There are a couple decisions awaiting your consideration. Initially, how much corn and soybean acreage will you be planting? Secondly, will you be signing up for the ACRE program effective for the 2009 crop? Your priority is on the first question, since that will determine your income for the year and decisions must be made on short order. The question about ACRE participation can wait until June 1, which is the deadline for 2009 participation. Undoubtedly, you will be thinking about ACRE while on the tractor seat this spring, so let’s get down to the basic question that you will need to answer.

The Average Crop Revenue Election (ACRE) is part of the 2008 Farm Bill and is designed to help farmers better manager their revenue risk. You have probably heard that signing up for ACRE means sacrificing 20% of your Direct Payments and 30% of your loan rate. (20% of counter-cyclical payment rates are also sacrificed, but few experts believe crop prices will be low enough to result in counter-cyclical payments.) The formula to determine ACRE payment rates is rather complex. If you are beginning the process to study it, a good study guide is provided by the University of Illinois.

With the knowledge that a sacrifice of $3.71 per acre in Direct Payments must be traded for ACRE participation, Ohio State ag economist Carl Zulauf says to make the decision about signing up for ACRE, there is one question that needs your answer:
“Does ACRE’s state revenue program improve management of revenue risk enough, compared to the price counter-cyclical program, to compensate for the 20% reduction in direct payments and 30% reduction in marketing loan rates?” Zulauf’s guide on the decision question indicates that a focus must be made on revenue risk management because the state price and yield formula and the potential decline in US cash prices are two issues that farmers cannot control.

Zulauf says for current expected prices, ACRE’s revenue guarantee is estimated to be at least 90% higher than the implied revenue target in the counter-cyclical program. First, ACRE updates yields annually, compared to the historical averages for the counter-cyclical payment. Secondly, ACRE updates price targets with a two year moving average, compared to a set price number in the counter-cyclical program. Thirdly, ACRE’s revenue guarantee is important when costs are increasing faster than productivity. Lastly, ACRE’s revenue guarantee cannot decline more than 10% from year to year, so it will be higher than the counter-cyclical program through the end of the program in 2012. Additionally, ACRE payments are tied to planted acres, not base acres, but the number of planted acres receiving ACRE payments cannot exceed base acres.

To refresh your memory about the counter-cyclical alternative to ACRE, payments will only be made if the US season average price is below $2.35 for corn and $5.36 for soybeans ($5.56 in 2010-2012). The marketing loan program will only provide benefits if the market price drops below the loan rate, which nationally is $1.95 for corn and $5.00 for beans. Before signing up for ACRE, consider whether market prices will drop below those rates.
Zulauf provides some other keys to making your decision:
1) The reduction in direct payment per planted acre usually will be smaller, the greater the share of base acres that are soybeans.
2) Compared to the counter-cyclical program, ACRE better matches current production risk because its payment is based on planted acres (up to the farm’s total base acres).
3) The higher a farm’s 5-year Olympic moving average yield, relative to the state’s 5-year Olympic average yield for a crop, the higher the farm’s ACRE revenue payment.
4) The more yield has increased the higher will be a FSA farm’s Olympic average yield.
5) The closer changes in yield on a FSA farm and state move together, the more similar is changes in farm and state revenue, implying better risk protection from ACRE.

Summary:
The ACRE program provides a revenue risk safety net, which is calculated from several elements, including state revenue and national average prices, neither of which can be controlled by a farmer. So to make the decision on whether to sign up for the ACRE program, one must determine if the ACRE program manages those risks better than what the traditional direct payments, counter-cyclical payments and loan rates would provide, keeping in mind that a small portion of those benefits are sacrificed when signing up for ACRE.