This document printed from the University
of Illinois Extension Stu's News at http://www.extension.uiuc.edu/macon/
ACRE: The Sequel
August 9, 2009
After last week, you may have had all the fun you can stand learning about ACRE, the new USDA program to help farm operators and land owners manage their price and yield risk in a volatile market and with high costs of production. With the sign-up deadline on August 14, and most farmers undecided, many are trying to explore strategies to decide, and other considerations that may help them choose ACRE or remain with the conventional program of direct payments and marketing loans.
Since ACRE is based on a five year history of yields on a farm, those production records are a necessity for anyone enrolling in ACRE. Those records will not have be provided until July 15, 2010, so you have plenty of time to gather the data which must come from third party information, such as crop insurance or elevator settlement sheets. Do not go to the elevator now, but wait until a slow time to make that request.
If you don't want the hassle, the FSA office will allow you to use a "plug" or default yield, which is 95% of the county average. That is good if your farm yields less than the county average, but is not good if your farm yields higher than the county average. Your strategy is to get your average as high as possible, which puts your farm guarantee high, and makes it more difficult to surpass.
Keep in mind, the purchase of crop insurance adds that premium amount to your farm guarantee and that raises the bar even higher, making it more likely you will receive a payment for not reaching it. Farm management specialist Gary Schnitkey says an analysis of IL farm data shows that farms with crop insurance will meet the requirements for an ACRE payment 93% of the time that revenue was low enough to trigger an ACRE payment.
Schnitkey applied the terms of the ACRE program over the past 30 years of crops and found that ACRE would have paid in one year in 30% of years and soybeans would trigger a payment in only 15% of years. When an ACRE payment would have been made on corn, the payment was $50 per acre, and average over every year, the payments average $17 per acre. He says that means if you have a farm that only has one crop, rotated year to year, there is a better chance of corn obtaining an ACRE payment than soybeans. Wheat receives an ACRE payment about one year in four.
Another guideline for enrollment is based on what you think commodity prices are going to be. If corn prices fall to the $1.50 level or lower, it is better to be in the traditional program that will net a counter-cyclical payment. However, if you believe corn prices will be $2.00 or better, then ACRE will provide a better chance to replace lost revenue.
ACRE payments are triggered by a drop in revenue, but since that is a function of price and yield, a drop in either could spur a payment. However, Schnitkey says nearly every time in the past 30 years that an ACRE payment would have been triggered it was a result of a price decline, not a yield decline. That leads you to realize that yield variations are not a significant factor, but the overall yield capacity is a factor, making ACRE enrollment a farm by farm decision. In some years, a farm may receive an ACRE payment, but an adjoining farm may not.
The ACRE rules require an entire farm to be enrolled, not just a crop, but the revenue from a particular crop will trigger an ACRE payment. An ACRE payment of $100 per acre is not out of the question for corn, and for a farm with 650 acres of corn, that would cause that farm to hit the $65,000 payment limit on ACRE, meaning additional acres or dollars would not be paid.
ACRE payments will not be made until October 2010 for the 2009 crop, meaning cash flow will be delayed. If that is an issue, and the marketing loan is an alternative, a marketing loan can still be used for farms enrolled in ACRE, but the loan value will be 70% of the loan rate, or about $1.37 in Central Illinois for corn.
