The extension of the Average Crop Revenue Election (ACRE) Program sign-up deadline to Aug. 14 has been an advantage to producers.
It has allowed more time to learn about the complicated program and see what the state revenue guarantee for different crops will be and how the yield and price scenarios for 2009 are developing. This has improved clarity on whether actual state revenue will be less than the state guarantee and trigger a payment.
"However, there is much indifference and indecision about ACRE mainly because of its confusing details," says Andy Swenson, North Dakota State University Extension Service farm management specialist. "However, in most North Dakota situations, the ACRE Program is a good option when its risk management aspects are weighed against its costs. There are situations where it is obvious that producers should not enroll in the program. More common, but still a minority, are farms that I believe are in a gray area when it comes to signing up for the ACRE program."
ACRE looks promising because the high commodity prices in 2007 and 2008 are used in calculating state revenue guarantees for 2009. State revenue guarantees cannot change more than 10% from year to year, so they should remain relatively high in 2010.
"A 25-year historic analysis of North Dakota confirms what seems logical," Swenson says. "ACRE payments typically would occur in successive years following periods of high crop revenue."
The cost of the program is 20% of direct payments, plus exclusion from the counter-cyclical program and a 30% reduction in loan rates. The effective cost per acre generally will be higher in the east and lower in the west. It will range between $1 and $3.50/acre/year for most farms and average about $2 across the state.
The 2009 North Dakota ACRE revenue guarantee has been set at $210.64 for wheat and $202.64 for barley. It likely will be around $280 for soybeans, $430 for corn, $260 for sunflowers, $210 for flax, $218 for field peas, $235 for canola and $300 for lentils.
"Generally, a significant revenue decline would be needed only for one crop in one year during the entire four-year period of ACRE to compensate the producer for all the direct payments lost during the four years," Swenson says. "For example, assuming that the crop makes up one-fourth of the acreage of the FSA (Farm Service Agency) farm unit, a decline in actual state revenue relative to the state revenue guarantee of 19% in any year for either wheat or barley, 14% for soybeans or 9% for corn should generate more in one ACRE payment than all four years of lost direct payments. If a crop made up one-half of the acres, the necessary one-time percentage drop in revenue would be halved."
This assumes that the farm also had a revenue shortfall for the crop to pass the ACRE payment eligibility test.
ACRE payments to each farm are in proportion to productivity. The shortfall in actual state revenue is multiplied by the ratio of farm-to-state average yields. Five-year Olympic averages are used.
"This seems fair because farms with lower yields typically have lower direct payments and therefore a lower 'cost' for ACRE enrollment," Swenson says. "No one can say for sure whether ACRE payments will be triggered. No ACRE payments would indicate that crop revenues remained strong throughout the 2009-2012 period and producers lost around $2/acre each year because of the program. However, one could argue that this is a low cost to help the farm survive periods when there are significant revenue shortfalls at the state level."
Producers should not enroll an FSA unit in ACRE for 2009 if the unit does not have any covered commodities planted or prevented-planted. This situation is more likely to occur in small FSA units. For example, if only sugar beets and/or alfalfa are grown on the FSA unit, the producer has no possibility of getting an ACRE payment but still would incur the "cost" of ACRE enrollment.
"A situation that puts ACRE sign-up in the gray area is when farms likely are to have 2009 yields significantly higher than their five-year Olympic average farm yields," Swenson says. "This will make it more difficult to show a revenue shortfall at the farm level, which is necessary, as well as a shortfall at the state level to receive an ACRE payment. This is the case for farms that typically have yields much higher than the county average but must use plug yields (95% of the county average) for their farm history because they cannot prove their actual yields."
Another example of this situation is areas of the state where yields have been unusually low during the past five years but are looking very good in 2009.
Another situation that should give producers pause before enrolling in ACRE are farms with low total base acres in which multiple program crops are grown each year. The reason is a rule that limits the number of acres eligible for ACRE payments to the total base acres of a farm. The maximum potential payment acres for each crop are 83.3% of planted and prevented-planted acres.
"The best way to understand the total base acre limit is that it only restricts potential ACRE payments when total planted and prevented-planted acres of covered commodities exceed 120 percent of the total FSA farm base acres," Swenson says. "It becomes a concern if more than one covered commodity is grown in the year a producer's total plantings exceed 120% of the total base acres. If this occurs, a producer must designate a crop priority order by Sept. 30 or payment acreage will be prorated for each crop. In either case, the crop acres that do not trigger an ACRE payment can count against the acreage limit the same as if they actually had earned an ACRE payment."