sign-up deadline is Aug. 14. Use whatever time remains to take a look at the ACRE program for 2009.

Remember, ACRE enrollment is by farm unit, so you do not have to enroll all your farms in ACRE for 2009. In may be tempting to just wait until 2010 for possible ACRE enrollment; however, as was pointed out the current situation with 2009 revenue guarantees and 2009 corn and soybean price projections may mean that 2009 could offer the best potential for ACRE payments in the next four years.

However, also remember that there are no guarantees with ACRE, and there may not be any ACRE payments during the four-year period (2009-12), which would cost the producer the value of the 20-percent reduction in direct payments over the four-year period.

In the end, the final ACRE decision lies with the producers and land owners, and we will not know the results of that decision for 2009 until after Aug. 31, 2010.