Is 2012 the year to try ACRE?

By Matt Reese

If farmers have not already, it is time to think about the enrolling in the Average Crop Revenue Election (ACRE) Program.

“We’re trying to talk to crop farmers now because when they get out to April and May, they will be busy,” said Chris Hurt, a Purdue University economist. “Sign up has to be by June 1 at the FSA office.”

Hurt said this might be the year for farmers to put some extra thought into ACRE.

“It is designed to float up and down as a safety net for the farmer. We have high prices now — the 2010 crop had record high prices for corn and beans. The 2011 crops beat those with new records. We now have two years of record high prices, which makes that revenue guarantee in ACRE very high,” Hurt said. “A second reason is that 2012 is the last year for ACRE under the farm program we have now. Some producers didn’t like the idea of losing 20% of their direct payments for the year they signed up and every subsequent year. This is the last year for ACRE program left at this point, so it is very low cost. There is going to be a lot of groaning out there — ‘I didn’t understand that the first time and now you want me to go back and look at that again.’ Yes. You need to be ready to sign up by June 1 because ACRE offers a huge amount of downside protection.”

In looking at the ACRE track record, Chris Bruynis, assistant professor and Ohio State University Extension Educator, said that ACRE has done what it was intended to do.

“Looking back, the question is, ‘Was it a good decision for those farmers that elected in previously?’ There are many ways to answer that question. From a risk management perspective, the answer is yes. The downside revenue protection that was provided was worth the approximate $4 per acre in reduced direct payments,” Bruynis said. “From a cash flow perspective, the answer is mostly no, except under certain circumstances, because the ACRE payments for wheat in 2009 and 2010 were not enough to offset the reduction in direct payments. Farmers are now into the fourth year and have the final opportunity to elect into ACRE provision.”

Bruynis agrees that ACRE could very well be the right fit for some farmers in Ohio this season based on the strong protection it will offer.

“Examining the numbers and price/yield assumptions, farmers can speculate on the probability of an ACRE payment being triggered in 2012 and if ACRE might be a good choice for them,” he said. “The guarantee price for 2012 will be the two-year average U.S. cash price from the marketing years for the 2010 and 2011 crops. Using the 2010 actual prices plus the USDA estimated price from January 31, 2012 for the 2011 crops, the 2012 ACRE price guarantee can be calculated.”

Bruynis estimates the price guarantee for 2012 corn to be $5.69 per acre and 2012 soybeans to be $11.50 per acre.

“Since ACRE is a revenue protection program, price is only half of the equation in determining the 2012 ACRE revenue guarantee,” he said. “The second half of the equation is the five-year Olympic average yield for each crop respectively.”

If 2012 yields are equal to the Olympic Averages used for ACRE, Bruynis said that the average U.S. corn prices would need to be below $3.99 before a payment would be made. Better crop yields would require a lower price for payments to be made and vice versa. In the same scenario, prices would need to fall below $10.27 for soybeans and $5.68 for wheat for payments to be made.

The current strong prices do not indicate much potential for ACRE payments in 2012, if yields are average or above. The ACRE program does, however, offer very strong downside protection for what could be very volatile marketing months ahead.

“The markets are fickle and can move quickly and unexpectedly at times. The ACRE payment is based on the average U.S. market price from harvest 2012 until harvest 2013, not what a farmer receives for his crop,” Bruynis said. “Although the markets look good today, you have no downside risk protection if they decide to decrease significantly. The approximate $4 per acre cost to enroll might still be a good risk reduction strategy for some operations.”