Write now, earn later
It's not often that a letter to your member of Congress could add a dollar a bushel to the value of your corn crop. But that's exactly what could happen in a battle between farm groups and Congress on the one hand and the USDA on the other.
The Agriculture Department is working on regulations for the new ACRE (Average Crop Revenue Election) program in the farm bill, which will be available for crops in 2009. Farmers who sign up for ACRE will give up a fifth of their direct payments and swap counter-cyclical payments that are tired to target prices for ACRE, which will be tied, in part, to two-year national average prices.
Ag economists compare ACRE to something like a state-level group risk insurance policy, or a put option on state-level revenue. And ACRE is likely to protect farmers more if prices plummet from current, relatively high levels.
But USDA is considering using the average prices for 2006 and 2007, instead of 2007 and 2008. And several members of Congress, including the Senate Agriculture Committee Chairman Tom Harkin, are opposed.
"One of the key distinctions of the ACRE program is that it uses recent commodity prices to calculate the program benefits. This distinction was critical for ACRE supporters to ensure that program benefits would be relevant to the producers who use the program. It was very important to ACRE proponents to have a strong correlation with real revenue experience. The closer the price data is to the current year the better. For that reason, USDA should use 2007 and 2008 prices to implement this program," Harkin said in an e-mail message to Agriculture Online recently.
On Monday, Harkin and Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH), wrote Agriculture Secretary Ed Schafer that "We are extremely concerned that the Department seems intent on unilaterally making up a version of ACRE contradictory to what was clearly enacted in the farm bill's statutory provisions."
Last Friday, Senators Norm Coleman (R-MN), Chuck Grassley (R-IA), Ben Nelson (D-NE) and John Thune (R-SD) sent a similar appeal to Schafer.
By Thursday, members of the House were weighing in, led by Representative Stephanie Herseth Sandlin (D-SD).
Herseth Sandlin cites estimates by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri on the effects of using an earlier benchmark for revenue with ACRE. According to FAPRI, the '06-'07 average price for corn is $3.65 a bushel, more than a dollar less than $4.85 projected for '07-'08. For soybeans, the '06-'07 average is $5.37, versus $6.62 for '07-'08. Wheat, is valued at $8.29 for '06-'07 and $11.48 for '07-'08.
"Congress' intent in this matter is clear," she wrote in a letter to Schafer. "Plainly stated under the ACRE statute is the directive to use the "most recent 2 crop years." The ACRE program will begin in the 2009 crop year, requiring USDA to use 2007 and 2008 in determining the ACRE price guarantee."