Roll your dice soon

Agriculture.com Staff 10/07/2008 @ 1:04pm

You wouldn't think Congress could write a more complicated farm program than the last one. But they've succeeded. Deciding about updating base acres after the last farm bill looks easy compared to choosing between the new average crop revenue election (ACRE) and the direct and countercyclical program (DCP).

Don't blame Congress entirely. Its ag committees took mixed signals from commodity groups. The Wheat Growers wanted higher direct payments. The Soybean Association wanted target prices rebalanced upward. And the National Corn Growers wanted a new program similar to federally financed county-level group revenue insurance.

What did we get? No bump in direct payments. Target prices were rebalanced up for beans and some crops (not corn) but at a level that's still low. Nor do they rise until 2010.

Then there's ACRE.

It's based on a concept promoted by the National Corn Growers Association and American Farmland Trust. But it's a far cry from NCGA's idea of virtually free revenue insurance for anyone who farms big chunks of a county.

ACRE still could be a pretty good deal, but it's far less predictable or reliable than revenue-based insurance.

Some of you may have read my bonus-section stories on ACRE last month. If they weren't in your issue, find them online at www.agriculture.com/ACRE.

Here's ACRE in a nutshell: Sometime before the 2009 crop you'll have a chance to sign up for ACRE. Once in, you can't opt out during the life of this farm law. But you can wait to enter ACRE as late as just ahead of your 2012 crops.

To be in ACRE, you give up 20% of your direct payments (about $5 an acre of corn on average) and 30% of LDPs if prices get that low again. You'll get no countercyclical payments (CCPs). Instead, if your entire state has at least a 10% drop in revenue (based on two previous years of national prices and a five-year Olympic average of yields), you'll get a payment. Your farm has to have a revenue shortfall, as well.

That's a swamp of IFs between you and a payment. Economists at Kansas State and elsewhere looked at how ACRE would have done in the past. From 1980 through 2007, it would have paid only six times in Iowa, Kansas State University's Art Barnaby found. (The highest was almost $45 per planted acre in 1986).

In today's high price environment, ACRE looks better. In scenarios run by Iowa State University, two state corn yields (140 and 180 bushels) resulted in payments starting at prices between $5.60 and $4.40 a bushel. Payments reach more than $200 an acre before corn falls to $3. That's attractive risk protection for $5 an acre.

I've compared ACRE to a hotel elevator instead of a floor. If prices burn and crash, ACRE could let you down slowly, long before the old CCP safety net helps you. The elevator isn't a perfect analogy. Prices could keep rising for four more years and you might get no ACRE payments. Or, the elevator could trap you in a basement if prices crash and stay there. You might have smaller LDPs and direct payments. However, because the ACRE guarantee can fall only 10% a year, it's hard to imagine it slipping under loan rates by 2012 ($1.95 for corn, or $1.65 1/2 in ACRE).

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