Decision-making now turns to ACRE vs. direct payments

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You have made your decision about crop insurance, and now your focus will turn to making a decision about participating in a farm program.  With the extension of the 2008 Farm Bill, direct and countercyclical payments still exist, as does the ACRE program (Average Crop Revenue Election.) 

The sign-up period for both began on February 19.  Sign up for ACRE ends on June 3, and if you are still in the field at that time, it may creep up on you.  Sign-up for the direct payment program must be made by August 2. While you are still in the machine shed putting the latest gizmo on your planter, give some thought to what you want to do with the farm program this year.

Any farm with an FSA number can enroll in the ACRE program, and you have probably been receiving direct payments since they were instituted in the 2002 Farm Bill.  Deciding which to enroll in is not an easy decision and you have to evaluate your own farm in each of them.  In fact, the decision will be more difficult than crop insurance.  However there is help that you can consult for your decision. If you were enrolled in ACRE through a portion of the 2008-2012, you are not obligate to stay with it, and can revert to a direct payment program.

Iowa State University agricultural economist William Edwards provides an overview of the program and a link to an Excel program that helps with the decision making.  He also provides an additional guide on the ACRE program.

ACRE triggers

Edwards says there are two gross revenue triggers for ACRE.  Prices must meet both a state and a farm threshold, based on the average for the corn and soybean marketing year of September through August. The farm trigger will depend on your recent farm yields.  While the 2012 drought may trigger an ACRE payment for your farm, the state trigger is the same for everyone, and federal farm program writers put a 10 percent limit on it’s up or down moves from year to year.  The drought may not be enough to pull the state trigger on a payment. 

Edwards says, “State level trigger revenues for Iowa for the 2013 crop are currently projected as $781/acre for corn and $574/acre for soybeans, using the current USDA forecasts for the 2012 average marketing year prices.

These could change slightly over the next seven months. This means that if the state average corn yield for 2013 is 160 bushels/acre, for example, the marketing year price for the 2013 crop will have to average less than $4.88/ bushel to trigger an ACRE payment. Likewise, if the state average soybean yield is 47 bushels/acre, for example, the 2013 marketing year price will have to average less than $12.21/bushel to trigger a payment.” 

Undoubtedly, you will be watching the average price for the 2013 marketing year if you sign up for ACRE.  An abundant crop—if the Western Corn Belt cooperates with the USDA’s forecast for a trend yield—may push prices into those ranges.

More help for your decision comes from agricultural economists Gary Schnitkey at the University of Illinois and Carl Zulauf at Ohio State. 

Their analysis indicates, “As in prior years, ACRE appears to offer more risk management assistance than DCP, especially for crops associated with the Midwest and plains.   However, unlike prior years, ACRE also appears, in general, to offer higher price risk assistance relative to individual crop insurance. Thus, as of late February 2013, the context in which the 2013 ACRE decision will be made is likely to differ from that of prior years.”

Direct payment reduction

Before making any decision, remember that ACRE enrollees sacrifice 20 percent of the direct payment. That would represent $4.87 loss for each base acre of corn, and $2.30 deduction for each base acre of soybeans.  If cash flow is an issue, direct payments will be made in October 2013, without regard to yield or price, for the current year. 

Counter-cyclical payments will also be made if corn is below $2.63 and soybeans are below $6.00 averages for the marketing year from September 2013 to August 2014.  Don’t spend that money yet. And regarding timing of payments, if you sign up for ACRE this spring, any payment that might be earned will not be made until October 2014, following the end of the 2013-14 marketing year. If you enroll in ACRE all crops on the farm will be enrolled, so you cannot enroll soybeans in ACRE and get 100 percent of direct payments on corn.

If you were enrolled in ACRE, will you get a payment for the 2012 crop?  Schnitkey and Zulauf estimate 2012 ACRE revenue at $679 for corn and $480 for soybeans, which many farms likely surpassed even with low yields from the drought.  Consequently, there will be no payment for 2013 when checks are mailed next October. 

Relationship with crop insurance

If you planned to replace crop insurance in 2013 with ACRE, Schnitkey and Zulauf say ACRE is not a replacement for crop insurance.  “ACRE provides assistance against yield risk at the state level, not at the individual farm or county level. However, ACRE and insurance both provide assistance against low prices. Thus, it is important to ask if ACRE’s price risk assistance supplements (is higher than) the crop insurance’s price risk assistance.”

The ability of ACRE to supplement crop insurance is dependent upon a comparison of what the ACRE revenue guarantee is, versus the coverage level of crop insurance you selected.  As crop insurance guarantees were continuing to fall in late February, ACRE was meeting 83 percent of the crop insurance guarantee for the most common coverage near 80 percent, and 94 percent of the most common soybean crop insurance coverage level. The economists say, “The breadth of this finding across crops is different than in previous years, and implies that farms will need to think carefully about the ACRE Election option for the 2013 crop.”

Schnitkey and Zulauf also want you to know:

  • 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.

Now you have many of the fact you need, and a resource to test your numbers in a decision-aid.  If enough points to ACRE, do you sign up tomorrow?  The economists urge you to wait until more near the deadline to see if anything changes, such more global supply and demand information, US acreage, and other factors that could change your decision.  Although you may want to delay the final decision, completing the paperwork ahead of the June 3 deadline will help that process, including getting permission from landowners….

…but that may be why you did not sign up for ACRE several years ago!

Summary:

There is a choice of farm programs under terms of the extension of the 2008 Farm Bill, and farmers can continue to receive direct payment and they can also sign up for the ACRE program, which reduces direct payments by 20 percent per acre.  Decisions are complex, but with decision-aids they can be made with confidence.  ACRE is not a replacement for crop insurance, but is a supplement, and if you have purchased higher levels of crop insurance, the premium that is paid provides a boost to ACRE eligibility.  The sign up deadline is June 3 for ACRE and August 2 for direct payments.

Source: FarmGate blog


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