Wednesday, April 17, 2013
Wet Soil or Dry: Will ACRE Provide Any Benefits in 2013?Tweet
Most Cornbelt farmers not have received an ACRE payment, since the inception of the program in the 2008 Farm Bill. While that primarily results from very low participation in the program, most of those producers who did opt for the ACRE program have not financially qualified for payments due to the calculation formulas. However, the ACRE program may be worthy of consideration in 2013 depending on crop production prospects in your particular state. Could ACRE benefit a farmer with very low soil moisture or a farmer whose spring planting has been delayed because of wet soils?
The Average Crop Revenue Election (ACRE) program was established in the 2008 Farm Bill as part of the farm safety net. However, the complexity of the program and the requirement for landowner participation resulted in very low participation. The highest rates of participation were in Nebraska and Illinois, possibly because of active program promotion by Extension-based agricultural policy economists such as Brad Lubben in Nebraska and Gary Schnitkey in Illinois. With the availability of ACRE in the 2013 production year, farmers will have until June 3 to decide whether to sign up for the program. And not unexpected, both Lubben and Schnitkey have offered extensive assistance to farmers to help make their decisions. But their assistance benefits everyone, because Nebraska is beginning the season as the epicenter of the drought and Illinois farmers have been kept out of the fields due to incessant wet weather issues. That dichotomy offers a span that would include nearly all Cornbelt farmers who want to use the information provided by Lubben and Schnitkey in making a decision for their farming operation.
Lubben provides several points that provide a refresher about the ACRE program, which provides financial protection based on average revenue levels instead of commodity price levels set in legislation:
- Average revenue-based safety net tied to benchmark based on average yields and average prices.
- Protection from revenue losses when state and farm revenue both fall below respective benchmarks.
- Protection tied to planted acres of program commodities on a farm, up to the farm’s total base acreage.
- Direct payments available on base acres and program yields at 80 percent of the full DP rate for ACRE participants.
- Marketing loans available on actual production at 70 percent of the full ML rate for ACRE participants.
There are two calculations for ACRE, and both must be used to qualify a farm for an ACRE payment should crop prices fall:
- The state ACRE guarantee is calculated as 90 percent of the 5-year Olympic average yield, multiplied by the 2-year simple-average price of the two prior marketing years for the current year guarantee.
- The farm-level guarantee is equal to the average yield, multiplied by the average price, plus the farmer-paid crop insurance premium.
Lubben says, “The ACRE guarantees move every year based on updated yield and prices, so they reflect current revenue expectations and provide protection from revenue losses much better than does the DCP program.” But any gain has a 10% cap from the prior year, reducing effective protection. At Illinois, Schnitkey says, “ACRE will provide protection against low prices given average or above yields.”
In his analysis for the prospects for an ACRE payment for the 2013 crop, Lubben says early in the year, crop prices would have negated any ACRE payment and producers would have been better off remaining with the direct payment program. But with the lack of soil moisture in Nebraska to diminish yields and the decline in commodity prices, the potential for an ACRE payment has increased. And he says revenue losses would not need to be so severe to trigger an ACRE payment. Lubben says, “Coupled with uncertainty about 2013 yields and prices, the ACRE guarantees, although still far below revenue projections, could be very valuable to producers and well worth the 20 percent of DPs given up to sign up for ACRE.”
Schnitkey has developed a web-based decision aid for any state, built on a large database of yields and prices. He says, “The ACRE Payment Estimator then provides a table of state ACRE payments times .85 for different state yields and marketing year average prices. Farms with higher yields than the state average will receive higher payments and vice versa.” Currently, he says there is only a 27% chance of an ACRE payment in 2013 (in Illinois), but if one were received, it would be about $13 per acre.
Based on Schnitkey’s decision aid, he says, “The 2013 ACRE Payment Estimator will provide an evaluation of the likelihood and size of ACRE payments. In most Midwest cases, expected ACRE payments are near what is given up in terms of direct payments. If protection is desired for low revenues, which may be caused by low prices, ACRE will be a suitable alternative.”
Cornbelt farmers have the opportunity to sign up for ACRE in 2013 as part of the safety net offered in the extension of the 2008 Farm Bill. A payment is not guaranteed, but given the wide variety of soil moisture situations and production expectations, ACRE provides an option for financial risk management. A decision aid can assist in making the choice to forego a portion of direct payment for the ACRE program.
Posted by Stu Ellis on 04/17 at 04:34 AM | Permalink