ACRE worth looking at one last time, according to Purdue ag economist

WEST LAFAYETTE, Ind. — The Average Crop Revenue Election Program, also known as ACRE, is a tool designed to provide downside price and yield protection for U.S. crop growers.

Purdue University’s Chris Hurt encourages growers to evaluate the program one last time.

“If you have decided to stay out of ACRE for the 2009 crop, you need to rethink that decision,” said the Purdue Extension agricultural economist. “The reason is because prices, particularly corn, have dropped so much since early July. The last three weeks have changed everything.”

Significant protection

Hurt explained that with average Indiana crop yields, ACRE should start providing significant protection when the average U.S. farm price for corn drops below about $3.70 per bushel and when the average U.S. farm price for soybeans crops below about $9 per bushel.

“If corn drops to $3 per bushel, growers could see a payment of 50 to 60 cents per bushel,” Hurt said. “This could be an ACRE payment of $50, $60 or $70 per acre for corn. DCP, which has been the standard direct and counter-cyclical payment program, will not protect against corn prices falling from $3.70 to $3 per bushel. It will only protect if the corn price falls below $2.35 per bushel.”

Trigger

ACRE payments are triggered by a combination of yield and price, so when state and individual farm yields are higher, lower prices are needed to trigger payments.

Hurt broke ACRE down from a grower’s perspective: “If crop prices are higher, losses for enrolling in the program are relatively low, but if crop prices are lower, the return is relatively high.”

Hurt said no one knows what crop prices are going to do but if prices or yields are low, ACRE looks good.

“With December corn futures at about $3.40 per bushel, the average corn price for the season should be about $3.25 per bushel,” Hurt said. “That may be too low, but our estimates are that the ACRE payment for corn would be about $45 per acre above DCP in Indiana.

“With November soybeans at $9.30 per bushel, I expect the average soybean price for this season to be about $8.85 per bushel for the 2009 crop.”

In the ACRE program, with current prices, Hurt expects to see a payment of about $3 per acre above DCP for soybeans.

“For a 50-50 corn/soybean producer, this would average to about $20 to $25 per acre, which would cover the 20 percent reduction in direct payments, the cost of enrollment in ACRE for all four years,” Hurt said.

Consider the benefits

He recommends growers who have done little forward pricing and those who need downside price protection, to especially consider the benefits ACRE can provide.

Hurt acknowledges the complexity of the program and said that each producer needs to evaluate the implications on their farms. There are other implications, such as payment limitations that should be explored and taken into consideration, he said.

Deadline

The decision to enroll in ACRE must be made by Aug. 14 and can be done by making an appointment with a local Farm Service Agency office.

Farmers should also discuss this decision with any party that has revenue interest in the farm, including cash-rent landlords. All parties must sign the enrollment paperwork and parties with revenue interest will receive their commodity payments according to ACRE provisions.

“One question growers need to ask themselves is ‘What are the chances of having low prices this year?’” Hurt said. “Protection in this environment is a must.

“We could have record-breaking crops, which means lower prices and signing up for ACRE is the last thing you can do for price protection.”

More information

For details and provisions of the ACRE program, administered by the U.S. Department of Agriculture’s FSA, contact a local FSA office or visit www.fsa.usda.gov.

For economic analysis and ACRE payment calculators, visit www.ag.purdue.edu/agecon/Pages/agpolicy.aspx.

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