Spotlight on Economics: Should you enroll in the ACRE program?

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The 2008 farm bill was extended through Sept. 30, 2013, for most programs that were in place for the 2012 crop year. This means producers have the option to enroll in the Direct and Counter-cyclical Payment (DCP) program or the Average Crop Revenue Election (ACRE)  program this spring.

The deadline for enrolling in the ACRE program is June 3, while the final date to enroll in the DCP program is Aug. 2. This is a one-year enrollment, which is unlike ACRE enrollments in past years that locked producers into the program for more than a year.

To be eligible for an ACRE payment, the state and individual farm unit must qualify. The most important questions about ACRE enrollment are whether the state will be eligible for an ACRE payment and for how much. Obviously, this is unknown right now.

This is important because enrolling in the ACRE program means the direct payments received will be reduced by 20 percent. This reduction applies to total direct payments on a farm unit. In addition, marketing loan rates are lowered by 30 percent for production on farms enrolled in the ACRE program.

Current projections show an ACRE payment of $34 per acre for soybeans in North Dakota. In South Dakota, the payment is $49 per acre, and in Minnesota, it is $51 per acre. Soybeans are the only crop that shows a payment in all three states. Several crops in Montana are covered under irrigation practices only.

A payment of $28 per acre is projected for corn in Montana only. At the assumed $4.80 national average marketing year price for corn, to trigger a state payment, the yield would have to decline from the benchmark yield by 8 bushels per acre in North Dakota, 9 bushels in Minnesota and 15 bushels in South Dakota.

Of the three major crops, wheat is the least likely to earn ACRE payments in 2013. At the U.S. Department of Agriculture  projected price of $7 per acre for wheat,  the state yield would have to decline by 9 bushels per acre in North Dakota, 12 bushels in Minnesota and 8 bushels in South Dakota and Montana before an ACRE payment would begin to accrue.

Several small-acreage crops are projected to earn ACRE payments. ACRE payments for lentils are projected to be $38 per acre in North Dakota, $28 per acre in South Dakota and $33 per acre in Montana. Projected payments for small chickpeas are $23 per acre in North and South Dakota and $7 per acre in Montana. Flax payments are estimated to be $2 per acre in North Dakota and $13 per acre in Minnesota.

While many of these payments look attractive, most producers do not plant a large number of acres to these crops. ACRE payments are earned on the acres planted or considered planted for each crop.

Because ACRE enrollment results in a 20 percent reduction in all direct payments, a payment for a single small-acreage crop may not offset the reduction in direct payments. For most producers, one of the three major crops will need to earn a payment to justify the decision to enroll in ACRE.

Soybeans are a significant part of many producers' crop rotations in three of the four states, and there is a reasonably good chance of earning a soybean payment. At this time, corn is expected to earn an ACRE payment in Montana only.

However, with the late, cold spring in the northern Plains, the corn yields in Minnesota and the Dakotas could decline enough to put these states into play. An ACRE payment for corn in these states can, at best, be considered unlikely but possible at this time.

Wheat is very unlikely to generate an ACRE payment in any of the four states.

With a 2013 wheat price estimate of $7 from the USDA, average yields would have to decline by about 20 percent from the state benchmark yield in all four states before an ACRE payment would begin to accrue.

As of mid-April, the bottom line is to consider enrolling any FSA farm in the ACRE program  that you intend to plant to at least 10 percent  to soybeans. It is more of a longshot if you are growing mostly corn without acres of soybeans on that unit. If most of the acreage on a farm unit is planted to wheat, the best advice is to stay with the DCP program.

Remember that enrollment is by Farm Service Agency farm unit. Most producers have more than one farm unit, so some units may be enrolled in ACRE and some in DCP. It depends on what crops will be planted this year.

It should be noted that a crop must show a revenue shortfall at the farm level to be eligible for the ACRE payment triggered at the state level. The payment to an individual farm is adjusted to reflect the relationship between the state benchmark yield and the farm benchmark yield. The maximum acres eligible for ACRE payments may not exceed the total base acres on any farm unit.

More detailed tables showing the calculations for projected ACRE payments are available on the NDSU Extension Service farm management website at http://www.ag.ndsu.edu/farmmanagement/tools.

Source: Dwight Aakre, Farm Management Specialist, NDSU Agribusiness and Applied Economics Department


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