farmgate: ACRE And SURE: When Ag Policy Morphs Into Farm Business Economics.
Conversations in coffee shops, elevator offices, marketing clubs, and local Farm Bureaus have been focused on the new ACRE and SURE programs which certainly bring complexity to the new farm program. Sign-up just isn’t what it used to be! Farmers are going to have to do some bookwork and serious thinking ahead of time about whether to shift from traditional direct and counter-cyclical payments to ACRE, and whether to enroll all of their land in CAT policies to qualify for SURE disaster payments. Answers won’t come easy, but the more information available, the easier the decisions.
ACRE is an acronym for Average Crop Revenue Election. SURE is an abbreviation for Supplemental Revenue Assistance, and both are new in the 2008 Farm Bill designed to push farmers toward risk management practices than to offer government payments regardless of the need. Ohio State University agricultural economist Carl Zulauf has produced another analysis of the Farm Bill which may help make decisions that will be required this winter.
SURE is the result of some Members of Congress efforts to create a permanent disaster program as part of the Farm Bill, instead of approving annual programs spurred by drought or other adverse weather. Considering that crop insurance covers risk between planting and harvest, SURE helps with whole farm losses and covers the deductible in the crop insurance. SURE payments are generated by a complex set of calculations that subtract crop insurance indemnity payments, but the program requires either crop insurance coverage or CAT policies at a minimum. Zulauf says SURE is an incentive to buy at least 75% individual crop insurance. Farmers with high yield variability and single crops will be strong candidates for SURE. And Zulauf suggests that the benefits of the SURE program will cause some farmers to convert to 100% corn or 100% beans, and eliminate small acreage crops and any cropping diversity.
ACRE is an optional program designed to provide a price support based on state-level prices and yields. Anyone opting for the ACRE program will sacrifice 20% of any direct payment and 30% of any marketing loan benefit, and cannot revert to the traditional programs once the ACRE election is made. ACRE payments are also based on a complex calculation with the payment triggered by a decline in revenue. Compared to Counter-cyclical payments in the 2002 Farm Bill, ACRE is based on state revenue and CCP was based on US season average price. For ACRE, the state revenue target changes annually and follows the market, but to get a payment state revenue must fall below its guarantee and farm revenue must fall below a farm’s ACRE guarantee.
Going into the 2008 Farm Bill, and with farmers facing decisions that need to be made when USDA finishes writing regulations this winter, Zulauf has projected some of the important benchmarks.
1) ACRE payments, even with the lower direct payment, can be expected through 2012, if corn prices remain above $2.87, beans above $6.35, and wheat above $4.39. However, payments are not guaranteed because farm revenues must also meet thresholds.
2) Based on large declines in state revenue over multiple years (since ACRE is based on a 5-year Olympic average) corn would receive an ACRE payment 74% of the time, soybeans 79% of the time, and wheat 77% of the time.
3) The ACRE program limits revenue changes to no more than 10% up or down from one year to the next, and based on that rule, corn would be eligible for an ACRE payments 48% of the time, soybeans 49% of the time, and wheat 58% of the time.
4) When state yields decline by 10%, ACRE payments are triggered in two out of three years.
Zulauf says ACRE protects against revenue declines, but is a poor substitute for crop insurance and should complement an insurance program. And he says ACRE payments should be capitalized into the value of land. And he expects that ACRE payments will approach zero within a few years.
Summary:
ACRE and SURE programs will help farmers with risk management, not price protection, but details are still being written by USDA. Farmer may be pushed to purchase 75% crop insurance coverage to supplement the programs and be eligible for program benefits. Since the ACRE program replaces 20% of Direct Payments, farmers must determine if the loss of $3-5 per acre is worth the opportunity for longer term ACRE benefits.
Posted by Stu Ellis on September 2, 2008 12:06 AM to farmgate