The new farm bill proposal currently being considered by the U.S. Senate would give producers the opportunity to opt for the average crop revenue(ACR) program, in lieu of the current direct and CCP program payments. Following are key details of the proposed ACR Program:
- Beginning with the 2010 crop year, producers would have the choice of staying with the current direct payment and CCP program, or switching to a new ACR program. The decision of enrolling in the ACR program or the current program at FSA offices could be made and switched each year. (The U.S. House farm bill gave producers a one-time opportunity to switch to revenue-based CCPs.)
- Under ACR, producers would receive a fixed (direct) payment of $15/acre for all crops, based on the lesser of the total crop base acres on a farm, or the average acres planted to eligible program crops from 2002-2007. Current direct payments are crop-specific and are based on crop base acres that were established for the 2002 Farm Bill. Most current direct-payment amounts in Minnesota range from $23 to $30/base acre for corn; $11 to $14/base acre for soybeans; and from $14 to $18/base acre for wheat.
- Under the ACR Program (as passed by the U.S. Senate Ag Committee), there would be no price-based CCPs, as currently exist, and there would be no non-recourse marketing loans or loan deficiency payments (LDPs). All CCC loans would recourse loans, with the only repayment options being repayment of loan principal plus interest, or forfeiting the grain to the CCC at the end of the nine-month loan period.
NOTE – There are proposals in the U.S. Senate to keep the current CCC loan and LDP program in place, with some modifications.
How the proposed ACR program would work:
- The starting point for ACR would be calculating the per-acre average state revenue for each crop on an annual basis.
- The State trend yield would be based on a linear regression trend yield for the planted acres specific crop from 1980 to 2006.
- The pre-planting price would be the average of the Federal Crop Insurance (FCIC) pre-planting price for the current year and the previous two years for a given crop.
- The per-acre state revenue target = trend yield x pre-planting price x 0.90
- The per-acre actual state revenue = state average yield x FCIC harvest price
- The final ACR payment is adjusted to reflect the ratio of the producer’s APH for a given crop compared to the state trend yield, and adjusted to 90%.
- The revenue portion of ACR on a farm = state revenue target - actual state revenue x acres planted to a crop x APH ratio x 0.90
- The Revenue portion of ACR payments paid to the producer would be reduced by the amount of any crop insurance indemnity payments received. The crop insurance provider would receive the amount of the indemnity payments that were paid.
Advantages of the proposed ACR program to producers:
- Better crop revenue protection in years with low crop yields and average or higher crop prices. (Current safety-netpayments are triggered by lower-than-average prices.)
- The price guarantees with ACR are based on a three-year rolling average that is adjusted each year, and should be more reflective of changes in year-to-year grain market prices. (Current CCPs are based pre-set target prices for each crop.)
- ACR payments could be made following harvest, once final statewide average yields are known. (Current CCPs for corn and soybeans are not finalized until Sept. 1 in the year following harvest.)
- The ACR program should help lower crop insurance premiums for most producers.
Disadvantages of the proposed ACR program to producers:
- The ACR program would result in a loss of annual guaranteed direct (fixed) payments on corn base acres for most producers, compared to the current farm program.
- Reduced crop revenue with ACR in years with higher-than-average yields, but very low prices, such as occurred with corn in 2005. (Many producers received substantial CCP and LDP payments on the 2005 corn crop, but would have received very little under the proposed ACR program.)
- ACR does not provide protection when a producer has a lower farm yield than the state average yield, because all ACR payments are based on the state average yields. (Producers would still need crop insurance to protect crop losses at the farm level.)
- ACR would result in the loss of non-recourse CCC loans that can be released at the posted county price, or for potential LDPs, which could have a major impact if we get into another period of grain surpluses and very low grain prices.
Other concerns with the proposed ACR program:
- Some worry that the ACR Program could be disincentive for producers to purchase crop insurance, which could lead to problems when producers have localized crop losses, and could severely impact the crop insurance industry.
- There may be some WTO concerns with the proposed ACR payments, especially if producers can choose the ACR program on an annual basis, based on changing global markets and crop prices.
- There is some concern that the federal government could end up with large amounts of forfeited grain with the recourse CCC commodity loan provisions under the proposed ACR program, if we get into a period of very low grain prices again.
- Farm Organizations are very split on the introduction of the ACR program as a farm program choice. (Support for ACR is stronger as long as it remains optional.)
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected]com.