Corn ACRE is a YES for 2009 (But Read Below)

August-12-09

The following are general statements about corn ACRE decision based on the State of Indiana potential trigger. Each person must examine their individual farm yield potential for 2009 and specific details about how ACRE affects their farms. Payment limits implications under ACRE should also be evaluated.

The August 12th updates from USDA have become more encouraging to participate in ACRE for the 2009 crop. Of course signing up for ACRE now commits the farm to the ACRE program for the 2009, 2010, 2011, and 2012 crops as well. Our Purdue evaluation is that for most farms, ACRE has a high probability of providing higher total revenue than the regular DCP program over the four years of the program.

USDA on August 12 estimated that Indiana corn yields would be 163 bushels per acre. With current information, and assuming the 163 bushel yield will hold, this means if the U.S. average farm price for the 2009 crop is below $3.58/bushel the state ACRE payment would be triggered. USDA estimated on August 12 that the U.S. farm price would be between $3.10 and $3.90. The midpoint of that range is $3.50. At $3.10, the average Indiana corn ACRE payment would be $65/acre of corn planted in 2009. At $3.20 it would be $51/acre; at $3.30 $37/acre and at $3.50-the midpoint of their estimate, 2009 corn ACRE payments would be $10/acre. If the price were above $3.58/bushel there would be no 2009 corn ACRE payment. Again, this is assuming the 163 bushel yield is the final yield. Those in the regular DCP program would receive no additional government payments in these price ranges.

Using similar assumptions for soybeans, the expected 2009 ACRE payment would be $12/acre planted in 2009 and the wheat payment base for Indiana would be $35/acre planted for the 2009 crop. But, if prices should drop more than the current estimate, soybean and wheat payments would be larger as well.

ACRE does an excellent job of protecting revenues as yields or prices fall from current levels. The old DCP program tends to fail to provide protection as yields or prices fall from current levels. As an example for the 2009 crop and assuming that yields will be at the 163 bushel level for the state, then corn acre payments trigger at $3.58 or lower. The more prices fall below $3.58, the bigger the ACRE payments. Those payments can get very large if prices would fall down toward $3.00 or lower. In comparison in the regular DCP program, there will be no additional government payments until the U.S. average farm price reaches $2.35 per bushel or lower. As the U.S. farm price for the 2009/10 marketing year falls below $2.35, then counter cyclic payments would be triggered.

You can see that the old DCP program was written for an era of $2.00 per bushel corn prices while ACRE provides protection at prices and yields that are closer to current levels. ACRE is also designed to update yields and prices based on the most recent history which means it will continue to provide protection much more closely to the current yields and prices than the regular DCP program that is based on an era of $2.00 corn and yields as far back as the early 1980s.

FSA offices are bending over backward to accommodate your interest in ACRE the deadline for notifying them of your intent to go into ACRE for 2009 is Friday August 14, but the necessary forms can be delivered after August 14….but work with the local FSA office for exact details and deadlines.

Chris Hurt
August-12-09
Purdue University