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ACRE or not? Making the election choice (04/29/2009)
By Kent Olson

University of Minnesota Extension

Starting on Apr. 27, 2009, farmers can sign up for the Average Crop Revenue Election (ACRE) program, a new, optional safety net for farmers provided by Congress in the 2008 Farm Bill. This ACRE program is based on changes in crop revenue. It is an alternative to the counter-cyclical (CC) program, which is based only on changes in crop prices.

“At first, farmers may find this safety net based on crop revenue (that is, both prices and yield) appealing as an alternative to the safety net based on crop prices only,” says Kent Olson, an economist with University of Minnesota Extension. “However,” he continues, “choosing this new safety net is not an obvious choice for several reasons.”

Farmers who choose to elect this program also must accept a 20 percent reduction in direct payments and a 30 percent reduction in marketing assistance loan rates. The ACRE program also has eligibility rules based on Adjusted Gross Income (AGI).

Choosing ACRE is an irrevocable election, meaning a farmer cannot go back to the counter-cyclical payments even if future market conditions make the counter-cyclical payment larger than the ACRE payment. A farmer can wait to a future year to choose ACRE, but cannot reverse the choice once the final deadline passes.

The choice greatly hinges on whether commodity prices will stay at or near current levels or decrease.

The choice also depends on the variability of the individual farm’s yields and that farm’s state yields and the correlation between the two yields.

Before a payment to an individual farmer is made under the ACRE program, two revenue loss triggers must occur; one at the state level and one on the individual farm. National prices are used to value both the state yields and farm yields. The ACRE payment is based on national prices and state yields, not farm yields.

These complexities essentially take away any possibility to develop simple decision rules or breakeven prices for farmers to make the decision to choose between ACRE and CC.

To help farmers weigh their choices between ACRE and CC, a factsheet, “Average Crop Revenue Election (ACRE) Program,” and an Excel worksheet to estimate government payments under different conditions are available at www.extension.umn.edu/agbusinessmanagement/components/info_farmbill.html

Farmers can start signing up for ACRE on Apr. 27, 2009, at their local Farm Service Agency (FSA) office. They have until Aug. 14, 2009, to sign up. 

 

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