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ACRE may be perplexing, but farmers should study

By TIM THORNBERRY
Kentucky Correspondent

LOUISVILLE, Ky. — The 2008 farm bill is a massive piece of legislation that took years of debate to pass, so it comes as no surprise it is somewhat complicated.

Perhaps no one portion of the bill is as complicated as the ACRE (Average Crop Revenue Election) program. It falls under the heading of Commodity Titles, which lends itself to being controversial, since the commodities issue played a part in the long delay in passing the legislation.

This will be the first year in which producers can take advantage of the program which is designed to “provide revenue support to farmers as an alternative to the price support that farmers are used to receiving from commodity programs,” according to information from the Center for Agricultural and Rural Development (CARD) at Iowa State University.

The program is touted as revenue-based as opposed to price-based. That means under the ACRE program, payments will be based on price and yield factors.

There are a few sticking points. If a farmer signs up for the program, they have to stay with it for the duration of the farm bill or until 2012 - that is enough to keep many away. Once choices are taken away, many people will be a little reluctant to climb aboard the ACRE train.

Another sticking point is that those who choose ACRE must “give up” 20 percent of their direct and all counter-cyclical payments. While that may sound scary, CARD information explains, “because nobody can know with certainty what the future holds for prices and yields, farmers should perhaps regard ACRE as an insurance policy.
“In exchange for an annual insurance premium that equals 20 percent of direct payments, the farmer receives a revenue guarantee for all years covered by the new farm legislation.”

Producers should remember the new program is not a substitute for crop insurance. In fact, the program’s revenue guarantees offer premiums to producers with crop insurance. Greg Halich, agricultural economist in the University of Kentucky (UK) College of Agriculture, offers a few words of caution.

“While ACRE does have some similarities to crop insurance, remember that there must be a state-level revenue loss for it to be triggered,” he said. “Thus, a farmer could have a complete crop failure and potentially receive no ACRE payment.”

Halich said ACRE payments are triggered when actual revenues are below the revenue guarantees at both the state and farm levels. Information from UK states: “In ACRE, revenue guarantees are based on a calculation that includes the average of U.S. cash prices from the previous two years and the average state yields for a crop in the past five years, minus the highest and lowest yield years.
“As a result, revenue guarantees will change each year, but by no more than 10 percent from one year to the next. Therefore, the higher the previous two years’ cash prices and state yields from the previous five years, the better chance a producer has to receive an ACRE payment.”

Halich added, “Potentially the most advantageous scenario for ACRE participation would be if grain prices fell dramatically.”

According to CARD, “If prices fall below their 2007 and 2008 average level, then ACRE payments will be significantly greater than those under traditional programs. The only way that ACRE payments would not be large in this circumstance is if the state average yield was significantly higher than the ACRE yield.”

Joe Cain, Kentucky Farm Bureau (KFB) national affairs director, emphasizes that a farmer should take a good look at their options because once signed up, it is for all the program crops on that farm.

“As complex as the program looks to be, I would recommend producers wait until they have all the tools they need to analyze their situation, and really take the time to plug in numbers,” he said.

While there are some calculators out there, more are on the way said Cain, and a producer should really use more than one to get an accurate idea of just what each program will pay.

“A person really needs to take their time and look at the tools coming out. The universities are working hard to get those out there. Don’t rely on one tool to make an analysis. I think it is worth taking the time to look at it thoroughly,” he said.

Cain also said that KFB is going to be working with UK to make sure growers have the information they need, and the help to make the right decision according to the particular situation on their farms. The program, like any, has pros and cons; still, prominent
agriculture organizations supported the measure when the farm bill was being debated last year.

American Soybean Assoc. (ASA) President Johnny Dodson applauded the program, citing the organization being “particularly pleased” that Season Average Prices for 2007 and 2008 were used in determining the revenue guarantee for the ACRE program. “ASA supported development of the ACRE Program as an alternative to the traditional farm program in the 2008 farm bill,” stated Dodson, a soybean producer from Halls, Tenn.

The National Corn Growers Assoc. also supported the ACRE program. A statement noted the group had “long advocated a revenue-based safety net for American corn producers and at the time was the only advocate for such a concept. The result is the Average Crop Revenue Election program, which we believe will be the best option for your upcoming growing years.”

3/4/2009