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USDA backs off using a cheaper baseline for ACRE program

USDA's announcement of the signup for 2009 farm programs has a nugget of very good news. It won't use market prices for 2006 and 2007 to calculate the new Average Crop Revenue Election (ACRE) program for 2009. It will use '07 and '08. The Department had considered using the '06 and '07 prices, which had the potential to lower federal spending on the new program.

The late-Friday announcement was welcomed by Democrats on the Senate Ag Committee, including its chairman, Tom Harkin of Iowa, and Sherrod Brown, of Ohio, who promoted the concept of ACRE when the farm bill was written earlier this year.

"Ohio's family farmers deserve protection when prices or yields drop—especially when production costs are as high as they are now," said Brown. "I'm glad USDA chose to implement the ACRE program in a way that will give farmers the protection they deserve."


Equally pleased was South Dakota Republican Senator John Thune, who said that using '06 and '07 "would have resulted in much lower baseline prices and an ineffective safety net for farmers participating in ACRE."

The average USDA price for corn, for example, was $3.04 a bushel in 2006 and $4.20 for the 2007 crop. For 2008, the corn marketing year has barely started, beginning in September. But the latest USDA Supply and Demand report estimates a price range of $3.85 to $4.35, with $4 the midrange. That's not nearly as attractive as USDA's expected price of about $6 last July. But it's still better than throwing the 2006 average of $3.04 into the baseline.

Laurel, Nebraska farmer Bob Dickey, president of the National Corn Growers Association, says his group was pleased. "This is a very important piece of the 2008 farm bill to NCGA members, especially during a time of uncertainty and volatile commodity markets."

According to USDA, farmers will have a chance to sign up for ACRE this spring. You can sign up for the exisiting Direct and Counter-cyclical Program (DCP) starting today through June 1 of this year.

Farmers can sign up for DCP now and opt in to ACRE next spring, or they can just wait until spring to do both. You must be eligible for DCP to enroll in ACRE. The ACRE program has a price. Farmers who opt into ACRE give up 20% of direct payments and take a 30% cut in loan rates for program crops. One you're enrolled in ACRE, you can't opt out of the program before the farm bill ends in 2012. And you don't have to enroll in ACRE this year. You could wait until the 2012 crop if you like.

Earlier this year, ACRE looked very attractive. When prices were higher, Iowa State University economists estimated that ACRE payments could reach about $200 an acre for corn, if prices for the 2009 crop dropped to an average of about $3.

But it's difficult to guess whether payments will kick in. The average prices used by USDA to help calculate ACRE payments are based on the marketing year average. So the 2008 average won't be known until sometime next fall, well after signup this spring. And USDA's determination of any payments on the 2009 crop wouldn't be known until the fall of 2010.

Here's how the program works, according to USDA's Friday announcement:

The optional ACRE Program provides a safety net based on State revenue losses and acts in place of the price-based safety net of counter-cyclical payments under DCP. A farm's payment is based on a revenue guarantee calculated using a 5-year average state yield and the most recent 2-year national price for each eligible commodity. For the 2009 crop, the 2-year price average will be based on the 2007 and 2008 crop years.

An ACRE payment is issued when both the State and the farm have incurred a revenue loss. The payment is based on 83.3% (85% in 2012) of the farm's planted acres times the difference between the State ACRE guarantee and the State revenue times the ratio of the farm's yield divided by the State expected yield. The total number of planted acres for which a producer may receive ACRE payments may not exceed the total base on the farm.

USDA's announcement of the signup for 2009 farm programs has a nugget of very good news. It won't use market prices for 2006 and 2007 to calculate the new Average Crop Revenue Election (ACRE) program for 2009. It will use '07 and '08. The Department had considered using the '06 and '07 prices, which had the potential to lower federal spending on the new program.

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