ACRE is a state-level revenue program that makes payments when state revenue fall below a state guarantee (a farm benchmark must also be met before a farm receives an ACRE payment). The traditional counter-cyclical program makes payments when national market year average (MYA) prices fall below trigger prices. Trigger prices are fixed at low levels – $2.35/bu. for corn, $5.56/bu. for soybeans and $3.65/bu. for wheat – resulting in very small chances of payments under the traditional program. On the other hand, ACRE’s guarantee is based on more recent yields and prices, resulting in much higher chances of payments. In Illinois for a typical year, ACRE is estimated to pay in one-third of the years for corn, 16% of the years for soybeans and 26% of the years for wheat (see ACRE Will Likely Pay More than the Traditional Alternative).
In exchange for higher expected payments under ACRE, farmers must give up 20% of direct payments, which on many Midwest farms works out to be a reduction of between $4 and $5/acre. Farms enrolling in ACRE also will have a loan rate 30% less than in the traditional program. The “costs” of having a lower loan rate are small, as the chance of receiving loan deficiency payments is near zero. National loan rates without the 30% reduction are $1.95/bu. for corn, $5 for soybeans and $2.94 for wheat. Moreover, current low interest rates cause the value of having of marketing loans to be very small.
In essence, enrolling in ACRE is similar to buying insurance. For $4-5/acre, farmers receive revenue protection offered by ACRE (for more detail on ACRE download a pdf: Questions and Answers about the ACRE Provisions of the 2008 Farm Bill).