Average Crop Revenue Election ACRE Program

1. Average Crop Revenue ElectionACRE Program Ron Haugen/Dwight Aakre Farm Management Specialists February 2010

2. Producers may elect to enroll in the ACRE program in place of the counter-cyclical payment program • Optional - sign-up deadline - Aug 14 • By farm unit • May enroll in 2009, 2010, 2011, or 2012 • Cost to participate in ACRE – 20% of all direct payments • Not eligible for counter-cyclical payments • Loan rates reduced by 30% • ACRE payments are by individual crop

3. ACRE vs Counter-CyclicalPayment Program • ACRE is revenue based (yield X price) • ACRE payments are paid on planted acres • Counter-cyclical payments are determined by price only • C-C payments are paid on base acres

4. Direct Payment Rates

5. Target Prices for Counter-cyclical Payments

6. Counter-Cyclical (C-C) Payment Program No payment until national average price falls below the effective target price (target minus DP) No cost (no loss of DP or reduced loan rates)

7. Counter-Cyclical (C-C) Payment Program - 2009

8. Average Crop Revenue Election (ACRE) • ACRE is optional; producers must elect to participate • Available beginning with 2009 crop • ACRE election stays with the farm even if the operator changes • Must submit 5 prior years and current year production records

9. Average Crop Revenue Election (ACRE) Program In general, revenue considers yields and prices • Yields based on planted acreage of a crop • Price based on the National Average Market Price • Historical Prices: Simple average of 2 previous years • Actual prices received by the producers are not used. Other information considered: National Loan Rates and the Crop Insurance Premiums paid for the farm.

10. ACRE Program Parameters • The National Office will provide most of the information needed for the ACRE Program at: • www.fsa.usda.gov/dcp • State ACRE Guarantees • Benchmark State Yields • ACRE Guarantee Prices • Data to calculate the Preliminary Benchmark Farm Yields • National Average Market Prices • Actual State Yields

11. ACRE vs DCP • Will ACRE payments offset loss of 20% of direct payments? (this is the pertinent question) • Will there be any counter-cyclical payments? (not likely) • Will ACRE payments offset counter-cyclical payments? (almost certain)

12. ACRE consists of: • 20 percent reduction in direct payments • 30 percent reduction in marketing loan rates • ACRE revenue protection payments • Payments are made on acres planted and considered planted – not base acres • Maximum payment acres cannot exceed total base acres

13. ACRE payment to a farm equals state revenue guarantee minus state actual revenue x 83.3% (85%-2012) of acres planted x farm benchmark yield ÷ by state benchmark yield

14. ACRE state revenue guarantee equals: state yield (5-year Olympic average) X price guarantee (most recent 2 year average U.S. price) X 90 percent Guarantee can not change more than 10 percent per year.

15. ACRE Eligibility • Farm’s actual revenue must be less than the farm’s benchmark revenue • Actual revenue is farm’s yield this year times U.S. price • Benchmark revenue is farm’s 5-year Olympic average yield times ACRE guarantee price plus per acre crop insurance premium

16. Average Crop Revenue Election (ACRE) Program Beginning in 2009 Two Triggers must be met before Payments can be Issued 1. STATE TRIGGER must exceed +/- 10% from preceding year

17. Average Crop Revenue Election (ACRE) Program Beginning in 2009 (continued) Two Triggers must be met before Payments can be Issued 2. FARM TRIGGER must exceed

18. Average Crop Revenue Election (ACRE) Program Beginning in 2009 (continued) Calculation of a Farm’s Payment FARM PAYMENT = 83.3% of a farm’s planted/considered planted acres for 2009-11; 85% in 2012 times (farm’s expected yield divided by State benchmark yield) times minus Lesser of: times

19. ACRE Payment Limitations • Direct payments$40,000 minus an amount equal to 20 percent reduction in direct payments • ACRE revenue payments$65,000 plus an amount equal to 20 percent reduction in direct payments

20. DCP vs. ACRE Program Payment Limitation

21. Average Crop Revenue Election (ACRE) Program • ACRE payments are issued if there are revenue reductions for the State and the farm, as determined by the State and Farm “triggers.” • Both triggers must be met to issue payments: • State Trigger: 90% of State’s Historical Revenue must exceed Current year state revenue • Farm Trigger: Farm’s Historical Revenue must exceed Current year farm Revenue

22. Wheat Example

23. Wheat Example

24. Reductions if Enrolled in ACRE ACRE will reduce your commodity loan rates for production off that farm by 30% Loan rates for production from a farm enrolled in ACRE: Corn - $1.365 / bu. Soybeans - $3.416 / bu. Wheat - $2.135 / bu. Note: The PCP will not be adjusted, this means market gain and LDPs are impacted by this decision.

25. Benchmark Farm Yield • Benchmark Farm Yield is used for the farm trigger determination and the payment calculation. The higher the Benchmark Farm Yield: • the more likely the farm trigger will be met • the higher the payment • Each planted and considered planted covered commodity crop or peanuts on the farm will have a preliminary Benchmark Farm Yield equal to an “Olympic” average of 95% of each year’s ACRE County Yield (ACY) • “Olympic” average: Eliminate the high and low values, and average the remaining values

26. Benchmark Farm Yield • The farm level benchmark test will not trigger an ACRE payment, it can only prevent a payment

27. Benchmark Farm Yield • Producers have two options when establishing the Benchmark Farm Yield: • accept the preliminary Benchmark Farm Yield which will fill each year of the database with the 95% value • certify farm yields for any or all of the database years (five previous years) and have the Benchmark Farm Yield calculated on this data • Yields must reflect total production on the farm divided by the total planted and prevented planted acreage • Yields prior to a break in continuity will not be used.

28. Benchmark Farm Yield • Benchmark Farm Yield – acceptable records if requested by FSA to support the yields certified on form FSA-658 by the production report date, include: • Acceptable/verifiable production evidence for commodities sold, stored, or disposed of commercially off the farm • Warehouse receipts • Warehouse ledgers • Load Summaries • Settlement Sheets • RMA Records – loss and APH data base actual yields. • Marketing Assistance Loan/LDP

29. Benchmark Farm Yield • preliminary Benchmark Farm Yield is equal to an “Olympic” average of 95% of each year’s ACRE County Yield (ACY) Example ---- ---- 124 76 86 114 105 102 Calculation: (86 + 114 + 105) / 3 = 102

30. Benchmark Farm Yield • Producers may certify yields for the five previous years to update the preliminary Benchmark Farm Yield by the production report date • Yields may only be used from the most recent break in continuity, excluding zero planted years • Missing or incomplete production years, zero planted years, or years prior to the break in continuity will be “plugged” with the 95% yield for that year. ---- ---- 124 90 100 140 0 105 100% Failed, Zero Yield Did not certify a yield

31. Benchmark Farm Yield Producer yields may only be used from the most recent break in continuity, excluding zero planted years “Plug” yields (95% of that year’s ACRE County Yield) will be entered into the data base for ineligible or missing years. Example of a Break in Continuity and a Zero Planted Year: ---- ---- 160 100 112 182 169 147 Zero Planted Did not certify a yield Break in Continuity

32. ACRE Payment Acreage Limitation Crops have to be prioritized if: • more than one coveredcommodity crop or peanuts crop is planted or considered planted • the potential payment acres for all crops exceeds the total base acres (total planted and considered planted acreage of the crops exceed 120% of the total base acreage) Producers must designate crop priority order for the farm by the end of the contract period (September 30) • Designation is prior to trigger determinations • If the crop priority order is not designated, the payment acreage will be prorated for each crop, including crops that do not “trigger.”

33. ACRE Payment Acreage Limitation Example: The sum of the potential Payment Acreage for all crops cannot exceed the sum of the base acres on the farm. Without regard to trigger. 666.4 Exceeds total base (650.0). Will be reduced by priority. 83.3 Maximum Payment Acres

34. ACRE Payment Acreage Limitation Example Example: Crop Priority • 3 crops • 2 eligible • Payment acres exceed base acres Crop Priority Payment Acres Remaining Acres 700 – 666.4 = 33.6 1 666.4 33.6 – 33.6 = 0 2 33.6 0 3 Won’t get paid due to trigger! 700.0 Maximum Payment Acres

35. ACRE Payment Acreage Limitation Example Same Example: Acreage Proration Crop Factor Won’t get paid due to trigger! Payment Acres (Crop factor x total base) 0.8000 x 700.0 = 560.0 0.1000 x 700.0 = 70.0 0.1000 x 700.0 = 70.0 700.0 Crop Factor = Crop Acres (planted/prev. plt) divided by Total Crop Acres (planted/prev. plt)

36. Preliminary (P) and Final (F) ACRE Guarantee Prices and 2009/10 Forecast World Agricultural Supply and Demand Estimates and Internal USDA Estimates as of July 10, 2009.

37. ACRE Marketing Year

38. Possibility of ACRE Payments for North Dakota Producers in 2009 • Wheat – likely, due to price • Soybeans – possibly, will take both price and yields to drop • Corn – likely if below normal temps continue • Sunflowers – likely, price projected down 15 to 20% • Barley – possibly, price tied to corn, yield? • Flax – likely because of price As of conditions on July 10, 2009

39. Any Questions?