ACRE Chad Hart chartiastate edu 515 294 9911

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ACRE Chad Hart chart@iastate. edu 515 -294 -9911 Allee Demonstration Farm, 50 th Anniversary

ACRE Chad Hart chart@iastate. edu 515 -294 -9911 Allee Demonstration Farm, 50 th Anniversary Field Day Newell, Iowa September 16, 2008 Department of Economics

Average Crop Revenue Election (ACRE) Ø ACRE is a revenue-based counter-cyclical payment program Ø

Average Crop Revenue Election (ACRE) Ø ACRE is a revenue-based counter-cyclical payment program Ø Based on state and farm-level yields per planted acre and national prices Ø Producers choose between the current price -based counter-cyclical payment (CCP) program and ACRE Ø There are still some details to be worked out about ACRE (stay tuned) Department of Economics

Farmer Choice Ø Starting in 2009, producers will be given the option of choosing

Farmer Choice Ø Starting in 2009, producers will be given the option of choosing ACRE or not Ø Can choose to start ACRE in 2009, 2010, or beyond Ø Once you’re in ACRE, you stay in ACRE until the next farm bill Ø If you sign up for ACRE, you must do so for all eligible crops Ø Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates Department of Economics

ACRE Settings Ø Total acres eligible for ACRE payments limited to total number of

ACRE Settings Ø Total acres eligible for ACRE payments limited to total number of base acres on the farm Ø Farmers may choose which planted acres are enrolled in ACRE when total base area is exceeded Department of Economics

Loan Rates under ACRE Corn $1. 365 Soybeans $3. 50 Current Loan Rates Corn

Loan Rates under ACRE Corn $1. 365 Soybeans $3. 50 Current Loan Rates Corn $1. 95 Department of Economics Soybeans $5. 00

Average Direct Payments Per Payment Acre Crop Corn Soybeans Department of Economics Current Program

Average Direct Payments Per Payment Acre Crop Corn Soybeans Department of Economics Current Program 28. 67 ACRE Difference 22. 94 5. 73 13. 55 10. 84 2. 71

ACRE Ø Program has state and farm trigger levels, both must be met before

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

ACRE Set-up for Iowa Corn Year Yield per Planted Acre (bu. /acre) Year Season-average

ACRE Set-up for Iowa Corn Year Yield per Planted Acre (bu. /acre) Year Season-average Price ($/bu. ) 2004 176. 7 2007 4. 20 2005 168. 9 2008 5. 50 2006 162. 7 2007 166. 8 Averag e 4. 85 2008 158. 2 Olympic Average 166. 1 Please note the years used in the price average is under debate and may change The 2008 yield and price are USDA’s September 2008 estimate. So the expected state yield would be 166. 1 bushels per acre and the ACRE price guarantee would be $4. 85 per bushel. Department of Economics

ACRE Structure Ø ACRE revenue guarantee = 90% of ACRE price guarantee * Expected

ACRE Structure Ø ACRE revenue guarantee = 90% of ACRE price guarantee * Expected state yield ØFor our example, the ACRE revenue guarantee is 90% * 166. 1 bu. /acre * $4. 85/bu. Ø$725. 03/acre Ø ACRE actual revenue = Max(Seasonaverage price, Loan rate) * Actual state yield per planted acre Department of Economics

ACRE Structure Ø ACRE Farm revenue trigger = Expected farm yield * ACRE price

ACRE Structure Ø ACRE Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium ØLet’s assume farm yields equal to state yields and use the average producer-paid crop insurance premium for 2008 (so far) Ø 166. 1 bu. /acre * $4. 85/bu. + $22. 77/acre Ø$828. 36/acre Department of Economics

ACRE Payment Triggers Ø ACRE actual farm revenue = Max(Seasonaverage price, Loan rate) *

ACRE Payment Triggers Ø ACRE actual farm revenue = Max(Seasonaverage price, Loan rate) * Actual farm yield per planted acre Ø Given our example, ACRE payments are triggered when ACRE actual revenue is below $725. 03/acre and ACRE actual farm revenue is below $828. 36/acre Department of Economics

ACRE Payments Ø Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25%

ACRE Payments Ø Payment rate = Min(ACRE revenue guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee) Ø Payments made on 83. 3% of planted/base acres in 2009 -11, 85% in 2012 Ø ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield Department of Economics

ACRE Payments Ø Payment rate = Min($725. 03 – ACRE actual revenue, $181. 26)

ACRE Payments Ø Payment rate = Min($725. 03 – ACRE actual revenue, $181. 26) Ø So the maximum per acre payment is $181. 26 in our example Department of Economics

ACRE Payment Timing Ø Payments can begin as soon as practicable possible after the

ACRE Payment Timing Ø Payments can begin as soon as practicable possible after the end of the marketing year ØSo 2009 ACRE payments could start to be paid out in October 2010 ØThere are no provisions for advance payments Department of Economics

ACRE Payments No ACRE payments ACRE pays out Department of Economics

ACRE Payments No ACRE payments ACRE pays out Department of Economics

ACRE vs. CCP pays out No CCP payments No ACRE payments ACRE pays out

ACRE vs. CCP pays out No CCP payments No ACRE payments ACRE pays out Department of Economics

ACRE Prices Ø One of the biggest decisions yet to be made is on

ACRE Prices Ø One of the biggest decisions yet to be made is on the prices in the ACRE price average Ø Senator Harkin has indicated Congress intended 2007 and 2008 crop year prices Ø USDA is looking at some options, including using 2006 and 2007 crop year prices Department of Economics

How Much Difference Does It Make? ACRE Price ACRE Revenue Guarantee ACRE Farm Trigger

How Much Difference Does It Make? ACRE Price ACRE Revenue Guarantee ACRE Farm Trigger ACRE Maximum Payment Department of Economics Using 2007 and 2008 Crop Year Prices $4. 85/bu. Using 2006 and 2007 Crop Year Prices $3. 62/bu. $725. 03/acre $541. 15/acre $828. 36/acre $624. 06/acre $181. 26/acre $135. 29/acre

Looking Beyond 2009 Ø The ACRE revenue guarantee is updated each year using the

Looking Beyond 2009 Ø The ACRE revenue guarantee is updated each year using the same rules Ø 5 year Olympic average for yields Ø 2 year average for prices Ø But the ACRE revenue guarantee can not change by more than 10 percent (up or down) from year to year Ø So if the 2009 ACRE revenue guarantee is $725. 03, then the 2010 ACRE revenue guarantee must be between $652. 52 and $797. 53 Department of Economics

Farmer’s Choice Ø In deciding about ACRE, farmers must weigh: ØThe loss of 20%

Farmer’s Choice Ø In deciding about ACRE, farmers must weigh: ØThe loss of 20% of their direct payments, a 30% drop in the marketing loan rate, and no access to CCP payments versus ØThe potential for payments under ACRE Department of Economics

Comparing Program Parameters Ø For Iowa Corn ØUnder the current CCP program ØCCP Yield

Comparing Program Parameters Ø For Iowa Corn ØUnder the current CCP program ØCCP Yield Average = 122. 1 bushels per acre ØCCP Effective Target Price = $2. 35/bushel ØIn our example, for ACRE ØACRE Yield Guarantee = 166. 1 bushels per acre ØACRE Price Guarantee = $4. 85/bushel Ø 20% of average Iowa corn direct payment = $6. 50 per acre Department of Economics

Factors to Consider Ø ACRE looks more attractive if: ØUSDA uses 2007 and 2008

Factors to Consider Ø ACRE looks more attractive if: ØUSDA uses 2007 and 2008 prices for average ØYou think prices will fall in the future, but stay above the current loan rates ØMarkets continue to show higher price volatilities Department of Economics

Factors to Consider Ø Current programs look more attractive if: ØUSDA uses 2006 and

Factors to Consider Ø Current programs look more attractive if: ØUSDA uses 2006 and 2007 prices for average ØYou think prices will rise in the future ØPotentially no ACRE payments combined with cut in direct payments Department of Economics

You Don’t Have to Decide Today Ø ACRE signup will not be for a

You Don’t Have to Decide Today Ø ACRE signup will not be for a while, probably next spring at the earliest Ø Once the ACRE rules are finalized, there will be a number of decision tools available to help producers Ø Preliminary ACRE tools are available at: http: //www. card. iastate. edu/ag_risk_tools/acre/ Department of Economics

Thanks for your time! Any questions? Department of Economics

Thanks for your time! Any questions? Department of Economics