“Decision Time” has arrived for the 2010 Average Crop Revenue Election program.

The ACRE program has been discussed in meetings and articles in the past two years, and many university farm management specialists have done analysis and developed calculation spreadsheets for ACRE. The recent drop in expected 2010 corn and soybean prices has seemed to make ACRE sign-up much more attractive.

Farm operators and land owners have until June 1 to sign-up for the ACRE program at county Farm Service Agency offices. Even if producers do not plan to enroll in the ACRE program, they need to enroll in the 2010 Direct and Counter-Cyclical Payment farm program by June 1 at their county FSA office, in order to receive their 2010 direct payments on eligible crops.

The U.S. Department of Agriculture does not plan any extensions beyond the June 1 deadline for 2010 farm program sign-up, and there are no provisions for 2010 to pay a late penalty and still enroll in the farm program after June 1.

The ACRE program was implemented by the USDA for the 2009 crop year, as part of the Food, Conservation and Energy Act of 2008. Beginning in 2009, eligible farm operators had the option to enroll in the ACRE program, as an alternative to the current Counter-Cyclical Payment program.

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 2010 farm program at county FSA offices, and must meet all farm program requirements, in order to be eligible for the ACRE program.

Producers who previously signed up for the 2010 DCP farm program, may switch over to the ACRE program option at any time until June 1. ACRE enrollment for 2010 “locks-in” ACRE participation for crop years 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.

Producers who signed up for the ACRE program in 2009 are automatically in ACRE for 2010, once they enroll in the 2010 farm program at their county FSA Office.

According to USDA data, only 128,620 farms across the United States were enrolled in the ACRE program for 2009, representing 7.7 percent of the total farms and 13 percent of the total crop base acres in the United States. Total enrollment in the DCP program for 2009 at county FSA offices across the country was 1.7 million farms, and 255 million crop base acres. Minnesota ranked eighth in ACRE sign-up in 2009, with 5,682 farms enrolled in ACRE, representing 6.14 percent of the eligible farms.

There were a total of 22 different program crops eligible for the ACRE program. Corn had the highest number of crop base acres enrolled in ACRE for 2009, followed by wheat in second, and soybeans in third. This was largely based on the likelihood of potential ACRE payments for the 2009 crop year at the sign-up deadline, and the maximum potential ACRE payment with the various crops.

Following are some of the main reasons producers listed for not enrolling in the ACRE program in 2009.

• ACRE was new and was difficult to understand, and the USDA was late in getting the final rules out to county FSA offices.
• 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, was confusing to many producers.
• ACRE requires the signatures of all landlords on cash rented farm units, and many landlords did not want their farm operators to enroll in ACRE.
• ACRE sign-up for 2009 was a four-year commitment (2009-12), and some producers were concerned about the longer-term ACRE enrollment beyond 2009.
• Some producers did not want to lose 20 percent of the direct payments, which is a requirement for ACRE enrollment. ($3.50 to $5.50 per crop base acre for most Minnesota producers.)
• Producers were 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.
• Some producers were worried about farm-level yield verification requirements, which is required to establish five-year average farm yields used to calculate ACRE guarantees.

Deciding on the ACRE program for 2010

Following are some key questions that producers should ask themselves as they are deciding on whether or not to enroll in the ACRE program for 2010.

1) Do you think the 2010 12-month national average corn price (Sept. 1, 2010 to Aug. 31, 2011) will be lower than $3.40 per bushel, or that the 12-month national average soybean price will be lower than $8.70/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 2010 corn and soybean crop, if the 2009 state yield for Minnesota is close to the estimated 2010 five-year “Olympic average yield” for corn (166 bushels per acre) and soybeans (42 bu./acre), and if a producer qualifies for ACRE at the farm-level. See the attached table regarding situations when 2010 ACRE payments are likely to occur.

2) Do you think the statewide average corn and soybean yields for 2010 in Minnesota will exceed the estimated 2010 five-year “Olympic average” yields of 166 bu./acre for corn, and 42 bu./acre for soybeans?

If the state corn yield for Minnesota in 2010 is 5 percent above the five-year “Olympic-average” yield (174 bu./acre, same as 2009), the price threshold to earn an ACRE program payment drops to near $3.25/bu. for corn. Similarly, if the 2010 statewide soybean yield in Minnesota increases to 45 bu./acre,  the ACRE price threshold drops to near $8.15/bu. for soybeans. However, if 2010 statewide corn and soybean yields are reduced by 10 percent for corn (149 bu./acre), or 15 percent for soybeans (36 bu./acre), the price thresholds to trigger ACRE payments would be about $3.80/bu. for corn and $10.10/bu. for soybeans.

3) Are my farm-level yields for 2010 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 at planting time, and many producers are worried that the good corn and soybean yields in 2010 could keep them from meeting the farm-level trigger for ACRE payments.

If a producer is enrolled in Federal Crop Insurance for 2010, with premium of $15/acre or more, they should be able to have 2010 corn and soybean yields close to 10 percent above their five-year average farm yields, and still meet the farm threshold for ACRE payments, unless the final 2010 national average price far exceeds the benchmark price.

However, it should be noted that there is a large variation in the levels of the five-year proven yields across Minnesota and other states.

4) How do I deal with my landlords regarding ACRE program sign-up for 2010?

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. As a farmer, if you feel strongly about enrolling a cash rented farm in ACRE for 2010, you will need to work with the land owner on why enrolling in the ACRE program will be mutually beneficial.

5) Are the potential benefits from ACRE worth the 20 percent reduction in direct payments over the next three years (2010-12)?

As was mentioned earlier, the reduction in direct payments for most Minnesota producers will likely be between $3.50 and $5.50 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 2010 statewide yields are close to the five-year state guarantee yields, the 12-month national average corn price for 2010 would have to drop below $3.35/bu., or the 12-month soybean price below $8.50/bu., in order to earn the entire three-year (2010-12) expected loss of direct payments from the anticipated ACRE payment on the 2010 corn or soybean crop.

6) 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 program crops to use for each year. The plug yields are the National Agricultural Statistics Service 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 payment 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.

7) 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 2010 is $0.58/bu. for corn ($1.95/bu. to $1.37/bu.), and is $1.50/bu. for soybeans ($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 2010 and beyond is probably fairly slim, many producers use the CCC loan program to meet short-term cash flow needs following harvest.

For example, signing up for the ACRE program in 2010 would likely result in a reduction of approximately $50,000 in available loan funds through a CCC corn loan on 100,000 bushels of corn. There is no lost income on CCC loans, but some financial management adjustments will likely be necessary when enrolling in the ACRE program. This is not a factor for producers who do not utilize the CCC loan program on a regular basis.

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

Your 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 have sent out newsletters and information on farm program sign-up and the ACRE program.

I have developed an ACRE Information Sheet, an ACRE Calculation Worksheet and have links to several electronic ACRE  spreadsheets. To receive any of this information, contact me.

ACRE websites

The official ACRE program information is available at county FSA offices, and on the USDA FSA website at www.fsa.usda.gov/FSA. Other useful ACRE websites include:

• Iowa State University Decision Maker: www.extension.iastate.edu/agdm
• Kansas State U Ag Manager: www.agmanager.info
• National Corn Growers Association: www.ncga.com/node/2473
• University of Minnesota: www.extension.umn.edu/agbusinessmanagement
• University of Missouri FAPRI: www.fapri.missouri.edu
• University of Illinois Farm Management: www.farmdoc.uiuc.edu

Bottomline

The 2010 ACRE sign-up deadline, as well as the 2010 DCP farm program sign-up deadline, is June 1. Use whatever time remains to take a look at the ACRE program for 2010, and remember: ACRE enrollment is by farm unit, so you do not have to enroll all your farms in ACRE for 2010.

It may be tempting to just wait until 2011 for possible ACRE enrollment. However, the current situation with 2010 revenue guarantees, and 2010 corn and soybean price projections, may mean that 2010 could offer the best potential for ACRE payments in the next three years. Also remember that there are no guarantees with ACRE, so there is some financial risk involved. There may not be any ACRE payments during the three-year period (2010-12), which would cost the producer the value of the 20 percent reduction in direct payments over the three-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 the 2010 crop year until after Aug. 31, 2011.

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Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com.