Don't rush decision about ACRE

By Doug Rich

Troy Dumler "Acre Program" - Extension Ag Economist - audio presentation

ACRE — Troy Dumler, K-State Extension economist, told producers not to rush their decision to sign up for the new ACRE program. Dumler was a featured speaker during the Small Grain Solutions tour. In his presentation Dumler compared ACRE to other commodity programs in the farm bill. (Journal photo by Doug Rich.)

Don’t be in a hurry to make a decision was the advice Troy Dumler had for farmers attending the Small Grain Solutions seminar sponsored by John Deere and High Plains Journal. Dumler, an Extension agricultural economist at Kansas State University, told farmers not to rush their decision to sign up for the Average Crop Revenue Election (ACRE) program.

“This is a new program so we have to compare it to what we had previously,” Dumler said.

Previously, in the 2002 farm bill, producers had a three-part safety net that included direct payments, counter-cyclical payments, and the marketing loan program. Direct payments are a fixed annual payment that was decoupled from price and production. Counter-cyclical payments were made when market prices fell below an effective target price. These payments were based on base acres and yields. Payments in the marketing loan program were made when market prices fell below the loan rate. Marketing loan payments are made on actual production.

“Two of the three safety net programs were tied to market price,” Dumler said, “meaning producers did not get paid unless market prices dropped below the level that kicked in those payments. None of those programs, beyond direct payments, helped in the event of production losses.”

This is what generated support for the ACRE program, a revenue counter-cyclical program. ACRE is an optional revenue counter-cyclical program that would replace the price counter-cyclical programs that were established in the 2002 farm bill. ACRE sets a revenue guarantee based on a state level yield and national prices. If the actual state revenue for a specific crop falls below that guarantee, then payments are made.

A big difference between ACRE and the price counter-cyclical programs is that payments are made on planted acres and not on base acres. Dumler said the exception is that the number of planted acres producers get paid on cannot exceed the total number of base acres on that farm.

There are two triggers for payments with ACRE. A payment is made when you have a loss on your farm and the state as a whole has a loss. If one of those does not happen, there is no payment. Payment rates are based on the lesser of two numbers, the state revenue guarantee minus actual state revenue or 20 percent multiplied by the state revenue guarantee. The lesser of those two numbers multiplied by planted acres and then multiplied by 83.3 percent is the actual payment.

This program is different from a historical perspective because it does two things that previous programs have not done. It accounts for production when making payments and it moves with the market. Dumler said the benchmark price is a moving average and it will change every year. Each one of these differences has advantages over other commodity programs.

Sign up for ACRE is scheduled to start this year but producers can sign up in 2010, 2011, or 2012. However, once you sign up, you are in for the remainder of the farm bill.

“All producers on a farm must agree to enroll in the program,” Dumler said.

In a crop-share situation, that means the landlord must agree to sign up, also. Sign up will be by FSA farm number so a person could sign up one farm and not another, but you have to sign up all of the crops on that farm. “It is all or nothing,” Dumler said.

To participate in ACRE, producers must reduce their direct payments by 20 percent and reduce their marketing loan rates by 30 percent. Reducing loan rates is not a major issue, except for cotton; the big one for most folks is giving up 20 percent of their direct payments.

“That is guaranteed money they are giving up in the hope that ACRE will pay off,” Dumler said.

ACRE payments are made after the marketing year ends. It will be a year after harvest before producers get their ACRE payments. This is not too different from other commodity programs.

Dumler said when the ACRE program first came out, people said farmers would just get rid of their crop insurance and rely on the ACRE program. If producers choose to do this, it would be taking a tremendous risk because if they have a loss, on their farm but the state as a whole does not have a loss then they would have no safety net at all. There is one direct link between ACRE and crop insurance and that is in how the farm benchmark revenue is calculated. The benchmark farm revenue is the benchmark farm yield multiplied by the benchmark price plus any crop insurance premiums paid.

Before producers enroll in the ACRE program, Dumler suggested they ask themselves the following questions.