ACRE: New Farm Program for 2008
NOTE: No podcast today. Just a good old-fashioned article.
Yikes! With a title like that I’d be surprised if you weren’t yawning already. I admit that I find Farm Bill provisions to be exceptionally boring, and often complicated beyond reason. Alas, I will attempt to simply explain the new ACRE provision. The below article is excerpted from a story I wrote for The Lima News.
The 2008 Farm Bill includes a new commodity support program called the Average Crop Revenue Election Program, referred to as ‘ACRE’. ACRE is different from other government farm programs because it protects revenue, not prices. Ohio State University’s Farm Bill expert is Dr. Carl Zulauf, and he has posted a short summary of the ACRE program in the June Ohio Ag Manager newsletter http://ohioagmanager.osu.edu/news/archive/2008/0608.php
Producers will be able to sign up in ACRE (Fall–2008, will likely be the sign up period) which will become effective for the 2009 year. ACRE participation is elected by the farmer, and once selected the choice cannot be undone.
There are many details to the ACRE program that can be explained by reading Dr. Zulauf’s detailed summary, but the bottom line is that farmers choosing ACRE will give up 20% of their direct payments, all their counter-cyclical payments, and reduce their loan rates by 30% for determining loan deficiency payments.
In return for giving up these programs, farmers may receive an ACRE payment. There are two conditions that must be met in order to receive an ACRE payment, and I strongly encourage you to read Dr. Zulauf’s summary for the details. The details of the program are a bit more complicated than I wish to go into for this post.
In order to simplify ACRE and put it in terms that we can easily understand, think of ACRE operating as a mix of Group Risk Protection (GRIP) and Crop Revenue Coverage (CRC). One of the ACRE provisions is triggered similarly to a GRIP policy, except state level yields and national average market prices are used, rather than county level yields and Chicago Board of Trade future prices. ACRE also requires that a farm level revenue loss occur before triggering payments. This ‘farm level’ trigger is similar to the CRC trigger in that actual farm revenue must be below a guarantee, again, refer to Dr. Zulauf’s summary for details.
So this begs the question ‘What does ACRE mean for an Ohio farmer?’. Traditional payments will likely not be triggered over the short term, given high grain prices. However, there is an opportunity that ACRE payments could apply because the ACRE state revenue guarantee is based on 90% of the state average yield. This means that ACRE payments may be triggered when traditional payments are not.
Is ACRE right for your farm? It is hard to say at this point, and answering this question will require detailed comparisons of ACRE to other benchmark programs. I look for Dr. Zulauf and private crop insurance companies to provide a more detailed comparison of ACRE over the next few months. In the meantime, I suggest subscribing to Ohio Ag Manager (http://ohioagmanager.osu.edu/services/email.php) for the latest updates on ACRE.