ERS Releases Report on ACRE Program Payments

USDA's Economic Research Service (ERS) has released a report on Average Crop Revenue Election (ACRE) program payments, first available to producers in 2009.

The ACRE Program "uses a combination of State- and farm-level guarantees that are determined from recent historic prices and yields."  The guarantees are "based on a 'moving' 2-year average of (national) market prices and 5-year Olympic averages  ... of State- and farm-level yields."  The payments "are triggered when both the farm and State revenues fall below guarantee levels at the end of the crop year."  Major differences with other commodity programs based on fixed target prices and loan rates include the "capability of ACRE guarantees to reflect recent prices and yields and to change over time."  The potential benefits for the ACRE program "are more pronounced for producers of corn, soybeans, and wheat, who can foresee high expected payments based on recent high prices."

The report "examines and simulates crop revenue variability for producers of four crops -- corn, soybeans, wheat and cotton -- and estimates potential ACRE payments from a broad range of possible outcomes."

The study found that the key "variables in determining crop revenue and ACRE payments are prices, yields, and their interactions, factors that differ across crops and regions."  In addition, the "effectiveness of the ACRE program in reducing risk, or variability of farm revenue for a crop, is strongly related to the correlation between the farm's revenue variability and variability in State average revenue."  The study also found that the  program is "ineffective in covering idiosyncratic risks [and] shortfalls on an individual farm that are uncorrelated with more widespread losses."

To read the ERS Report Summary, click here.
For access to the full Report, click here.

Posted: 09/21/2010