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ACRE, SURE should be evaluated together

With commodity prices high and production costs above the levels of support offered by target prices and loan rates, many economists are urging farmers to take a close look at the new Average Crop Revenue Election (ACRE) program.

Projections run by Iowa State University show that ACRE payments could start well above countercyclical payments and reach $200 an acre before corn prices fall to $3.

Art Barnaby, an economist at Kansas State University, remains a skeptic. And he's finding skeptics when he talks to farmers.

"I don't believe it's going to pay out as often as the experts are telling them," Barnaby says.

Barnaby calculated what ACRE payments would have been between 1980 through 2007. In Iowa, for example, he found only six years when ACRE would have paid out (at the following amounts per acre in the following years): $5.32 in '85; $44.88 in '86; $1.92 in '88; $42 in '93; $21.29 in '98; and $4.70 in '99.

Over 28 years, payments averaged $4 an acre. That's just under the cost to be in ACRE -- giving up 20% of your direct payments, or almost $5 an acre on corn. Going forward, payments might average $8, but the frequency of payments might not be greater. (Click here for Barnaby's analysis).

ACRE is a revenue guarantee based on state yields and a crop's two-year national average marketing year price. To collect payments, state yields, national prices, or a combination of the two have to fall 10% below that guarantee. ACRE applies to specific crops, but your farm must also have a loss.

"ACRE would not have paid out on the 2007 Kansas wheat loss," Barnaby says, despite being the third biggest yield loss in 28 years. Wheat prices rose enough to offset the loss. So Barnaby advises comparing ACRE to the disaster program, SURE (Supplemental Revenue Assistance Program), which supplements crop insurance on your entire farm. That's triggered by a county disaster declaration, or a farm loss over 50%. If all of your crops are insured, you're already in SURE.

You can be in both ACRE and SURE, of course. No one can predict ACRE's performance. Barnaby suggests looking at ACRE like a put option. If corn prices average $5 in 2007 and 2008, and if December 2009 futures are at $4, "that means I'm in the money. It doesn't mean I'm going to get a payment, but the odds are higher," he says.

With commodity prices high and production costs above the levels of support offered by target prices and loan rates, many economists are urging farmers to take a close look at the new Average Crop Revenue Election (ACRE) program.

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