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Department of Economics ACRE ACRE Program Details Meeting Janesville, Arlington, and Rosendale, Wisconsin August 4, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911
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Department of Economics 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 Program has state and farm trigger levels, both must be met before payments are made
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Department of Economics Farmer Choice Starting in 2009, producers will be 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, Aug. 14 (this year) Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates
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Department of Economics 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
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Department of Economics ACRE Set-up for Wisconsin Corn YearYield per Planted Acre (bu./acre) 2004135.0 2005148.0 2006142.0 2007135.0 2008136.0 Olympic Average138.0 YearSeason-average Price ($/bu.) 20074.20 20084.05 Average4.13 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.
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Department of Economics ACRE Structure ACRE 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
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Department of Economics Wisconsin Preliminary ACRE Guarantees CropPriceYieldACRE Guarantee Wheat$6.6361.9$369.36 Soybeans$10.0539.0$352.76 Oats$2.8964.0$166.46 Barley$4.0954.0$198.77 Canola$0.18531,050.0$175.11 Dry Peas$0.13251,270.0$151.45 Flaxseed$13.0016.5$193.05 Sorghum$3.6460.0$196.56 Mustard$0.2788670.0$168.12 Rapeseed$0.18231,280.0$210.01 Safflower$0.1965650.0$114.95 Sunflower$0.22151,108.0$220.88
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Department of Economics 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 2008 138.0 bu./acre * $4.13/bu. + $26.86/acre $596.80/acre
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Department of Economics ACRE Payment Triggers ACRE 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
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Department of Economics ACRE Payments Payment 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)
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Department of Economics 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
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Department of Economics 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.
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Department of Economics 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 $512.95, then the 2010 ACRE revenue guarantee must be between $461.65 and $564.25
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Department of Economics 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/bu Average of 2007 and 2008 season-average prices ACRE Revenue Guarantee$512.95 90% * $4.13/bu * 138 bu/acre ACRE Farm Revenue Guarantee$618.85 $4.13 * 145 bu/acre + $20/acre
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Department of Economics 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
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Department of Economics Example (continued) State Trigger ACRE Revenue Guarantee$512.95 ACRE Actual Revenue$490.00 So we’ve met the state trigger Farm Trigger ACRE Farm Revenue Guarantee$618.85 ACRE Farm Actual Revenue$542.50 So we’ve met the farm trigger
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Department of Economics Example (continued) ACRE Payment$20.09 Min(25%*$512.95, $512.95 – $490.00) * (145 bu/acre / 138 bu/acre) * 83.3%
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Department of Economics 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
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Department of Economics Comparing Program Parameters For Wisconsin Corn Under the current CCP program CCP Yield Average = 109.8 bushels per acre CCP Effective Target Price = $2.35/bushel In our example, for ACRE ACRE Yield Guarantee = 138.0 bushels per acre ACRE Price Guarantee = $4.13/bushel 20% of average WI corn direct payment = $4.83 per acre
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Department of Economics 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
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Department of Economics Quick Comparison (Your results may vary) Source: William Edwards, ISU Extension
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Department of Economics ACRE Signup Ends Soon ACRE signup started in April, will end August 14 th 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=landing http://www.aae.wisc.edu/mitchell/extension.htm http://www.extension.iastate.edu/agdm/crops/html/a1-45.html http://www.farmdoc.uiuc.edu/fasttools/index.asp
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Department of Economics 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)
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Department of Economics Forms and Records Records 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 allowed Crop insurance and NAP production reports will work Commercial receipts, settlement sheets, warehouse ledger sheets that are reliable and/or verifiable will work Loan and LDP records will work Production data for 2009 needs to turned in by June 30, 2010
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Department of Economics Thanks for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/
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