By Chris Bruynis, OSU Extension Educator
Farmers are now into the third year of the 2008 Farm Bill programs. The ability to elect into the Average Crop Revenue Election (ACRE) or to remain in the Direct and Counter Cyclical Program (DCP) will close on June 1, 2011 for this program year. Farmers not currently enrolled in ACRE have until June 1, 2011 to decide if ACRE or DCP might be the better decision for this crop year. However, once a farm has elected ACRE it cannot be switched back to DCP.
The guarantee price for 2011 will be the two year average U.S. cash price from the marketing years for the 2009 and 2010 crops. Using the 2009 actual prices plus the USDA estimated price (from January 12, 2011) for the 2010 crops, the 2011 ACRE price guarantee can be calculated as shown in Table 1. As prices continue to change during the marketing year the 2011 ACRE price guarantee will also change. In the last column of the table, the 2011 ACRE price guarantee is listed.
Commodity Marketing Year 2009 Average Price 2010 Average Price Guarantee Price 2011
Corn Sep 1 – Aug 31 $3.55 $5.30 $4.43
Soybeans Sep 1 – Aug 31 $9.59 $11.70 $10.65
All Wheat Jun 1 – May 31 $4.87 $5.65 $5.26
Since ACRE is a revenue protection program, price is only half of the equation in determining the 2011 ACRE revenue guarantee. The second half of the equation is the five year Olympic average yield for each crop respectively. The new five year Olympic average for 2011 is: corn—157, soybeans—47 and wheat—66. Even though the final numbers for the 2010 crop might vary slightly from the estimates, it will not affect the outcome significantly.
The estimated 2011 Ohio ACRE revenue guarantee is calculated by multiplying the Ohio Olympic average yield times the U.S. average cash price times the 90% coverage level provided by ACRE. There was also a provision in the 2008 Farm Bill that established a limit on how much the revenue guarantee could change once the program started. This 10% cup and cap based off of the 2010 revenue guarantee sets a floor and ceiling for the 2011 revenue guarantee. The 10% cup and cap come into effect for all three major crops in Ohio if these forecasted numbers hold for the 2011 crop year. The Ohio ACRE revenue guarantee would be $570 for corn, $448 for soybeans and $325 for wheat, which is different than the calculated values.
Is enrolling in ACRE in 2011 a good decision? If the Ohio crop yields in 2011 are equal to the 5 year Olympic average, the 2011 average U.S. market price (from 9/1/2011 through 8/31/2012) would need to be below $3.63 before an ACRE payment would be made. However, if crop yields are better, the price would need to be lower before a payment is made and the opposite is true if yields are lower. Under this example if the Ohio average yield and U.S. average market price would trigger a payment, individual farm revenue would also need to be below the farm’s 2011 revenue guarantee before any payment would be received.
In examining the current future market prices relative to the U.S. average cash price needed to trigger an ACRE payment, it does not appear that ACRE will be beneficial in 2011. However, with that said, the markets are fickle and can move quickly and unexpectedly at times. The ACRE payment is based on the average U.S. market price from harvest 2011 until harvest 2012, not what a farmer receives for his crop. Although the markets look good today, you have no downside risk protection if they decide to decrease significantly. The roughly $4 per acre cost to enroll might still be a good risk reduction strategy for some operations. Remember, even if you decide to sign up for ACRE, it is not a substitute for crop insurance, since it depends on low state revenue to trigger. ACRE will not cover localized crop failures in the same fashion that crop insurance does.