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ACRE becoming easier decision

Agriculture.com Staff 07/15/2009 @ 9:18am

There has been much angst over the ACRE program, and whether or not this is going to be worth signing up for when the deadline hits in August.

Recall the ACRE program is the alternative to the current direct payments/loan rate program offered. You give up 20% of your direct payments and 30% of your loan rate for participating in ACRE. ACRE pays when the state revenue for a crop drops more than 10% from a baseline, and an individual farmer has a 1% drop in revenue or more (a double trigger). The state revenue is the most important, as the payment will be calculated off that number (a farmer revenue just triggers the payment is there is any loss). However, as we approach the final date for entry, it is becoming more and more obvious what the correct choice will be for each farm in each state as the 2009 crop focus is becoming more obvious (especially for wheat).

Most farmers will give up a small amount of revenue in return for the ACRE payments. It amounts to about $5-10/acre in direct payments given up, and Pro Ag believes the 30% loan rate is a non-issue as loan rates currently are far below the market value. The ACRE payment can potentially be big, so the only consideration is not IF you sign up for ACRE, but when. Should it be this year? Or should we wait and make the decision next year?

The answer to these questions is becoming more and more apparent as prices decline. One quick way of calculating if ACRE will pay is to look only at prices, and assume yield will be 'average' in a state. So far, the trigger prices (most recent 2 year average price) as calculated by KSU is $6.78 for wheat, $4.05 corn, $3.20 sorghum, and $10.04 soybeans. With current prices dropping fast (KC Sept. wheat at $5.66, Dec corn $3.40, and Nov. soybeans $9.18) it's likely we are getting deep in the money for an ACRE payment.

State level yields are also a factor in calculating ACRE payments. If you are a winter wheat producer, already there are state average yields projected for the 2009 US crop, and it is easy to see if your state will be eligible for a payment based on current projected yields (over 60% harvested already). In KS, for example, there is no projected payment for ACRE for KS farmers as the state yields is too high, even though prices have dropped considerably. But in contrast, OK and TX farmers will get the maximum payment of roughly $46/acre for OK, and $42/acre payment for TX producers. This is a significant payment for these producers, and will more than make up for 4 years of loss in the 20% direct payments given up to get the ACRE payment. Each farmer in these states needs to figure out if he individually would trigger a payment, but that is only relevant in OK and TX (KS farmers will not get a payment as the state trigger was not hit even if the farm trigger was hit). OK/TX wheat farmers who had great crops probably should not sign up in 2009 (are there any?).

In other states, KSU estimates CO farmers to collect nothing, NE farmers nothing, and still has to make calculations for other states. This likely will be completed before the August deadline for sign-up. The above framework might be equally effective for other states and other crops. Using crop conditions for each state, it looks like corn farmers in CO (75% G/E), IA (79% G/E), KY (77% G/E), MN (82% G/E), OH (73% G/E), and NE (84% G/E) will not want to sign up for ACRE in corn as their individual state looks to have a very good 2009 corn crop. TX (only 31% G/E), NC (46%), TN (55%), ILL (60%), IND (62%), MI (63%), and MO (56%) may consider signing up unless crops improve over the coming few weeks prior to the signup deadline. For soybeans, the results might be similar but looking at crop conditions might give us a clue as to whether we should sign-up in that individual state.

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