Average Crop Revenue Election ACRE Program Ron Haugen/Dwight Aakre Farm Management Specialists February 2010

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 2

ACRE vs Counter-Cyclical Payment 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 3

Direct Payment Rates Commodity$/Unit WheatBu.$0.52 CornBu.$0.28 SorghumBu.$0.35 BarleyBu.$0.24 OatsBu.$0.024 SoybeansBu.$0.44 Minor OilseedsCwt.$0.80 4

Target Prices for Counter-cyclical Payments Commodity$ per unit WheatBu.$3.92 $4.17 CornBu.$2.63 SorghumBu.$2.57 $2.63 BarleyBu.$2.24 $2.63 OatsBu.$1.44 $1.79 SoybeansBu.$5.80 $6.00 Other OilseedsCwt.$10.10 $12.68 Dry PeasCwt.n/a $8.32 LentilsCwt.n/a $12.81 Small ChickpeasCwt.n/a $10.36 Large ChickpeasCwt.n/a $

Counter-Cyclical (C-C) Payment Program No payment until national average price falls below the effective target price (target minus DP) CropEffective Target Price Wheat Corn2.35 Barley Oats Soybeans Minor Oilseeds No cost (no loss of DP or reduced loan rates) 6

Counter-Cyclical (C-C) Payment Program

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 8

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. Average Crop Revenue Election (ACRE) Program Other information considered: National Loan Rates and the Crop Insurance Premiums paid for the farm. 9

The National Office will provide most of the information needed for the ACRE Program at: State ACRE Guarantees Benchmark State Yields ACRE Guarantee Prices Data to calculate the Preliminary Benchmark Farm Yields National Average Market Prices Actual State Yields ACRE Program Parameters 10

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) 11

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 12

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 13

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. 14

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 15

Average Crop Revenue Election (ACRE) Program Beginning in 2009 Two Triggers must be met before Payments can be Issued 1. STATE TRIGGER +/- 10% from preceding year State ACRE Guarantee 90% times Benchmark State Yield (5-year Olympic average planted yield) times ACRE Program Guarantee Price (2-year national average market price) must exceed Actual State Revenue 100% times Actual State Planted Yield times higher of: National Average Market Price or 70% of National Loan Rate 16

Average Crop Revenue Election (ACRE) Program Beginning in 2009 (continued) Two Triggers must be met before Payments can be Issued 2. FARM TRIGGER Farm ACRE Benchmark Revenue 100% times Farm’s Expected Yield (5-year Olympic average planted yield) times ACRE Program Guarantee Price (2-year national average market price) plus Per Acre Producer-Paid Crop Insurance Premium must exceed Actual Farm Revenue 100% times Actual Farm Yield times higher of: National Average Market Price or 70% of National Loan Rate 17

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 ; 85% in 2012 times (farm’s expected yield divided by State benchmark yield) times Lesser of: State ACRE Guarantee minus times 25% Actual State Revenue 18

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 19

ProgramPaymentPayment Limitation Adjusted Gross Income Not eligible if the average… DCPDirect$40,000nonfarm AGI exceeds $500,000 or the average farm AGI exceeds $750,000 Counter- cyclical $65,000nonfarm AGI exceeds $500,000 ACREDirect$40,000 minus the 20% reduction nonfarm AGI exceeds $500,000 or the average farm AGI exceeds $750,000 ACRE$65,000 plus the 20% reduction nonfarm AGI exceeds $500,000 DCP vs. ACRE Program Payment Limitation 20

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: Average Crop Revenue Election (ACRE) Program 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 21

Wheat Example STATE ACRE GUARANTEEFARM BENCHMARK REVENUE 5-YR OLYMPIC AVERAGE YIELD49.9FARM 5-YR OLYMPIC AVERAGE YIELD52 90% FACTOR0.9ACRE GUARANTEE PRICE$6.63 ACRE GUARANTEE PRICE$6.63PRODUCER CROP INSURANCE PREMIUM$12.00 STATE ACRE GUARANTEE$297.75FARM ACRE BENCHMARK REVENUE$ ACTUAL STATE REVENUEACTUAL FARM REVENUE ACTUAL STATE PLANTED YIELD52ACTUAL FARM YIELD45 NATIONAL AVERAGE MARKET PRICE$5.40NATIONAL AVERAGE MARKET PRICE$5.40 ACTUAL STATE REVENUE$280.80ACTUAL FARM REVENUE$ STATE GUARANTEE LESS ACTUAL$16.95FARM BENCHMARK LESS ACTUAL$ CALCULATION OF FARM'S PAYMENT(FARM YIELD/STATE YIELD X STATE PAY'T RATE X 83.3%)$

Wheat Example STATE ACRE GUARANTEEFARM BENCHMARK REVENUE 5-YR OLYMPIC AVERAGE YIELD35.3FARM 5-YR OLYMPIC AVERAGE YIELD38 90% FACTOR0.9ACRE GUARANTEE PRICE$6.64 ACRE GUARANTEE PRICE$6.64PRODUCER CROP INSURANCE PREMIUM$12.00 STATE ACRE GUARANTEE$210.95FARM ACRE BENCHMARK REVENUE$ ACTUAL STATE REVENUEACTUAL FARM REVENUE ACTUAL STATE PLANTED YIELD35.3ACTUAL FARM YIELD38 NATIONAL AVERAGE MARKET PRICE$5.98NATIONAL AVERAGE MARKET PRICE$5.98 ACTUAL STATE REVENUE$211.09ACTUAL FARM REVENUE$ STATE GUARANTEE LESS ACTUAL-$0.16FARM BENCHMARK LESS ACTUAL$37.08 CALCULATION OF FARM'S PAYMENT(FARM YIELD/STATE YIELD X STATE PAY'T RATE X 83.3%)$

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. 24

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 25

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

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. 27

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 28

124 Benchmark Farm Yield preliminary Benchmark Farm Yield is equal to an “Olympic” average of 95% of each year’s ACRE County Yield (ACY) Example Ex: Corn BFY ACRE County Yield % of ACY Calculation: ( ) / 3 =

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. Ex: Corn BFY 95% of ACY P Producer Records (FSA-658) Yield Acres Benchmark Farm Yield % Failed, Zero Yield ---- Did not certify a yield 30

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. Ex: Corn BFY 95% of ACY P Producer Records Yield195? Acres Benchmark Farm Yield Break in Continuity Did not certify a yield Zero Planted Example of a Break in Continuity and a Zero Planted Year: 31

ACRE Payment Acreage Limitation Crops have to be prioritized if: more than one covered commodity 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.” If the crop priority order is not designated, the payment acreage will be prorated for each crop, including crops that do not “trigger.” 32

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.Crop Triggers Met? Base Planted/ Prev. Acres Potential Crop Payment Acres (acres x 83.3%) CornYes SoybeansNo Totals Exceeds total base (650.0). Will be reduced by priority. Maximum Payment Acres Without regard to trigger. 33

ACRE Payment Acreage Limitation Example Example: Crop Priority 3 crops 2 eligible Payment acres exceed base acres Crop Triggers Met? Base Planted & Prev. Acres Potential Crop Payment Acres CornYes SoybeansNo WheatYes Totals Crop Priority 1 2 Payment Acres Remaining Acres 700 – = – 33.6 = 0 Won’t get paid due to trigger! Maximum Payment Acres 34

ACRE Payment Acreage Limitation Example Same Example: Acreage Proration CropTriggers Met? BasePlanted & Prev. Acres Potential Crop Payment Acres CornYes SoybeansNo WheatYes Totals CropFactor Payment Acres (Crop factor x total base) x = 70.0 x = x = 70.0 Crop Factor = Crop Acres (planted/prev. plt) divided by Total Crop Acres (planted/prev. plt) Won’t get paid due to trigger! 35

Preliminary (P) and Final (F) ACRE Guarantee Prices and 2009/10 Forecast Commodity Price 2007/08 Price 2008/09 ACRE Price for /10 Forecast All Wheat F5.30 Feed Barley F3.80 Flax P9.42 Corn P3.75 Soybeans P9.30 All Sunflower P World Agricultural Supply and Demand Estimates and Internal USDA Estimates as of July 10,

ACRE Marketing Year CROPSMarketing Year Wheat, Barley and OatsJune 1 st - May 31 st Canola, Dry Peas, Flax, Lentils, Chickpeas Small and Large, Rapeseed July 1 st – June 30 th Corn, Soybean, Sunflower, Mustard, Rapeseed, Crambe, Safflower September 1 st – August 31 st 37

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,

Any Questions? 39