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Nothing simple about decision on ACRE

Agriculture.com Staff 08/05/2009 @ 6:59am

After updating his state-by-state estimates for potential ACRE payments, Kansas State University ag economist Art Barnaby told an early Tuesday morning webinar Tuesday that "I don't think ACRE is a no-brainer decision."

"There are a lot of ins and outs to this program," said Barnaby, who described the Average Crop Revenue Election program as something like a statewide GRIP insurance policy or a put option on state revenue. ACRE pays out if a state's revenue falls below the state’s five-year Olympic yield average times the previous two years of average prices calculated by the National Agricultural Statistics Service times 90%. Then, your own farm also has to have a revenue loss.

"The farm benchmark cannot trigger an ACRE payment. It can only prevent a payment," Barnaby said.

Many commodity advisers and ag economists have been focusing on crop prices, which until recently have been falling and in the case of corn, seem to indicate that prices for the 2009 crop could be far enough below the averages for 2007 and 2008 crops that farmers could collect a payment after the fall of 2010.

Barnaby's own estimates show irrigated corn in states like Nebraska with possible payments of about $90 an acre. Dryland corn in the I states of the central and eastern Corn Belt would collect in the neighborhood of $80 an acre. And dryland corn further west might bet about $50.

But those are just estimates. The marketing year that NAAS will use to calculate average prices doesn't start until September 1 for corn. It has started for wheat and by the end of August, farmers will know about half of the real marketing year average for that crop, Barnaby said. And, of course, winter wheat yields are known in the southern and central Plains states. The August 12 crop report will have the first estimate of corn and soybean yields -- just two days before the August 14 deadline for signing up for ACRE for 2009 crops.

A key wild card in all of this is a state's yields. Barnaby used this year's harvest to show the variability in ACRE payments for wheat. Because Colorado had a low Olympic average yields of 24.5 bushels an acre and a high yield this year, wheat prices would have to fall below $3 a bushel to trigger payments there.

That makes Colorado one of the few no-brainer decisions for ACRE, for wheat at least.

"Do not go into ACRE in Colorado wheat," Barnaby advised.

Oklahoma, on the other hand, had a poor wheat crop this year that averaged just over 20 bushels an acre. There, Barnaby expects farmers to collect the maximum ACRE payment for wheat in that state, $46.84 an acre.

"In order for Oklahoma not to collect the maximum in wheat, wheat would have to average something in the order of $10 a bushel for the rest of the year," Barnaby said. "If we have $10 wheat, who needs ACRE? Just sells the crop for the next three years."

Barnaby has also "backcast" how ACRE would have paid in the past if the program had been in effect, and translated payments to current dollar values. Again, some results might surprise you.

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