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ACRE: boon or bust for southern farmers?

The chairmen of the House and the Senate agriculture committees and the Bush administration couldn’t find much to agree on in the 2008 farm bill. That should make the average crop revenue election or ACRE program one of the bright spots of the new law, right?

Well, that depends. Midwest corn and soybeans farmers think the program will be a major plus, especially in years like 2008 when excessive rains have delayed or flooded out their crops. But cotton and rice producers, who have never warmed to the idea, aren’t so sure.

The legislation authorizing ACRE isn’t exactly what proponents envisioned. Iowa corn growers, who conceived the program, wanted revenue calculations based on county yield averages and national average selling prices.

USDA officials, including former Agriculture Secretary Mike Johanns, who included the revenue counter-cyclical program concept in his farm bill recommendations in January 2007, favored a national average yield because of its lower price tag. (Johanns is now running for the Senate from Nebraska.)

Chairmen Collin Peterson, D-Minn., and Tom Harkin, D-Iowa, of the House and Senate agriculture committees compromised by using state yield averages. They also reduced direct payments by 20 percent and marketing loan rates by 30 percent for producers enrolled in ACRE — to lower the program’s costs.

“The Average Crop Revenue Election program offers producers better options for managing risk of both yield and price declines on their farms in today’s uncertain, rapidly changing farm environment,” said Harkin.

Peterson never seemed to be as enthusiastic in his support of the program but included it in the House bill to win the support of the National Corn Growers Association, one of the prime movers of the legislation.

Within a year of President Bush signing the 2002 farm bill, corn growers were complaining that the then new law’s counter-cyclical payment program did not provide the help they needed when crop yields were reduced due to weather problems or other natural calamities.

Normally, when crop production is curtailed — as happened in parts of the Midwest in 2003 — prices move higher and price-based counter-cyclical payments are not triggered. So growers who harvested half a corn or soybean or wheat crop lost part of their crop and did not receive the full benefits of farm programs.

The revenue-based counter-cyclical payment program, which came to be called ACRE near the end of the current farm bill debate, replaces the price-based counter-cyclical program with a revenue program based on average state yields and more recent price history.

All the producers on the farm have to agree to participate in ACRE, but a producer can enroll one farm in ACRE and keep other farms in the traditional counter-cyclical program. Once a farm is enrolled, however, it must remain in ACRE through the end of the current farm bill in 2012.

An example prepared by the Senate Agriculture Committee shows an Iowa corn farmer could receive an ACRE payment of $32.50 per acre given a certain set of circumstances when the program becomes available in 2009.

The example assumes an Iowa ACRE revenue guarantee for corn of $730 per acre in 2009 (based on the state average yield times the expected average selling price.) If the average corn yield falls to 150 bushels per planted acre and the price of corn for the year is $4.65 per bushel, the crop revenue would be $697.50 per acre and the state ACRE payment rate would be $32.50 per acre ($730 – $697.50 = $32.50).

According to a diagram prepared by the Senate Agriculture Committee, two triggers must be met before average crop revenue election payments can be issued under the new farm bill, the Food, Conservation and Energy Act of 2008.

The first or the state trigger is that 90 percent of the state ACRE guarantee (the benchmark state yield based on a five-year Olympic average times the ACRE program guarantee price based on a two-year national average price) must exceed 100 percent of the actual state revenue (the actual state planted yield times the higher of the national average market price or 70 percent of the national loan rate.)

The second or farm trigger is that 100 percent of the farm ACRE benchmark revenue (the farm’s average yield or five-year Olympic average planted yield times the ACRE program guarantee price or the two-year national average price plus the producer-paid crop insurance premium) must exceed 100 percent of actual farm revenue (actual farm yield times the higher of the national average market price or 70 percent of the national loan rate.)

Farmers could receive payments on 83.3 percent of their planted or considered planted acres between 2009 and 2011 and 85 percent in 2012. Payment acres could not exceed the total base acres on the farm.

The results for cotton and rice farmers who convert to ACRE could be mixed. An analysis developed by the National Cotton Council shows how farmers in one state might receive a payment while those in another would get nothing.

For a sample farm using 2007 numbers in Tennessee, for example, cotton farmers could receive an ACRE payment of $17 per acre while growers in Texas could receive zero. Here’s why:

The two-year rolling average price in both states would be 46.5 cents per pound. The state five-year Olympic average yield per planted acre, on the other hand, would be 831.8 pounds for Tennessee growers and 500.7 pounds for Texas producers. Multiplying those yields by 46.5 cents and 90 percent would give Tennessee growers an ACRE state program guarantee of $353 and Texas growers, $212.

The estimated 2007 national market year average price would be 60 cents per pound in both states. In Tennessee, however, the actual 2007 state yield per planted acre was 559.2 pounds while that in Texas was 808.2 pounds.

The actual state revenue using those figures would be $336 per acre in Tennessee and $485 per acre in Texas. Subtracting the actual state revenue from the ACRE state program guarantee would give Tennessee farmers a payment of $17 per acre ($353 – $336 = $17) while farmer in Texas would not receive a payment ($212 – $485 = 0.)

That’s after those producers agree to forego 20 percent of their direct payment and 30 percent of the loan rate for crops produced on ACRE-enrolled farms.

Obviously, farmers will be doing a lot of pencil pushing this fall and winter to decide whether the program would work for them.


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