January 9, 2009
On Jan. 8, 2008, an investment banker at Goldman Sachs predicted crude oil prices would top $200 a barrel by summer, then slip lower but remain well above $100 through 2011.
What looked smart then looks ridiculous now. Today, crude prices are far closer to zero than $200 and the spectacularly wrong investment banker, like the rest of his well-paid dodo buddies, is extinct.
Likewise, a year ago the Senate and House Ag committees were piecing together a much-delayed 2007 Farm Bill that Democratic leaders promised would not require one penny of new spending. Their “pay-go” pledge – if you can’t pay for it, you can’t go for it – seemed like sound budgeting and smart politics at the time.
Is it still?
Sound or smart, pay-go helped deliver the bill’s biggest new program, ACRE, or Average Crop Revenue Election. ACRE is an income support idea whose key selling point to Congress was budget savings, an estimated $1.6 billion over the previous law. That loot, in turn, funded other Farm Bill goodies like biofuel research.
Once the aggies had 1.6 billion reasons to back ACRE – there were others, but a billion-six was easily the biggest – it became part of the Farm Bill even though few in Congress could then or can now explain how it works, whether its cost estimate is accurate or how it compares to the more traditional price support program also included in the 2007 law.
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But, hey, comprehension never stopped Congress from acting and it certainly didn’t stop Congress from including ACRE in the Farm Bill. As such, the ACRE alternative is now law and farmers have until June 1 to enroll in either it or in an updated, although less attractive, version of the 2002 farm program.
Given the drop in commodity prices and the collapsing global economy since the Farm Bill passed last summer, is ACRE still good policy?
More importantly, is the key driver behind ACRE’s adoption, its $1.6 billion cost savings (if true), still relevant given the mockery the White House and Congress have made of federal spending since the Farm Bill’s enactment?
Most farmers cannot answer either question because most have not examined either ACRE or the updated price support program contained in the new law. When they finally do, they will discover that ACRE is very complex, isn’t a price support program at all and, as such, cannot be “gamed” regardless how sharp a marketer the person might be.
Here’s a thumbnail explanation of ACRE by ag attorney Anthony Schutz from his Oct. 15, 2007, post on http://aglaw.blogspot.com:
“Basically, ACRE payments are triggered when state revenue per acre falls below the target revenue for the state – what is called the ‘ACRE program guarantee.’ That trigger is not, however, complete until the farmer has an individual revenue shortfall as well. That shortfall occurs when the farmer’s actual revenue falls below the target revenue for that farmer – what is called the ‘ACRE farm revenue benchmark.'”
If not, here’s another take: ACRE is an enormous shift away from the generations-old price support farm policy that most farmers know as well as their children or grandchildren. It is a farm revenue program more akin to crop insurance than the loan and target schemes of Farm Bills gone by.
As such, you’re not going to understand which program is right for you over just two cups of coffee and some quick math on the back of an FSA envelope. This one’s gonna’ take some time.
The early January view of ACRE, however, is that it looks like a winner for corn growers. Then again, the investment banker looked like a winner last January, too.
© 2009 ag comm
Write to Alan Guebert at agcomm, 21673 Lago Dr., Delavan, IL 61734, or by email at email@example.com