Average Crop Revenue Program

One of the new wrinkles of the Senate farm bill is the Average Crop Revenue Program. Sen Harkin's office prepared this backgrounder about the program,

ACR gives producers an option, beginning in the 2010 crop year, to choose between a state level revenue protection program or remain in the traditional farm program. This new approach is similar to the Durbin-Brown proposal and that of the Iowa and National Corn Growers. The optional program better allows producers to manage their farm’s risk in today’s uncertain and evolving farm environment. This program makes good fiscal sense too as it can save $3 to $3.5 billion over 5 years.


AN OPTION FOR PRODUCERS
AVERAGE CROP REVENUE (ACR) PROGRAM
The Average Crop Revenue Program
Provides farmers the choice, beginning with the 2010 crop year, to participate in a revenue protection program or to remain in the traditional farm program. The decision would be made each year by individual farm and would apply to all covered commodities on the farm. The optional Average Crop Revenue (ACR) program is similar to the Durbin-Brown bill (S.1872). ACR doesn’t cost more to the federal budget, but it will provide better income protection for many farmers.
How does ACR work?
This optional program would provide participating producers a fixed payment of $15 an acre on the lesser of either the total crop base acres on the farm or the 2002-2007 average of acres planted to all covered commodities. The starting point for ACR is state level revenue for each commodity. The revenue component would generate payments on a crop-specific basis whenever average per-acre revenue at the state level falls below the per-acre state guarantee. The state-level guarantee equals 90% of the product of expected state average yield and the three-year moving average (including the current year) of the pre-planting price used to calculate coverage for revenue insurance products in the Federal crop insurance program.
After harvest, USDA would calculate the actual state revenue using the harvest price for the commodity under the revenue insurance products and the actual state yield per planted acre. If the actual state revenue is less than the state-level guarantee, producers would receive a payment equal to 90 percent of the difference adjusted for each producer’s average APH yield in relation to the state yield.
Why would a farmer choose to participate in ACR?
• Better protection for farmers because their income depends on yields and price—crop revenue. This approach fixes a hole in existing programs that just covers low prices.
• More adaptive to market conditions than current farm programs. Unforeseen declines in current commodity prices can lead to significant declines in producer income without an effective safety net. In contrast, ACR uses a rolling average of futures prices to set revenue guarantees. Thus, ACR will provide better protection to farmers because it responds to market conditions--providing protection across a range of prices rather than a fixed target price, as is currently the case.
• More efficient crop insurance because ACR integrates individual farm insurance coverage and state-level revenue protection into a comprehensive program. The individual farm insurance policy is thus more cost effective, allowing farmers to purchase higher coverage levels at a lower cost.
Program Summary and Example
Per-acre State Revenue Target = (Trend yield) x (3-year revenue pre-planting price) x 90%
Per-acre Actual State Revenue = (Actual state yield ) x (Harvest price)
Revenue Portion State revenue target Acres Ratio of Farmer’s
of ACR = minus x planted x production history to x 90%
for a Farm actual state revenue to the crop state expected yield Prepared by the Majority Staff of the Senate Committee on Agriculture, Nutrition and Forestry October 17, 2007
ACR Fixed Payment = $15.00 x (covered acres)
Covered acres are the lesser of base acres or acres planted to all covered commodities 2002-2007)
Corn Average Crop Revenue Example
Fixed Portion = $15.00 x 500 acres = $7,500.00
Crop Insurance Indemnity = $18.00 x 500 = $9,000.00
Revenue Portion = ($465.75 - $437.48) x 500 acres x 145/150 x 90% = $12,299.63
Revenue Portion to Crop Insurance Provider = $9,000.00
Total ACR payment to Producer = $7,500.00 + ($12,299.63 - $9,000.00) = $10,799.63
Assumptions:
Acres covered = 500
Acres planted to corn = 500
Expected state trend yield = 150 bushels/acre
Pre-planting price = $3.45/bushel
Actual state yield = 153.5 bushels/acre
Harvest price = $2.85/bushel
Actual production history (APH) yield = 145 bushels/acre
Crop insurance indemnity = $18.00/acre
State expected yield is the state’s linear regression trend yield per planted acre for 1980-2006 crops. If a trend yield cannot be established for a state, yields in similar states are used.
Revenue pre-planting price equals the average of the current and the past two year’s Federal Crop Insurance pre-planting prices. Revenue pre-planting price