By August 14: ACRE Guidelines for Soybeans

August-03-09

Using average quality Indiana farm land, I am estimating the breakeven where ACRE is a better program than the regular DCP to be at a November 2009 futures price of $9.30 per bushel or less. As of the close on August 3, November soybean futures were at $10.30 per bushel. In fact, prices would have to drop about $1.00 per bushel before going into ACRE would provide any soybean ACRE payments for the 2009 crop.

Using options markets we can calculate the probability that November soybean prices would drop that $1.00 to $9.30 or lower. As of August 3, those odds were only 27% that prices would drop low enough to trigger 2009 soybean ACRE payments. Or, 73% that they would not be triggered for the 2009 crop.

ACRE is explained somewhat in the Corn Outlook I have posted at this site, please read that also in helping you to further evaluate whether to go into ACRE by the August 14th deadline for the 2009 crop.

You need to keep in mind that signing a farm into ACRE for the 2009 crop obligates all crops in that farm to be in ACRE. While ACRE soybean payments do not currently look to be likely, the probability of receiving a corn ACRE payment is higher. On August 3, the December corn futures closed at $3.69 per bushel, and I estimate the December 09 futures price breakeven where corn ACRE would be better than DCP to be at $3.64 or lower per bushel given current expected yields. The odds of December corn futures moving below the $3.64 breakeven are about 48% as calculated from the options market on August 3.

Another note that is of importance is that while the odds of corn prices being low enough to trigger a 2009 corn ACRE payment are about 48% for corn, the probability that ACRE will be a good decision for 2009 are higher than this percentage. The reason is because ACRE has very high payments as prices drop. On the other hand, the costs to be in ACRE-primarily the loss of 20% of direct payments-is not very costly as prices move higher.

Yield prospects continue to improve both for the state of Indiana and for many individual farms. As yields increase, it will take lower prices to trigger ACRE payments. The recent rally in corn and soybean futures from July 30 to August 3, reduce the odds that ACRE will trigger as mentioned above. In addition, higher yield potential also reduces those odds even further.

The current forecast (August 3), says heat and dryness will build in the first-half of August which may reduce yield potential and increase prices, but is not likely to increase the odds that ACRE will be a favorable decision for 2009 (by August 14).
The overall conclusion is that higher prices as of August 3 will reduced the expected returns to ACRE versus just a week earlier. Soybean prices would need to fall about $1 per bushel and corn about 5 cents before ACRE would trigger payments in the respective crops.

ACRE does have strong revenue protection and should be strongly considered by those who need revenue protection given current yield and price prospects for 2009.
If conditions were to stay as they were on August 3, then I would expect only modest additional sign-up for 2009 ACRE by August 14. This means that most would stay out of ACRE for 2009 and reconsider next year for 2010 crops.

However, remember to check yields and price prospects up until August 14 to make your final ACRE decision for 2009 crops.

Chris Hurt
August-03-09
Purdue University