We received a new Farm Bill in 2008 and with it come a lot of questions about just what this means to producers of agricultural commodities, namely farmers.
Under the new Food, Conservation, and Energy Act of 2008, producers of USDA program crops such as soybeans, wheat, and corn have the option to enroll in a new counter-cyclical revenue plan. The program is called Average Crop Revenue Election or ACRE for short. It is being offered as an alternative to the counter-cyclical payment option under the 2003 farm bill.
Sign-up for the 2009 DCP started in December 2008 and will continue until June 1, 2009. Producers are encouraged to stop by their county FSA office to get signed up and will receive a 22 percent advance payment. More information will be coming out during the coming weeks on how this will be handled.
The current counter-cyclical payment (CCP) program becomes effective when the season average marketing price for a commodity is below the national target price for that commodity. There is a maximum payment level per bushel of program yield, and it is paid on 85 percent of the program base acres.
Critics of the CCP have pointed out that it addresses price risk only, and not production risk, and it is not based on the crops or acres actually being grown by the producer each year. ACRE addresses both of these problems.
ACRE uses a combination of state yields, farm level yields, and the national marketing year price to determine levels of revenue guarantees and payments for each covered commodity. There are two revenue triggers that have to be met before any ACRE payments are generated, one at the state level and one at the farm level. Farms correspond to FSA units, just as for the current commodity programs. The price component of both of these is the average of the two most recent USDA marketing year prices. For corn and soybeans the marketing year runs from September through August.
Marketing year prices are based on cash prices (not futures) paid throughout the country. The marketing year prices for the 2007 crops are projected to be $4.00 for corn and $10.40 for soybeans.
For the state revenue guarantee, an "Olympic" average of the state average yields for the past five years is used. The highest and lowest values during this period are thrown out, and the values for the past three remaining years are averaged. Average yields are adjusted to bushels per planted acre rather than per harvested acre. This state average will be determined at a later date. The state revenue guarantee is 90 percent of the average state yield multiplied by the two-year average marketing price.
For the farm level revenue guarantee, the same two-year average price is used, multiplied by the Olympic average of the last five years of yields for the farm. The value of the farmer paid crop insurance premiums also is added to the farm level guarantee.
Both the state and farm guarantees will be recalculated each year using prices from the past two years and yields from the past five years.
ACRE does not replace crop insurance
Although the ACRE program may resemble crop revenue insurance, there are some important differences. The ACRE guarantees are based on longer term average prices and yields, so they will not fluctuate as much from year to year as crop insurance guarantees. In fact, ACRE regulations state that the guarantees cannot increase or decrease more than 10 percent each year. This helps accomplish the fundamental goal of ACRE, which is to stabilize gross revenues over the next four years.