What is in this article?:
Other Decision Factors
ACRE has a number of provisions that could impact the decision to elect ACRE. Some exist to reduce the projected cost of ACRE and thus work against electing ACRE. Others work in favor of electing ACRE.
- An individual farm will receive an ACRE payment only if its actual revenue for the crop is less than the farm's ACRE benchmark revenue plus the per acre crop insurance premium paid by the farm for the crop. This provision implies that, even if a state qualified for an ACRE payment, not every farm in the state may qualify for and thus receive an ACRE payment. Historical analysis suggests this provision is most important in years when low revenue results from low yields due to a weather event.
- The per acre crop insurance premium can make a difference in whether or not a farm qualifies for an ACRE payment, especially if the farm buys insurance at higher coverage levels. Thus, this ACRE program provision is an incentive to purchase crop insurance and is consistent with the observation made earlier in this article that ACRE is not a substitute for crop insurance.
- ACRE payment to a farm is adjusted by the ratio of farm yield to state yield. Higher yielding farms will receive higher ACRE payments.
- ACRE makes payments on acres planted to the crop, but a farm cannot receive an ACRE payment on more total acres than its total base acres. In contrast, direct and counter-cyclical payments are made on 85% of a farm's historical base acres for a crop. For ACRE, if total acres planted to program crops exceed total base acres on the farm, the farm gets to choose the crop(s) for which it can receive any ACRE payment, but not to exceed 100% of the farm's base acres.
- ACRE's 30% lower marketing loan rate could be important to farms that use the marketing loan program to manage cash flow and/or income taxes.
- ACRE per acre payment for a crop is capped at 25% of the state's ACRE revenue guarantee.
- Separate ACRE programs exist for irrigated and non-irrigated land if a state's planted acres are at least 25% irrigated and at least 25% non-irrigated. Crop insurance does not offer this feature.
Farm Safety Net Payment Limits per Person or Legal Entity
For those farms that confront payment limit considerations, crop insurance offers an advantage because no payment limit exists. When considering the ACRE vs. DCP decision, payment limits are a minor consideration because payment limits are essentially the same for both alternatives. The payment limits are:
- for DCP direct payment: $40,000
- for DCP counter-cyclical program: $65,000
- for ACRE direct payment: $40,000 minus amount equal to 20% reduction in direct payment
- for ACRE revenue payment: $65,000 plus amount equal to 20% reduction in direct payment
Importance of Waiting to Make a Decision
An important decision feature of any option is that the option should usually not be exercised until it needs to be. In this case, the government is providing a free option to choose either DCP or ACRE through June 3, 2013. A lot more will be known by June 3: the size of the main South American crops of corn and soybeans, the condition of the wheat crop in the major production areas of Europe, the former Soviet Union, China and the U.S.; and planting progress of the U.S., Canadian, Chinese, and Eastern European corn and oilseed crops. Hence, it is prudent decision making to make the ACRE election decision as close to June 3 as possible, thus using the best information available by the time the farm program decision option expires. While waiting is a useful strategy in making the ACRE election decision, completing some of the paperwork earlier is advisable if the ACRE election is being considered. Signing up for ACRE will require landlord permission, as well as yield histories for enrolled farms. Having this documentation completed before the end of May will be desirable and minimize hassles at decision time for both the farmer and Farm Service Agency personnel.