4.7.10 - Kentucky wheat
growers who signed up for the U. S. Department of
Agriculture’s optional Average Crop Revenue Election Program,
or ACRE, will likely see big payments this year, said Cory
Walters and Greg Halich, agricultural economists in the
University of
Kentucky College of Agriculture.
"In Kentucky, a perfect
storm hit the 2009 wheat crop," Walters said. "State yields
were below average, and the national average marketing price
is significantly below the commodity guarantee. For both corn
and soybeans, Kentucky yields were well above average and
marketing year prices were not far from their respective
program guarantees. Therefore, right now it looks like no
payments for corn or soybeans will be made."
The economists were able
to estimate ACRE payments for this year by using USDA
estimates of the state yield and marketing year average
prices. Projected Kentucky ACRE payments are $95 per acre for
wheat. These projected payments are estimates, and final
payments will likely change based on final marketing year
prices once the marketing year ends on Aug. 31.
ACRE is a risk protection
program added under the 2008 Farm Bill. Unlike the traditional
farm support programs that offer direct payments,
counter-cyclical payments and marketing assistance loans if a
price of a particular crop falls below a certain level, ACRE
pays if crop revenue falls below a revenue guarantee. Revenue
includes price and yields.
ACRE payments are
determined by taking the state revenue guarantee and
subtracting the product of state average yield and the
national average marketing price. When this value is positive,
a potential payment is available, but that doesn’t necessarily
guarantee payment for every producer in the state. Individual
growers must show that their 2009 farm revenue, which is their
actual yield multiplied by the national average price, was
less than their farm revenue benchmark, which is calculated by
their yields from the past five years, minus highest and
lowest yielding years, multiplied by the previous two years’
national average marketing prices plus crop insurance premium.
Crop insurance payments do not count against ACRE.
Producers eligible for
ACRE include those who grow corn, soybeans, wheat, sorghum,
barley, rice, upland cotton, oats, peanuts, pulse crops and
other oilseeds. Those who enroll in ACRE forgo any
counter-cyclical program payments, forfeit 20 percent of
direct payments and have loan rates reduced by 30 percent.
"On average, the 20
percent reduction in direct payments costs Kentucky producers
$5 per base acre for corn, $2 per base acre for soybeans and
$4 per base acre for wheat," Halich said. "Also, producers
using Commodity Credit Corporation loans will have to put up
more bushels to get the same amount of money under ACRE, since
loan rates are reduced by 30 percent."
Since it is based on
revenue, price protection with ACRE currently is significantly
higher than that found in the counter-cyclical program. ACRE
payments for the 2009 marketing year would be triggered if
corn falls below $3.72 a bushel, soybeans drop below $9.04 a
bushel, and wheat falls below $5.97 a bushel by the end of the
marketing year. In the counter-cyclical program, payments
would occur if prices fall below $2.35 a bushel for corn,
$5.36 for soybeans and $3.40 for wheat.
The implied ACRE floor
price can only go up or down by 10 percent each year. So it
would take five consecutive years of significantly reduced
revenue, with each year worse than the previous year, for the
ACRE price floor to reach the counter-cyclical level for corn,
soybeans and wheat.
"Thus, the price
protections for ACRE are clearly better then the
counter-cyclical program, even in the worst-case scenario, for
the next five years," Halich said.
The deadline to enroll into the ACRE
program for the 2010-2011 crop year is June 1. To help
producers understand and decide if they should sign up for the
ACRE program, Halich and Walters will conduct workshops in
late April and May at various locations across the state. In
addition to describing ACRE, they will also show how the
program works in conjunction with crop insurance. For more
information on ACRE or the upcoming workshops, contact the
local office of the UK Cooperative Extension Service.
