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ECON 339X: Agricultural Marketing

Learn about the Average Crop Revenue Election program (ACRE) introduced in the 2008 Farm Bill, its benefits for producers, and how it is calculated.

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ECON 339X: Agricultural Marketing

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  1. ECON 339X: Agricultural Marketing Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

  2. Government Programs Today’s Topics

  3. Farm Bill Titles Commodities IX. Energy Conservation X. Hort. & Organic Ag. Trade XI. Livestock Nutrition XII. Crop Insurance Credit XIII. Commodity Futures Rural Development XIV. Miscellaneous Research XV. Trade & Taxes Forestry

  4. The 2008 Farm Bill • Continues many of the same programs we have currently • Direct payments • Price countercyclical payments (CCPs) • Marketing loans • CRP, EQIP, and other conservation programs • Gives producers a choice on programs • Average Crop Revenue Election (ACRE) • Sets up new permanent disaster program • Supplemental Revenue Assistance Payments Program (SURE)

  5. Average Crop Revenue Election (ACRE) • ACRE is a revenue-based counter-cyclical payment program • Based 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 • There are still some details to be worked out about ACRE (stay tuned)

  6. Farmer Choice • Starting in 2009, producers were given the option of choosing ACRE or not • Can choose to start ACRE in 2009, 2010, or beyond • Once 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 crops • Deadline for sign-up, June 1 of each year (Aug. 14, this year) • Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

  7. 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

  8. Loan Rates under ACRE Corn $1.365 Soybeans $3.50 Current Loan Rates Corn $1.95 Soybeans $5.00

  9. Average Direct Payments Per Payment Acre for Iowa Please note the 83.3 or 85% rule has not been yet to these payments.

  10. ACRE • Program has state and farm trigger levels, both must be met before payments are made • Expected state and farm yield based on 5 year Olympic average yields per planted acre • ACRE price guarantee is the 2 year average of the national season-average price

  11. ACRE Set-up for Iowa Soybeans The 2009 yield and price are USDA’s March 2010 estimates. So the expected state yield would be 50.5 bushels per acre and the ACRE price guarantee would be $10.04 per bushel.

  12. ACRE Structure ACRE revenue guarantee = 90% * ACRE price guarantee * Expected state yield For our example, the ACRE revenue guarantee is 90% * $10.04/bu. * 50.5 bu./acre $456.32/acre ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre

  13. ACRE Structure ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium Let’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2009 Iowa soybeans 50.5 bu./acre * $10.04/bu. + $11.32/acre $518.34/acre

  14. ACRE Payment Triggers ACRE actual farm revenue = Max(Season-average price, Loan rate) * Actual farm yield per planted acre Given our example, ACRE payments are triggered when ACRE actual revenue is below $456.32/acre and ACRE actual farm revenue is below $518.34/acre

  15. ACRE Payments • Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee) • Payments made on 83.3% of planted/base acres in 2009-11, 85% in 2012 • ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield

  16. ACRE Payment Timing Payments can begin as soon as practicable possible after the end of the marketing year So 2009 ACRE payments could start to be paid out in October 2010 There are no provisions for advance payments

  17. Looking Beyond 2009 The ACRE revenue guarantee is updated each year using the same rules 5 year Olympic average for yields 2 year average for prices But the ACRE revenue guarantee can not change by more than 10 percent (up or down) from year to year So if the 2009 ACRE revenue guarantee is $456.32, then the 2010 ACRE revenue guarantee must be between $410.69 and $501.95

  18. An Example for 2009 To start, we need the expected state and farm yields and the ACRE price guarantee Expected state yield 50.5 bu/acre Expected farm yield 55.0 bu/acre 2004-08 Olympic average of yields per planted acre ACRE price guarantee $10.04/bu Average of 2007 and 2008 season-average prices ACRE Revenue Guarantee $456.32 90% * $10.04/bu * 50.5 bu/acre ACRE Farm Revenue Guarantee $572.20 $10.04 * 55 bu/acre + $20/acre

  19. Example (continued) For 2009, we need the actual state yield, the actual farm yield , and the season-average price Actual state yield 50.5 bu/acre Actual farm yield 55 bu/acre Season-Average Price $9.45/bu ACRE Actual Revenue $477.23 $9.45/bu * 50.5 bu/acre ACRE Farm Actual Revenue $519.75 $9.45/bu * 55 bu/acre

  20. Example (continued) State Trigger ACRE Revenue Guarantee $456.32 ACRE Actual Revenue $477.23 So we have not met the state trigger • Thus, no ACRE payment for 2009 • But what if the season-average price was $9.00 per bushel

  21. Example (continued) Actual state yield 50.5 bu/acre Actual farm yield 55 bu/acre Season-Average Price $9.00/bu ACRE Actual Revenue $454.50 $9.00/bu * 50.5 bu/acre ACRE Farm Actual Revenue $495.00 $9.00/bu * 55 bu/acre

  22. Example (continued) State Trigger ACRE Revenue Guarantee $456.32 ACRE Actual Revenue $454.50 Then we have met the state trigger • Farm Trigger • ACRE Farm Revenue Guarantee $572.20 • ACRE Farm Actual Revenue $495.00 • So we’ve met the farm trigger

  23. Example (continued) ACRE Payment $1.65 Min(25%*$456.32, $456.32 – $454.50) * (55 bu/acre / 50.5 bu/acre) * 83.3%

  24. Farmer’s Choice In 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

  25. 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

  26. Supplemental Revenue Assistance Payments Program (SURE) • Provides payments to producers in disaster counties for crop losses • Based on crop insurance program, non-insured crop assistance program, and disaster declarations • Whole-farm revenue protection, not commodity-specific

  27. SURE Triggers • Declared “disaster county” by Secretary of Agriculture or contiguous to one • Farm with losses exceeding 50% of normal production in a calendar year

  28. Iowa SURE Eligibility in 2008

  29. Iowa SURE Eligibility in 2009

  30. SURE Settings • Participation and revenue guarantee tied to crop insurance • Farm revenue, including some government payments, used to determine payment • Payments set as 60% of the difference between guarantee and actual revenue • Limited to $100,000 per producer • Payments not known or paid until the end of the marketing year

  31. SURE Guarantee Farm guarantee is the sum of 115%*Crop insurance price election*Crop insurance coverage level*Planted acres* Max(APH or CCP yield), for insurable commodities 120%*NCAP price election*Planted acres* Max(NCAP or CCP yield), for non-insurable commodities For an individual crop, the guarantee can not be greater than 90% of the crop’s expected revenue

  32. SURE Expected Farm Revenues Expected farm revenue is the sum of Max(APH or CCP yield)*Planted acres*100% of the crop insurance price for insurable commodities 100% of NCAP yield*100% of NCAP price*Planted acres for non-insurable commodities

  33. SURE Actual Farm Revenues Actual farm revenue is the sum of Harvested acres*Farm yield*National season-average price for all commodities 15% of direct payments All CCP or ACRE payments All marketing loan benefits All crop insurance or NCAP payments Any other disaster assistance payments

  34. SURE Payments Payments set as 60% of the difference between farm guarantee and actual farm revenue Payments limited to $100,000 per producer Payments not known until end of marketing year

  35. Class web site:http://www.econ.iastate.edu/classes/econ339/hart-lawrence/

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