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Will ACRE Work For Rice?
Alternative Option To Counter-Cyclical Program For 2009

By Michael E. Salassi print email

The 2008 Farm Bill (Food, Conservation and Energy Act of 2008) included an option for rice producers to continue with the standard counter-cyclical program or select the alternative Average Crop Revenue Election (ACRE) program option as part of their farm program sign-up.

While the counter-cyclical program is a price-based farm income safety net program, ACRE is a revenue-based option where program payments depend on crop yields as well as market prices. The ACRE program is a more complicated type of program, in terms of farm payment eligibility and payment rate determination.

The 2009 crop year will be the first opportunity that producers will have to sign up for this program. In order to give producers more time to understand how the program works and make a decision on whether to stay with the counter-cyclical or choose the ACRE program option, the USDA has extended the 2009 farm program sign-up deadline from June 1 to August 14.

ACRE program basics
The ACRE program sign-up begins with the 2009 crop year. A producer can enroll in the program in 2009 or any following year. However, once a decision is made to enroll in the ACRE program, all crops on the farm must be enrolled in the program and the farm must stay in the ACRE program through the end of the farm bill cycle, through the 2012 crop year.

Enrollment will be by FSA farm number. Producers can enroll one, several or all farms in the program. Offered as an alternative to the counter-cyclical program, enrollment in the ACRE program would require the farm to forego counter-cyclical payments.

In addition, farms enrolling in the ACRE program would have to agree to a 20 percent reduction in direct payments and a 30 percent reduction in the marketing assistance loan rate. For rice, this would mean the direct payment rate would be reduced from $2.35 per cwt. to $1.88 per cwt. and the marketing loan rate would be reduced from $6.50 per cwt. to $4.55 per cwt.

The payment limitation for direct program payments would also be reduced by 20 percent. ACRE program payments are tied to current crop plantings, with potential payments based on current year acreage, yield and price.

Payment triggers
Program payments under the ACRE program option will be determined by two crop-specific revenue triggers.

A state-level trigger compares current year rice revenue per acre to a recent historical average using state-level yields and national market prices. A similar trigger is determined at the farm level using farm specific yields and national market prices.

The state-level ACRE guarantee for rice will be calculated as 90 percent times the previous five-year Olympic average state rice yield per planted acre times the previous two-year national average rough rice price. The state-level trigger is met if the current year actual rice revenue per acre (actual state-level rice yield times the higher of the market price or 70 percent of the loan rate) is less than the state-level ACRE guarantee.

The farm-level ACRE trigger calculates a similar revenue comparison, except that farm-level rice yields are used. Both state-level and farm-level triggers have to be met in order for an ACRE payment to be made to a farm under this program.

If both program triggers are met, an ACRE payment would be made to the farm as the difference between the state-level guarantee and the actual state-level revenue. This payment is adjusted for farm-level yield differences from the state average and would be paid on 83.3 percent of actual planted acreage, as opposed to some percentage of rice base acreage as is done under the counter-cyclical program.

Considerations for rice producers
There are several important aspects that rice producers should consider in making the decision of whether to enroll in the ACRE program or stay with the counter-cyclical program.

First, although market prices have declined from their prior levels over the past couple years, they are still well above the level that would trigger a counter-cyclical payment. Rough rice prices would have to drop below $8.15 per cwt. to trigger a counter-cyclical payment and current 2009/10 marketing year average price projections of rough rice market price by USDA are in the $11.00 per cwt. range. However, it does appear that an ACRE payment would be triggered for the 2009 crop, due to the projected $2 to $3 per cwt. difference between the 2007/08 to 2008/09 average rough rice market prices and the projected price level for the 2009/10 rough rice marketing year.

A second important consideration for rice producers is the 20 percent required reduction in direct payments and 30 percent reduction in the loan rate. For program crops with relatively high production costs, such as rice and cotton, this is a serious disadvantage of the ACRE program.

There is no guarantee that in any given year ACRE payments would more than offset the reduction in direct payments. In fact, there is no guarantee that ACRE payments would be triggered in a year given certain price and production conditions. Furthermore, although world rice prices are relatively high at this time, should these prices decline over the next three to four years, then ACRE program participation could reduce or eliminate any potential loan deficiency payments.

Finally, and most importantly, the ACRE program increases the income risk that rice producers would face. The program payment is more complicated than the counter-cyclical program.

Changes in yield as well as market price can trigger or not trigger a payment. Both state-level and farm-level triggers must be met before an ACRE payment could be made. If the farm-level trigger is not met, a farm would not receive an ACRE payment even if the state-level trigger is met.

The LSU AgCenter has developed information that explains the ACRE program and how it would operate for rice production. This information includes an explanation of the ACRE program as well as a spreadsheet-based rice farm decision tool that producers can use to evaluate rice farm program payment options.

This information about ACRE is available on the LSU AgCenter Web page at www.lsuagcenter.com. Click on the “Rice” section, then “Publications” or contact the author.

Dr. Michael E. Salassi is a professor, Department of Agricultural Economics and Agribusiness, LSU AgCenter, Baton Rouge, La. Contact Dr. Salassi at (225) 578-2713 or msalassi@agcenter.lsu.edu.


HOTLINKS

LSU AgCenter farm decision tool Web site:
lsuagcenter.com/en/crops_livestock/crops/rice/Publications/

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