New federal farm program off to slow start

A voluntary program seen as the first step in reforming federal farm policy is getting a cool response from farmers.

Its full name is a mouthful - the Average Crop Revenue Election. Most people call it ACRE and the goal is to tie farm payments more directly to farm income.

Some farmers are wary of the program because they would have to give up traditional direct payments from the federal government in favor of an income guarantee. That's in addition to a four year commitment required by the new program.

The traditional farm program pays farmers in a couple of ways.

They get a direct payment based on the number of acres they farm. They also get payments that kick in if crop prices fall below a government set target.

A complicated formula

Here's how NDSU Farm Management Specialist Andy Swenson explains the ACRE program formula.

Take the last five years statewide average yield for a crop. Then throw out high and low number which gives you an Olympic average. Multiply that number by the average of the last two years national market price for the crop. Multiply that number by .90 since ACRE guarantees 90 percent of state average revenue. If farm income falls below that number, ACRE pays the difference, up to 25 percent of the guaranteed revenue.

Here's how it might play out for a Minnesota farmer: The five year average yield for corn is 161 bushels per acre. The average national price for the last two years is $4.05. That equals $652.05/acre. Multiply by .90 and the per acre state revenue is $586.84/acre.

Let's pretend this year the statewide average corn yield falls to 158 bushels per acre and and average national price is $3.50. That's revenue of $497.70/acre, or $89.14 below the state revenue baseline of $586.84.

If an individual farmers income drops below average this year, the farmer is eligible for a payment of $89.14/acre.

If the yield is lower or the price falls more the payment gets bigger, but the payment is capped at 25 percent of the revenue baseline, so the most a farmer would be paid would be $146.71/acre.

Swenson has written a computer program that enables farmers see how the ACRE program would work for their farm.

Long-term commitment

That's critical, because farmers who sign up now are locked in for four years.

Swenson said that means they need to guess what crop prices and yields will be for the next four years.

"One of the things farmers are struggling with is the complexity of calculating what these ACRE payments would be," he said. "The direct payments are a known. We know to the penny what those are going to be. So you're going to give away a bird in the hand for two or three or four in the bush."

On the other hand, Swenson said, ACRE provides a better safety net if there's a crop disaster. A farmer who has a crop failure would likely get a much larger payment under the ACRE program.

"The bottom line is you won't know if you made the right decision until it's all over with."

It appears confusion and bureaucracy might be conspiring to keep farmers from taking a serious look at the ACRE program.

Betsy Jenson, who farms with her husband in northwestern Minnesota also teaches farm management classes and is just starting to take a serious look at ACRE.

She said USDA was late in getting the rules written, and the program is confusing. But on her farm, the wheat crop has been great and prices have been high the past couple of years.

"So there is the good potential that if we even have an average wheat crop in 2009 and prices go down a little bit we could trigger an ACRE payment," Jenson said. "But I'll be the first to admit I didn't pay much attention to it for quite awhile. They didn't have the details ready in time, the spreadsheets are confusing, you have to make a lot of assumptions when you fill out those spreadsheets."

Jenson said farmers need to crunch lots of numbers to understand how the new program might work for them.

There's no concensus even among the experts. Swenson said he would sign up for the ACRE program, but his colleague just down the hall isn't convinced.

Farm Management Specialist Dwight Aakre says there's potential for the ACRE program to pay off big for farmers, but it's a big gamble.

"The fact that we're coming off the two highest prices years in history, that's the best you can ask for in terms of a starting point," Aakre said. "But I think just the fact there's so many unknowns at the time you enroll, that's scaring a lot of people away. The bottom line is you won't know if you made the right decision until it's all over with."

So far, USDA says of the 1.3 million farmers eligible for ACRE, only about 1,000 have signed up for the program. The Department of Agriculture has extended the program deadline to August 14 in an effort to get more farmers signed up.

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