CONSIDER ACRE’S POTENTIAL

In today’s volatile world of production agriculture, cash may be king but profitability is the kingdom. Managing price risk today is more demanding and requires producers to make decisions that may seem costly. Yet when producers weigh the cost and risk protection, a program’s potential contribution to profitability must be a decision key. Such it is with the ACRE program, whose sign-up deadline for 2010 is fast approaching on June 1, 2010.

 

I have heard producers say that ACRE is just too hard to understand, and I understand that. There are several moving parts to the ACRE program and not all producers may need the protection that ACRE provides. However, even the most risk adverse operations should look at the potential financial and risk management benefits of ACRE.

 

While ACRE may seem to be complicated and hard to understand, the decision to participate in the program is not. Broken down into its simplest components: (1) If you believe that today’s corn and soybean prices (and revenues) will increase between now and the end of the marketing year, the Direct and Counter Cyclical (DCP) program is for you. (2) If you believe that corn and soybean prices (and revenues) will be lower between now and the end of the marketing year, explore ACRE as a revenue risk management tool.

 

ACRE is a “revenue-based” protection program. This means that both yield and price can trigger a payment in corn or soybeans. The DCP program is a price based program and payments are triggered when corn prices fall below $2.35 per bushel and soybean prices fall below $5.36 per bushel. For the 2009 crop year, ACRE protected against corn revenues falling below $635.61 per acre and soybean revenues falling below $456.32 per acre.  The 2010 revenue guarantees will be close to these levels.

 

So what does ACRE have that DCP does not? ACRE has the potential to cover revenue shortfalls due to low commodity prices or crop yields. ACRE triggers payments at a much higher level than the DCP. Currently, market forecasters estimate that in Iowa ACRE payments for corn could begin when the marketing year average price falls below $3.49 per bushel and soybean prices fall below

$9.03 per bushel given our 2009 yields. So the ACRE program protects revenues at significantly higher prices than the DCP program. For 2009, ACRE payments will go to Oklahoma wheat producers due to low yields and Illinois corn producers due to lower prices and average yields. ACRE provides higher price protection and includes yield protection, where DCP does not. ACRE does have a cost, 20% of your direct payment. In Iowa this typically means the producer is giving up about $5.73 per acre on corn and $2.71 per acre on soybeans in direct payments. A small cost when you compare the potential revenue guarantee and income protection with ACRE.

 

Whether or not you sign up for ACRE, you must sign up for the 2010 DCP program, which has the same deadline, June 1, 2010.

 

If you need additional assistance with your decision to sign up for the ACRE program, help is available. Feel free to call or e-mail me at (641) 673-5841 or wellsjb@iastate.edu.

Or you can use the ACRE calculator available on Ag Decision Maker at: http://www.extension.iastate.edu/agdm/crops/html/a1-45.html  and click on the calculator icon.