Farmers Should Enter Farm Program Gate with Eyes Wide Open

By Todd Jennison | February 09, 2010
This spring, farmers are not only watching their crops grow but may also be watching the mailbox for information about their farm program status.

The most recent national Food, Conservation and Energy Act has changed the way farmers apply for and receive farm program support from the federal government. Several programs have been modified to offer payments based on a more true-to-life equation of farm yields as well as liberalized how some payments are attributed.

Average Crop Revenue Election is a revenue-based counter-cyclical option that guarantees payments based on more recent historical prices and yields. In contrast, the traditional safety net program is based on commodity prices and a constant target price and loan rate.

An ACRE payment would occur if the actual revenue for a certain crop statewide is lower than a state's acre-revenue guarantee. This program offers a state-level and a producer-level guarantee. Each guarantee must be triggered before a producer will receive an ACRE payment. A commitment through the 2012 crop year is required for the ACRE program and a formula is used to calculate payments for each crop year.

The price component is a simple two-year average of the national average market price, as determined by the National Ag Statistics Service. The yield portion is determined by a five-year Olympic average yield, which means FSA reviews the previous five-year history of the crop and eliminates the low and high numbers. By doing so, the formula boils down extremes and ultimately gives a more representative average yield history. The advantage of using current history is that commodity prices recently have been higher than the former target price range.

The ACRE program does not make sense for every operation but it is beneficial for farmers from a risk-management standpoint. Typically, the floor is higher under ACRE than with the traditional counter-cyclical program. Farmers should be consulting with an adviser to compare their government payments under both scenarios and consider if they are willing to give up a small portion of their direct payment in order to raise downside risk protection.

Once enrolled, ACRE is a nonrevocable program. The deadline for signup is June 1, which is also the deadline for submitting direct and counter-cyclical program contracts.

Farmer's will also see changes to the way payments are attributed. What used to be the three-entity rule now attributes all payments down to individuals. Current legislation has also changed how active a spouse needs to be in the family farming operation. Strict proof is no longer needed to make sure a spouse is involved, as long as farmers are meeting the requirements themselves and both spouses are members of the same operation.

There are also new limits on the amount of non-farm adjusted gross income (AGI) an applicant can receive. Any income earned off the farm— salary, interest or dividends— cannot exceed $500,000 for a three-year period. In addition, if a person has more than $750,000 of farm AGI, they are ineligible for the direct payment program and an AGI of more than $1 million makes a person ineligible for conservation programs, unless two-thirds of that income is attributable to farming.

Finally, the cash-rent tenant rule is a lesser-known rule that has actually been included in farm program regulations for years. USDA has placed more requirements on operators that cash rent farm land versus operators who share rent. These regulations are more stringent on how a cash-rent tenant provides inputs to the operation.

There are many changes to the farm bill that can impact a producer's application process this spring. It would be wise to research your best options just as you would consider how and when to plant spring crops.

Todd Jennison is a farm program services consultant with Kennedy and Coe, LLC. Reach him at (800) 303-3241.