What is in this article?:
The ACRE option is not an easy decision. It involves consideration of all three farm safety net programs: the traditional DCP program, the ACRE election option, and crop insurance. Moreover, the ACRE option election is not made on an individual crop basis, but applies to all farm program crops grown on a farm.
As of late February 2013, the ACRE election option is fundamentally different than in previous years. Like prior years, ACRE appears to offer more risk management assistance than the DCP program, especially for crops associated with the Midwest and plains. However, unlike prior years, ACRE also appears to offer higher price risk assistance relative to commonly elected individual crop insurance levels. In some respects, the 2013 ACRE program appears, as of late February 2013, to function in a manner consistent with the ARC (Agricultural Risk Coverage) and RLC (Revenue Loss Coverage) programs proposed in the 2012 Farm Bill drafts by providing shallow loss coverage above the individual insurance coverage levels elected by farms. It is important to underscore that ACRE and crop insurance are not substitutes because ACRE makes payments on a state yield and crop insurance makes payments on yield more closely related to the farm. However, farms who are concerned about price declines may find ACRE advantageous as it appears likely to provide additional price protection at the cost of a lower direct payment equal on average for the U.S. to the values presented in Figure 5 per base acre.
In addition, the different price windows covered by crop insurance and ACRE could have significant meaning. The authors suggest that the most risky scenario that could play out for U.S. crop farms is a large 2013 crop in South American, followed by a large 2013 crop in the U.S., and followed by a large 2014 crop in South America. ACRE offers some protection against this scenario because of its use of crop year price. Crop insurance offers no protection against this scenario after its harvest price is determined for the 2013 crop. Moreover, the crop insurance expected price for 2014 will be reset based on prices that exist at the time the expected insurance price for 2014 is determined.
Last, option decision making theory suggests that farms should wait until late May to make the ACRE election decision. This strategy allows farms to make a more informed decision about potential revenue for 2013 and thus of the potential for ACRE to significantly enhance risk protection for the 2013 crop year.
This publication is also available at http://aede.osu.edu/publications.