Montana State University

Declining commodity prices favor enrolling in the ACRE Farm Program

July 30, 2009 -- By Duane Griffith, Montana State University agricultural economics professor and MSU Extension farm

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Bozeman -- Growers have an opportunity to protect against the risks of falling prices and yields using a new federal farm program. They must sign up for the Average Crop Revenue Election (ACRE) program by August 14. ACRE is a revenue guarantee program that uses price and yield to set a benchmark revenue protection level for producers who sign up. The revenue protection level is based on the previous two years' national average price and the five-year Olympic average yields at both the state and farm level.

In the last few months, average price expectations for commodities covered by the ACRE program have trended downward. Early average price forecasts for 2009 are $5.30 per bushel for wheat and $3.30 per bushel for barley (http://www.fsa.usda.gov/dcp). This decline in expected price favors the possibility of receiving payments if signed up for the ACRE program, however, this is not a guaranteed payment. Revenue guarantees for Montana wheat were established using a two-year national average price of $6.63 per bushel and an Olympic average yield for Montana of 30.7 bushels per acre. If the forecasted $5.30 price is realized, and yields remain at or below 30.7 bushels per acre, Montana producers will receive an ACRE payment for all wheat acres enrolled in the program.

Prices and yields at the state and farm level are used to calculate two triggers, or threshold levels that determine if a producer will receive an ACRE payment. The first trigger is the state's actual revenue for the ACRE coverage year must be less than the State Revenue Guarantee. The state revenue guarantee in 2009 for wheat in Montana is $183.19 (30.7 bushel per acre Olympic average yield x $6.63 per bushel price x 90%). Using the recent Farm Service Agency (FSA) estimate for national average wheat prices for the 2009/2010 crop of $5.30 and the 30.7 Olympic average yields for wheat in Montana, the state trigger is met and producers would receive an estimated $20.48 per acre ($183.19 minus $162.71), if the second farm level trigger is also met.

The second trigger is met if the farm's actual revenue for an ACRE coverage year is less than the farm's benchmark revenue for that year. The farm benchmark revenue is calculated as the two-year national average price for a commodity, times the farm's Olympic average yield, plus the insurance premium per acre (if any) paid for insurance coverage on that crop. Using the plug yields for Gallatin County, the Olympic average yield is 51.9 bushels per acre. National average price is still $6.63 for wheat, and for an example, we will assume a crop insurance premium of $30 per acre. The farm benchmark revenue is $374.09. Again, using the early estimate of $5.30 per bushel for the national average price for the 2009 ACRE coverage year, the actual farm revenue, without changing the average yield, would be $275.07. This meets the farm level trigger, as actual farm revenue ($275.07) is less than the farm benchmark revenue of $374.09. Since both triggers are met, the producer would receive an estimated ACRE payment on enrolled wheat acres of $20.48 per acre.

Changes have been made to the procedures available for producers to establish farm level yields. In the early stages of the ACRE program, producers were required to provide documented five-year production histories for each crop they wished to enroll in the ACRE program. This requirement has been relaxed and FSA has provided a set of plug yields producers can use to establish yield histories for each crop. The plug yields are not complete for all counties, all years and all covered crops in Montana. Producers may still have to provide FSA with documented production records for a particular crop. The plug yields for each county and crop is available to download at http://www.fsa.usda.gov/dcp. The local FSA office can provide more information on how plug yields can be used to provide production histories for individual producers.

While price expectations have declined, revenue guarantees are based on price and yield. Increases in yields at the state or farm level could prevent receiving an ACRE payment if wheat prices decline to the early estimate of $5.30 per bushel. The ACRE payment is determined by the difference in the state revenue guarantee and the state's actual revenue for the coverage year. In the example used above, if the state average yield increases by more than 3.9 bushels, ($20.48 divided by $5.30) then the state trigger is not met, which would result in no ACRE payment for wheat in Montana. Increased yields could also prevent some operations from meeting the farm level trigger.

Several factors have contributed to a relatively low sign up for the ACRE program, but if the national average price for the 2009 crop year does decline to $5.30 for wheat and $3.30 for barley, and yields remain constant, the probability of receiving an ACRE payment increases substantially. Producers may still want to consider signing up for the ACRE program. Since the $5.30 average price for wheat is an early estimate and yields for covered commodities in Montana look very good this year, increases in yields may more than make up for price declines.

Contact: Duane Griffith, (406) 994-2580 or griffith@montana.edu