1. Allee Demonstration Farm, 50th Anniversary Field Day
ACRE
Chad Hart
Allee Demonstration Farm, 50th Anniversary Field Day
Newell, Iowa
September 16, 2008
Department of Economics 1

2. Average Crop Revenue Election (ACRE)
ACRE is a revenue-based counter-cyclical payment program
Based on state and farm-level yields per planted acre and national prices
Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE
There are still some details to be worked out about ACRE (stay tuned)

3. Farmer Choice
Starting in 2009, producers will be given the option of choosing ACRE or not
Can choose to start ACRE in 2009, 2010, or beyond
Once you’re in ACRE, you stay in ACRE until the next farm bill
If you sign up for ACRE, you must do so for all eligible crops
Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

4. ACRE Settings
Total acres eligible for ACRE payments limited to total number of base acres on the farm
Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded

5. Loan Rates under ACRE Current Loan Rates Corn $1.365 Soybeans $3.50

6. Average Direct Payments Per Payment Acre
Crop
Current Program
ACRE
Difference
Corn
28.67
22.94
5.73
Soybeans
13.55
10.84
2.71

7. ACRE
Program has state and farm trigger levels, both must be met before payments are made
Expected state and farm yield based on 5 year Olympic average yields per planted acre
ACRE price guarantee is the 2 year average of the national season-average price

8. ACRE Set-up for Iowa Corn
Year
Yield per Planted Acre
(bu./acre)
2004
176.7
2005
168.9
2006
162.7
2007
166.8
2008
158.2
Olympic Average
166.1
Year
Season-average Price ($/bu.)
2007
4.20
2008
5.50
Average
4.85
Please note the years used in the price average is under debate and may change
The 2008 yield and price are USDA’s September 2008 estimate.
So the expected state yield would be bushels per acre and the ACRE price guarantee would be $4.85 per bushel.

9. ACRE Structure
ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield
For our example, the ACRE revenue guarantee is 90% * bu./acre * $4.85/bu.
$725.03/acre
ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre

10. ACRE Structure
ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium
Let’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2008 (so far)
166.1 bu./acre * $4.85/bu. + $22.77/acre
$828.36/acre

11. ACRE Payment Triggers
ACRE actual farm revenue = Max(Season-average price, Loan rate) * Actual farm yield per planted acre
Given our example, ACRE payments are triggered when ACRE actual revenue is below $725.03/acre and ACRE actual farm revenue is below $828.36/acre

12. ACRE Payments
Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)
Payments made on 83.3% of planted/base acres in , 85% in 2012
ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

13. ACRE Payments
Payment rate = Min($ – ACRE actual revenue, $181.26)
So the maximum per acre payment is $ in our example

14. ACRE Payment Timing
Payments can begin as soon as practicable possible after the end of the marketing year
So 2009 ACRE payments could start to be paid out in October 2010
There are no provisions for advance payments

15. ACRE Payments
No ACRE payments
ACRE pays out

16. ACRE vs. CCP CCP pays out No CCP payments No ACRE payments
ACRE pays out

17. ACRE Prices
One of the biggest decisions yet to be made is on the prices in the ACRE price average
Senator Harkin has indicated Congress intended 2007 and 2008 crop year prices
USDA is looking at some options, including using 2006 and 2007 crop year prices

18. How Much Difference Does It Make?
Using 2007 and 2008 Crop Year Prices
Using 2006 and 2007 Crop Year Prices
ACRE Price
$4.85/bu.
$3.62/bu.
ACRE Revenue Guarantee
$725.03/acre
$541.15/acre
ACRE Farm Trigger
$828.36/acre
$624.06/acre
ACRE Maximum Payment
$181.26/acre
$135.29/acre

19. Looking Beyond 2009
The ACRE revenue guarantee is updated each year using the same rules
5 year Olympic average for yields
2 year average for prices
But the ACRE revenue guarantee can not change by more than 10 percent (up or down) from year to year
So if the 2009 ACRE revenue guarantee is $725.03, then the 2010 ACRE revenue guarantee must be between $ and $797.53

20. Farmer’s Choice In deciding about ACRE, farmers must weigh:
The loss of 20% of their direct payments, a 30% drop in the marketing loan rate, and no access to CCP payments versus
The potential for payments under ACRE

21. Comparing Program Parameters
For Iowa Corn
Under the current CCP program
CCP Yield Average = bushels per acre
CCP Effective Target Price = $2.35/bushel
In our example, for ACRE
ACRE Yield Guarantee = bushels per acre
ACRE Price Guarantee = $4.85/bushel
20% of average Iowa corn direct payment = $6.50 per acre

22. Factors to Consider ACRE looks more attractive if:
USDA uses 2007 and 2008 prices for average
You think prices will fall in the future, but stay above the current loan rates
Markets continue to show higher price volatilities

23. Factors to Consider Current programs look more attractive if:
USDA uses 2006 and 2007 prices for average
You think prices will rise in the future
Potentially no ACRE payments combined with cut in direct payments

24. You Don’t Have to Decide Today
ACRE signup will not be for a while, probably next spring at the earliest
Once the ACRE rules are finalized, there will be a number of decision tools available to help producers
Preliminary ACRE tools are available at:

25. Thanks for your time!
Any questions?