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Average Crop Revenue Election (ACRE)

AgDM Newsletter
October 2008

Under the new Food, Conservation, and Energy Act of 2008 producers of USDA program crops such as soybeans, wheat, and corn have the option to enroll in a new counter-cyclical revenue plan. The program is called Average Crop Revenue Election, or ACRE for short. It is being offered as an alternative to the counter-cyclical payment option under the 2003 farm bill, but is based on gross revenue (commodity price times yield) instead of price only.

ACRE uses a combination of state average yields, farm level yields, and the national marketing year price to determine levels of revenue guarantees and payments for each covered commodity. There are two revenue triggers that have to be met before any ACRE payments are generated, one at the state level and one at the farm level. To trigger a payment under ACRE the “actual” revenue for both the state and the farm must be less than their corresponding guarantees. The actual revenues are the current marketing year price multiplied by the state average yield and the actual farm level yield, respectively. If both triggers are reached, the payment to the farm will be the difference between the state guarantee and the state actual revenue.

Producers who sign up for ACRE will forfeit 20 percent of their current direct payments through 2012. They also will give up any potential price counter-cyclical payments, and the loan rate used to calculate their loan deficiency payments or marketing loans will be lowered by 30 percent. The loss of potential CCPs and LDPs may not be too critical, because if market prices fall enough to trigger those payments it is likely that the ACRE payment will be at least as large.

Although the ACRE program may resemble crop revenue insurance, there are some important differences. The ACRE guarantees are based on longer term average prices and yields, so they will not fluctuate as much from year to year as crop insurance guarantees. In fact, ACRE regulations state that the guarantees cannot increase nor decrease more than 10 percent each year. This helps accomplish the fundamental goal of ACRE, which is to stabilize gross revenues over the next 4 years.

On the other hand, one of the two ACRE guarantees and the size of the payment are based on state level yields, not farm yields like most crop insurance policies. ACRE does not protect a farmer who has a poor production year when the state as a whole does not. In addition, ACRE revenue uses the marketing year cash price to calculate actual revenue while crop revenue insurance uses futures prices at harvest time. So, while ACRE payments can be a useful risk management tool for sharply falling prices or widespread yield losses, they do not replace farm level crop insurance protection.

More information is available in Information File A1-45, Average Crop Revenue Election (ACRE).

 

William Edwards, retired economist. Questions?