What is in this article?:
- Farm-level trigger could bring higher ACRE sign-up
- Revenue Area Affects Expected Payments
- ACRE Payments Against Forgone Payments
- Model-based results show that switching from a state-level trigger for the ACRE program to a trigger closer to the farm level would generally increase expected payments, but the impact would vary by crop, region, and market price.
ACRE Payments Against Forgone Payments
Calculating the full effect of switching to a smaller ACRE trigger area also requires considering the value of payments that participating farmers are required to forgo to participate in ACRE. Producers enrolled in the program are ineligible to receive countercyclical payments and 20 percent of direct payments. Participating farmers also face a 30-percent reduction in marketing loan rates. These programs are based on legislatively fixed target prices, payment rates based on statutory formulas, and national average loan rates (with county-level adjustments). In contrast, ACRE benchmarks and guarantees shift to reflect recent prices and yields. As market prices rise, for example, ACRE guarantees increase, while the benefits of fixed target price and loan rate programs and the size of direct payments relative to ACRE payments decrease.
Researchers calculated the potential impact of switching the area trigger in terms of the change in the proportion of crop acres where expected ACRE payments would exceed forgone payments. Continuing the assumption that expected market prices are equal to the 2010 ACRE guarantee prices, switching the area trigger from the State to either a CRD or county-level trigger would not change the proportion of cotton and soybean acres where ACRE payments would exceed forgone payments.
Under this assumption, the soybean market price and ACRE guarantees would be so high relative to target prices, loan rates, and direct payment rates that expected ACRE payments would exceed forgone payments for all acres regardless of the area trigger used. In contrast, cotton prices would be so low that expected ACRE payments would not exceed forgone payments of any acres regardless of the area trigger. Switching the area trigger for rice also would make no difference because there is little revenue variability among different aggregate geographic areas. Expected ACRE payments would exceed forgone payments on only about 20 percent of long-grain rice acres and 100 percent of short/medium-grain rice acres.
The proportion of corn, wheat, and grain sorghum acres where ACRE payments would exceed payments forgone at the 2010 ACRE price levels would increase if a county trigger replaced a State trigger: 82 percent for a State trigger to 88 percent for a county trigger for corn, 32 to 54 percent for wheat, and 44 to 54 percent for grain sorghum.
If expected market prices are 20 percent below the 2010 ACRE guarantee prices, switching to a county trigger would reduce the proportion of acres where ACRE payments would exceed forgone payments for corn, wheat, grain sorghum, and rice. For soybeans and cotton, the results are identical at the higher and lower price levels: all soybean acres and none of the cotton acres would have ACRE payments above forgone payments.
While switching the area trigger for rice leads to little change in expected payments, the assumption of lower market prices makes ACRE less attractive: only about 4 percent of long-grain rice acres and about 68 percent of short/medium-grain rice acres would have ACRE payments greater than forgone payments, regardless of the area trigger. For corn, wheat, and grain sorghum, lower prices also would cause a decline in the proportions of acres where ACRE payments would exceed forgone payments, and switching the trigger from State to county would make a difference in the proportions of acres where ACRE payments exceed forgone payments. Under the lower price scenario, the proportion of corn acres where ACRE payments would exceed forgone payments would shift from 51 percent under the State trigger to 61 percent under the county trigger; for wheat, from 10 to 20 percent; and for grain sorghum, from 6 to 13 percent.
The analysis of expected payments relative to payments forgone under ACRE also illustrates more generally the effect of recent market prices on the attractiveness of a revenue program with guarantees that adjust with recent historical prices relative to the current direct payment and price-based programs. When recent historical prices are high relative to target prices, loan rates, and direct payment rates, as they have been for corn and soybeans, particularly since 2006, many producers could find a revenue program relatively more attractive. In contrast, when recent prices are relatively low, few producers would prefer the adjusting-revenue guarantee program.
While this analysis focuses on expected payments to provide some sense of the potential impact of a change in the area trigger on ACRE participation, the actual participation decisions of producers are more complex. Producers must consider a number of program requirements. ACRE participation applies to all crops on the farm for which ACRE is available, for example, and all landowners for the farm must agree in writing to enroll in ACRE. Participants trade direct payments, which are certain, for payments that depend on the variability of revenue. Finally, a farm may enroll in ACRE during any year covered by the 2008 Farm Act but must remain enrolled for the duration of the act (through 2012), so that expectations about prices in future years become critical.