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Expert: ACRE offers group-risk insurance

By MEGGIE. I. FOSTER
Assistant Editor

GREENFIELD, Ind. — With spring planting on the horizon, grain producers are beginning to make final decisions on equipment purchases or trades, fertilizer and seed selection for the 2009 crop year.

And just to throw a new wrinkle in the process, the USDA, in accordance with the 2008 Farm Bill, has presented producers with yet another choice to make.

According to Allan Gray, professor of agricultural economics at Purdue University, under the new farm bill, producers can now choose to receive farm support payments under the Average Crop Revenue Election (ACRE) payment program.

In other words, instead of traditional farm support payments in the form of a marketing loan, counter-cyclical and direct payments, grain farmers can opt one or more Farm Service Agency farm numbers into the ACRE program. ACRE is designed as a revenue (price times yield) program, not a price program. According to Gray, ACRE does not presume what the market is going to be, it just follows the market.

“By June 1, you’re going to have to make a decision, direct payments, counter-cyclical payments or ACRE,” Gray said during a meeting offered by the Greenfield Banking Co. in Greenfield, Ind. to local area farmers. “You’re going to have to determine if the benefits from ACRE outweigh loss of guaranteed payments.”
Both traditional programs and ACRE are risk management programs, but they manage different kinds of risk, he added. Traditional programs help manage the risk of chronic low prices, while ACRE helps manage the risk of a decline in revenue over the short period of a few years.

“Very simply, it’s group-risk insurance at the state level,” he explained.

While avidly admitting ACRE is a complex and complicated program, Gray encouraged producers to consider it as a viable option instead of saying, “Well this is just too complicated for me, I’ll stick with what I’ve got.”

What he hopes producers understand is that the ACRE program favors declining prices because of the 10 percent cap placed on the state level guarantee, which helps determine what will trigger a payment and exactly how much – based on the ratio of the farm’s historical yield to the state’s historical yield.

He also said that ACRE favors states with high yield variability, crops with prices well above loan rates and states with larger increases in yields.

“ACRE is an insurance program that insures systemic risk (broad, long-term risks) and comes with a premium,” said Gray. “Producers just need to decide, is the premium worse than the increased guarantee (which on average is $4.62 per acre that a producer must pay to enroll in the program).”

Gray also explained the ACRE program will prevent cheating. “If you say ‘Well, I’ll farm worse this year,’ you’ll see your yields go down and you’ll just get lower and lower payments,” he said.
What to do, what to look for?

“You need to gather your farms’ yield history and compare it to the state’s yield history,” he said.

Gray also explained that “farmers should check with FSA on expected direct payments for your farm. Multiply that by 20 percent to get the premium cost. And consider your crop rotation moving forward – ACRE works only on covered crops such as corn, beans and wheat.”

While Gray shared the many intricacies of the ACRE program, he said that the final rules for the program are not even out yet primarily because former President George W. Bush did not finalize rules and allow for the required 90-day comment period.

And with the new administration in the White House, many producers fear the ACRE program could change dramatically including an exclusion for farmers with $500,00 in gross revenue per year, which President Barack Obama referenced in a recent press announcement last week.

Gray urged producers to “be patient with the folks at FSA, this is a nightmare for them and remember they will not tell you what to do, so don’t ask them. But I can and I think you should really consider this program – it’s a great program and I hope farmers take advantage of it.”

In closing, Gray said “if you think this program’s a good fit for you” to sign up for ACRE “right now, because if you wait, you’ll become too busy in the fields and it will just be a hassle.
For more information, visit www.usda.gov

3/4/2009