Vilsack wants producers to consider ACRE program
June 24, 2009
by Jay Sjerven
WASHINGTON — Secretary of Agriculture Tom Vilsack on June 23 urged producers to learn about the new Average Crop Revenue Election (ACRE) program before the program’s Aug. 14 signup deadline.
"The ACRE program is an innovative risk management tool, and I encourage producers to seriously consider whether to adopt this option," Mr. Vilsack said.
Congress created ACRE in the 2008 farm act to help farmers manage the risks of farming. It was developed as an alternative to the standard farm income support program based on direct and countercyclical payments.
Under the standard direct and countercyclical payment program (D.C.P.), both direct payments and countercyclical payments are calculated by using the historical base acres and payment yields established by law for a farm. In the case of wheat, the direct payment rate is fixed by law at 52c a bu. This payment is made annually no matter what planting decisions a producer makes or how much wheat he actually may produce in any given year. Countercyclical payments are made when the market price of a program crop drops below a target price set under the farm act. In the case of wheat, the target price for the 2009-10 crop year is $3.92 a bu. The countercyclical payment would be the difference between the $3.92 target price and the higher of the market price or marketing loan rate.
In contrast, ACRE payments aim to protect producers from sudden and wide year-to-year drops in revenue and are based on what the producer actually plants with payments calculated using recent market prices. ACRE provides eligible producers a state-level revenue guarantee based on the five-year state Olympic average yield and the two-year national average price of a program crop. ACRE payments are made when both the state-level trigger and the farm-level trigger are met.
Critics of the program pointed out ACRE may result in federal outlays to producers even in years when prices are high, whereas no countercyclical payments would be made when the market price is above the target price set by the farm act for the particular crop.
For instance, the target price for wheat during the 2009-10 crop year is $3.92 a bu. With market prices expected to hold above that level, no countercyclical payments are likely to be made to wheat producers this year. But ACRE payments are revenue based and calculated to reflect changes in revenue from year to year, compensating producers for revenue loss in years when market prices may be historically high and above countercyclical payment target prices but farm and state revenue nevertheless declined compared with the previous couple of years, when market prices may have been higher still.
Producers must weigh potential benefits of enrolling in ACRE with some restrictions, including the requirements they forgo 20% of their direct payments and see their marketing loan rate reduced 30% from levels that apply to producers staying with the old program. Additionally, once the producer elects to participate in ACRE, he or she must remain in the program for the duration of the farm act, or through 2012. So it would be possible in years when no ACRE payments are triggered, producers would be net losers because they gave up 20% of their former direct payments and the right to any prospective countercyclical payments.
Producers and their advisers had calculators out and pencils and paper in hand in efforts to determine whether ACRE is worthwhile for individual farm operations.