Cotton farmers have put their pencils to it, but after the numbers are crunched, the Average Crop Revenue Election (ACRE) payment option, included in the 2008 farm bill, doesn’t make economic sense.
For cotton, it may be as close to a no-brainer as one gets when trying to understand government programs.
For grain farmers, the decision will be a bit more complicated and may depend on crop diversity and historical farm and state yield averages.
“It will not work for my operation,” says Barry Evans, Kress, Texas, cotton and grain sorghum farmer and president of Plains Cotton Growers, Inc. “With cotton acreage, it’s just not a good fit.”
Rickey Bearden, Plains, Texas, cotton, peanut and wheat producer, agrees. “I don’t think it’s going to work for cotton,” he says.
“The market loan is still the best option for cotton. That program works well the way it is. I don’t think we can do anything else. ACRE just doesn’t fit us.” He says commodity prices make a big difference in how well the program works, too.
Evans says ACRE is at a disadvantage in a big state since payments are based on state yields. “The Lower Rio Grande Valley could have a good crop and we could have a bad one in West Texas and that would affect payments,” he says.
They’ve both looked at the option. “I’ve run the numbers,” Bearden says, “and ACRE just doesn’t work.”
“For someone with all grain, ACRE could be good,” Evans says. “And it might fit some cotton farmers who also plant grain crops. But I don’t think a lot of cotton farmers will sign up.”
Evans has followed a 50 percent cotton, 50 percent grain sorghum rotation for years, but thought about reworking that in 2009 to cut back on cotton and add corn to the mix. “I thought about planting half as much cotton and planting corn but the 50/50 split still seems the best. It all goes back to our area being suited to cotton and grain sorghum.”
Bearden says ACRE has a better fit in the Midwest and he commends Congress for “realizing that not every program fits every farmer. ACRE may fit corn better and providing this option is a good idea. With the run-up in grain markets, it will help Midwest grain farmers. This is a step forward.”
They also say the ACRE requirement that once a farmer signs up he’s committed for the life of the farm bill may discourage participation.
Louise Rigdon, who farms with her husband Bill in Kay County, Okla., says ACRE is not a good option for their soybean, grain sorghum and wheat farm. “We’re just too diverse,” she says. “We looked at it, but we will sign up for the regular DCP program.”
She says Kay County, just below the Kansas state line, is “probably the most diverse agriculture county in Oklahoma.”
She says ACRE still has too many unknowns for farmers to feel comfortable with it, especially since after sign-up producers are committed to the program through the life of the current farm bill.
“The U.S. government is the only one allowed to change its mind,” she says. “Individuals cannot.”
Rigdon says their 2009 summer crop mix is still uncertain as they wait for final word on cropping options following failed wheat acreage.
Hannah Lipps, communications director for the National Sorghum Producers in Lubbock, says members remain uncertain about ACRE.
“We are not sure what to expect from sorghum growers. Many of them have base in other crops and if they have cotton base, it’s highly unlikely they will want to sign up for ACRE because they have to consider the 30 percent reduction in loan rates. Overall, our guesstimate is that maybe 25 percent of our producers might move to ACRE.”
She says the number is low for two reasons: “Our large percentage of cotton base, and this first year, we anticipate a lot of hesitation about losing those direct, guaranteed program payments. This is amplified by the fact that ACRE can’t be reversed — so they are in until the next farm bill.”
Lipps says the sign-up extension, to Aug. 14, gives growers time to run the numbers. “With the deadline now in August, people should be able to have a really, really good idea of whether or not this is going to pay out before they have to commit.”
The situation could be different for wheat farmers, according to Jody Campiche, Oklahoma State University Extension economist at Stillwater.
“For the 2009 crop, Oklahoma wheat producers could benefit from the ACRE program,” Campiche says. “The FSA benchmark wheat yield for Oklahoma is 31.4 bushels per acre and the ACRE guarantee price is likely to be around $6.67. Since the 2009 ACRE sign-up deadline has been extended to Aug. 14, Oklahoma wheat producers will have a very good estimate of 2009 actual prices and yields. This means producers can make informed decisions about a potential 2009 ACRE payment.
“Right now, it looks like the 2009 U.S. market price could be below the ACRE guarantee price and due to the April freeze in Oklahoma, state and/or farm wheat yields may be lower than the benchmark yields,” she says. “This could be good news for farmers enrolled in the ACRE program. If actual yields and prices are below the benchmark levels, producers would receive a larger ACRE payment.”
But they still need to work the arithmetic.
“Producers have to consider the potential costs of enrolling in ACRE, mainly a 20 percent reduction in direct payments over the next four years,” Campiche says. “But it is quite possible that wheat producers could make up this four-year loss in direct payments with a large 2009 ACRE payment.”
But it’s not that simple.
“Wheat producers also need to consider the possibility of a Supplemental Revenue Assistance Program (SURE) disaster payment, assuming they are eligible. For every dollar received in ACRE payments, the SURE payment is reduced by 60 cents,” she says. “Farmers could receive a higher total payment from DCP and SURE than from ACRE and SURE. This could occur if the actual farm yield is quite a bit lower than the actual state yield, which could definitely happen if some parts of the state are hit harder than others.
“It is really important for producers to analyze their DCP/ACRE decision carefully,” Campiche says. “OSU Extension is providing an ACRE/SURE decision tool to assist Oklahoma producers with this decision.”
Bearden, who also grows peanuts, says ACRE likely will not appeal to many peanut producers, most of whom also plant cotton. He says since he knew ACRE would not work with his cotton operation, an analysis for peanuts would be futile.
A payment calculation work sheet that includes peanut and cotton acreage shows an advantage with the DCP program.
Joe Outlaw, professor, Extension economist and co-director of the Agriculture and Food Policy Center at Texas A&M, in presentations this spring explaining the new farm bill, said much of the 2008 farm bill commodity title remains “very close to previous programs. It continues direct payments, marketing loans, loan deficiency payments and the counter-cyclical payments.”
That set of programs is referred to as the DCP program. ACRE is the alternative.
Outlaw says ACRE requires a producer to agree to direct payment and loan rate reductions. The option begins with the 2009 crop year, but farmers do not have to sign-up this year. It is a one-time, irrevocable option and comes with a 20 percent reduction in direct payment rates and a 30 percent reduction in marketing loan guarantee and loan deficiency payments.
“The (ACRE) election is for all the crops grown on each Farm Service Agency farm number,” Outlaw says. “A farmer could choose to select ACRE for certain farms (FSA farm numbers) and not others. The bottom line is that producers will have to determine whether the loss in guaranteed support is more than made up by potential gain from ACRE.”
ACRE is a state-level program. The secretary of agriculture can make an ACRE payment on a farm for each crop year if: The actual state revenue for the crop is less than the ACRE program guarantee for the crop, and the actual farm revenue for the crop is less than the ACRE benchmark revenue.
Outlaw said for the 2010 through 2012 crop years the ACRE state revenue guarantee for a crop shall not be decreased or increased more than 10 percent from the guarantee for the preceding crop year.
With the extended sign-up deadline, farmers have time to review operations and determine which program works best. Several association Web sites have decision-making tools available, as do state Extension Service offices and the USDA.
The Agriculture and Food Policy Center has a decision aid that may help farmers select the right program. Log onto http://afpc.tamu.edu/models/acre/index.php for more information on the aid and for other links to help determine the best program for individual farm units.