Department of Economics ACRE ACRE Program Details Meeting Janesville, Arlington, and Rosendale, Wisconsin August 4, 2009 Chad Hart Assistant Professor/Grain

Department of Economics

ACRE

ACRE Program Details MeetingJanesville, Arlington, and Rosendale, Wisconsin

August 4, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


Average Crop Revenue Election (ACRE)

ACRE is a revenue-based counter-cyclical payment programBased on state and farm-level yields per planted acre

and national prices

Producers choose between the current price-based counter-cyclical payment (CCP) program and ACRE

Program has state and farm trigger levels, both must be met before payments are made


Farmer Choice Starting in 2009, producers will be given the

option of choosing ACRE or notCan choose to start ACRE in 2009, 2010, or beyondOnce you’re in ACRE, you stay in ACRE until the next

farm bill If you sign up for ACRE, you must do so for all eligible

cropsDeadline for sign-up, Aug. 14 (this year)

Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates


ACRE Settings

ACRE is based on planted acres

Total acres eligible for ACRE payments limited to total number of base acres on the farm

Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded


ACRE Set-up for Wisconsin CornYear Yield per Planted Acre

(bu./acre)

2004 135.0

2005 148.0

2006 142.0

2007 135.0

2008 136.0

Olympic Average 138.0

Year Season-average Price ($/bu.)

2007 4.20

2008 4.05

Average 4.13

The 2008 yield and price are USDA’s July 2009 estimates.

So the expected state yield would be 138.0 bushels per acre and the ACRE price guarantee would be $4.13 per bushel.


ACRE StructureACRE revenue guarantee = 90% *

ACRE price guarantee * Expected state yield

For our example, the ACRE revenue guarantee is 90% * $4.13/bu. * 138.0 bu./acre

$512.95/acre


Wisconsin Preliminary ACRE GuaranteesCrop Price Yield ACRE Guarantee

Wheat $6.63 61.9 $369.36

Soybeans $10.05 39.0 $352.76

Oats $2.89 64.0 $166.46

Barley $4.09 54.0 $198.77

Canola $0.1853 1,050.0 $175.11

Dry Peas $0.1325 1,270.0 $151.45

Flaxseed $13.00 16.5 $193.05

Sorghum $3.64 60.0 $196.56

Mustard $0.2788 670.0 $168.12

Rapeseed $0.1823 1,280.0 $210.01

Safflower $0.1965 650.0 $114.95

Sunflower $0.2215 1,108.0 $220.88


ACRE StructureACRE Farm revenue trigger =

Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premiumLet’s assume farm yields equal to state yields

and use the average producer-paid crop insurance premium for 2008

138.0 bu./acre * $4.13/bu. + $26.86/acre

$596.80/acre


ACRE Payment TriggersACRE actual state/farm revenue =

Max(Season-average price, ACRE Loan rate) * Actual state/farm yield per planted acre

Given our example, ACRE payments are triggered when ACRE actual revenue is below $512.95/acre and ACRE actual farm revenue is below $596.80/acre


ACRE PaymentsPayment rate = Min(ACRE revenue

guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)

ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

Payments made on 83.3% of planted acres in 2009-11, 85% in 2012 (up to total base acres)


ACRE Payment TimingPayments can begin as soon as practicable

possible after the end of the marketing yearSo 2009 ACRE payments could start to be paid

out in October 2010There are no provisions for advance payments


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1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50 7.00 7.50 8.00

$ per bushel

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ACRE vs. CCP

ACRE pays out

No ACRE payments

CCP pays

No CCP payments

If price = $3.75, yields below 136.8 bushels per acre will trigger a payment.

If price = $3.25, yields below 157.8 bushels per acre will trigger a payment.


Looking Beyond 2009The ACRE revenue guarantee is updated each

year using the same rules5 year Olympic average for yields2 year average for prices

But the ACRE revenue guarantee can not change by more than 10 percent (up or down) from year to yearSo if the 2009 ACRE revenue guarantee is $512.95, then

the 2010 ACRE revenue guarantee must be between $461.65 and $564.25


An Example for 2009 To start, we need the expected state and farm

yields and the ACRE price guarantee

Expected state yield 138 bu/acre Expected farm yield 145 bu/acre

2004-08 Olympic average of yields per planted acre

ACRE price guarantee $4.13/buAverage of 2007 and 2008 season-average prices

ACRE Revenue Guarantee $512.9590% * $4.13/bu * 138 bu/acre

ACRE Farm Revenue Guarantee $618.85$4.13 * 145 bu/acre + $20/acre


Example (continued) For 2009, we need the actual state yield, the

actual farm yield , and the season-average price

Actual state yield 140 bu/acre Actual farm yield 155 bu/acre Season-Average Price $3.50/bu

ACRE Actual Revenue $490.00$3.50/bu * 140 bu/acre

ACRE Farm Actual Revenue $542.50$3.50/bu * 155 bu/acre


Example (continued)State Trigger

ACRE Revenue Guarantee $512.95ACRE Actual Revenue $490.00

So we’ve met the state trigger

Farm TriggerACRE Farm Revenue Guarantee $618.85ACRE Farm Actual Revenue $542.50

So we’ve met the farm trigger


Example (continued)

ACRE Payment $20.09Min(25%*$512.95, $512.95 – $490.00)

* (145 bu/acre / 138 bu/acre)

* 83.3%


Farmer’s ChoiceIn deciding about ACRE, farmers must

weigh:

The loss of 20% of their direct payments, a 30% drop in the marketing loan rate, and no access to CCP payments versus

The potential for payments under ACRE


Comparing Program ParametersFor Wisconsin Corn

Under the current CCP programCCP Yield Average = 109.8 bushels per acreCCP Effective Target Price = $2.35/bushel

In our example, for ACREACRE Yield Guarantee = 138.0 bushels per acreACRE Price Guarantee = $4.13/bushel

20% of average WI corn direct payment = $4.83 per acre


Factors to Consider ACRE looks more attractive if:

You think prices will fall in the future, but stay above the current loan rates

Markets continue to show higher price volatilities

Current programs look more attractive if:You think prices will rise in the future

Potentially no ACRE payments combined with cut in direct payments


Quick Comparison(Your results may vary)

$0

$25

$50

$75

$100

$125

$150

$175

$200

$1.00 $2.50

$1.50 $3.75

$2.00 $5.00

$2.50 $6.25

$3.00 $7.50

$3.50 $8.75

$4.00 $10.00

$4.50 $11.75

$5.00 $12.50

Corn and soybean marketing year prices

DP + ACREDP + CCP

Source: William Edwards, ISU Extension


ACRE Signup Ends Soon

ACRE signup started in April, will end August 14th

Can signup for 2010 crop next year

ACRE information and tools are available at: http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landinghttp://www.aae.wisc.edu/mitchell/extension.htm http://www.extension.iastate.edu/agdm/crops/html/a1-45.htmlhttp://www.farmdoc.uiuc.edu/fasttools/index.asp


Forms and Records Forms

Election: CCC-509 ACRE (fill out once) Enrollment: CCC-509 (fill out each year) If you do not fill out the enrollment paperwork, you are not in the

program All producers, including landowners, must sign the election form

Records Must annually report acreage and production to FSA In proving historical farm yields, producers must present

production records for continuous years (no gaps are allowed)


Forms and RecordsRecords

The farm yields will be the higher of the proven farm yield or 95% of the county average yield determined by FSA (NASS county production/FSA county acreage)Future farm yields (2009 and beyond) will be proven

Zero production reports are allowedCrop insurance and NAP production reports will workCommercial receipts, settlement sheets, warehouse

ledger sheets that are reliable and/or verifiable will workLoan and LDP records will workProduction data for 2009 needs to turned in by June 30,

2010


Thanks for your time!

Any questions?

My web site:http://www.econ.iastate.edu/faculty/hart/

Documents

Department of Economics ACRE ACRE Program Details Meeting Janesville, Arlington, and Rosendale, Wisconsin August 4, 2009 Chad Hart Assistant Professor/Grain