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USDA report changes some projections on ACRE payments

Agriculture.com Staff 08/12/2009 @ 2:34pm

The agony of procrastination can be intense, especially if you live in Iowa and the USDA projects a yield of 185 bushels an acre for the 2009 corn crop -- just two days before the deadline to sign up for the new Average Crop Revenue Election (ACRE) program.

"Based on today's report, Iowa wouldn't trigger a payment, but Illinois, Minnesota and Missouri would," Iowa State University Extension farm management specialist Steve Johnson told Agriculture Online.

Of course, no one really knows if ACRE payments will be triggered anywhere, but the odds went down a bit with the higher yield estimate. Payments will be calculated based on the average cash price for the marketing year that starts next month, times a state’s yield. If that calculation of revenue falls 10% below a benchmark based on the 2007 and 2008 prices and average yields (and your own farm has a drop in revenue), then payments would be made, probably in late 2010.

USDA's projection for prices paid this year for 2008 for corn and soybeans didn't change, so the benchmark, or revenue guarantee, remains the same. It's calculated with a 2008 crop marketing year average price of $4.05 a bushel for corn and $10 a bushel for soybeans.

"The state revenue guarantee didn't change with the August 12 report," Johnson said. It's $635 an acre for Iowa.

If you use the midpoint price for corn in USDA's projection for the 2009 crop, $3.50 a bushel, and multiply it by the 185-bushel estimate of Iowa’s corn yield average this year, that revenue of about $648 is too high to expect an ACRE payment.

Still, Johnson is advising farmers to sign up. ACRE isn't a price enhancement program tool like forward contracting or hedging, he said. It's more like private crop revenue insurance and your premium is the 20% cut in direct payments and 30% cut on loan rates that farmers in the ACRE program give up, in essence, about $5 an acre in lower direct payments and little likelihood of collecting loan deficiency payments.

"I think farmers need to ask themselves, do they have a need for a revenue safety net that pays on yields times price," Johnson said. He wouldn't give up crop revenue insurance, since that's the only thing that would project your farm if your state has high revenue and you don't. But he considers ACRE an inexpensive added revenue protection that would help protect against a steep drop revenue.

If the USDA yield estimate turns out to be correct, prices wouldn't have to fall much below the the $3.50 midpoint projection, even farmers in Iowa could collect ACRE payments. "If the national price drops to $3.43 or lower, it would still trigger an ACRE payment," Johnson said.

The range of prices USDA currently projects for the 2009 marketing year is $3.10 to $3.90 a bushel, so a price that would trigger ACRE payments is plausible.

"If row crop prices go to where dairy and pork are right now, I don't even want to think about it," Johnson said.

"This program is much better than countercyclical payments and LDPs," Johnson said. That's because prices would have to fall much more to trigger those older programs than to start ACRE payments.

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