You are here

ACRE becoming easier decision

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.

In summary, using crop condition variables for each state, a understanding of
our own individual farm yield potential, and the current market price for 2009
new crop grains will provide a great deal of clues as to whether or not
producers should opt for ACRE in 2009. This becomes an easy decision for 2009
once that is known. Pro AG believes farmers will eventually want to sign up for
ACRE at some point in the next 4 years, but since we are allowed to wait until
August to sign up for 2009, this year will be more like shooting at ducks in a
barrel than any other year. This is especially true for winter wheat producers!

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.

Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
Kristi@progressiveag.com.

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.

Read more about

Crop Talk

Most Recent Poll

How much of your 2016 corn crop is planted?