farmgate: You Need To Watch USDA's Rulemaking Process For The ACRE Program.
The Average Crop Revenue Election program in the 2008 Farm Bill will soon become a dilemma for many farmers, who are undecided whether to sign up for the program or not. Many Land Grant University agricultural economists have analyzed the program, created decisions aids, and considered the alternatives. Most of them say it is difficult to make a recommendation that covers most farmers because of the variables in the program and the direction of prices over the next five years. So what do you do? There is always more to learn if you need help with a decision, and there is where we are going today.
While the general provisions for the ACRE program have been written by Congress and included in the new Farm Bill, there has been little said about the fact that USDA staff members are feverishly working on program details, which can make significant differences in the structure of the program and whether farmers decide to participate. The new rules are far from complete, and some of the Washington, D.C. observers say they will probably not be finalized until the new administration takes office early next year.
In the meantime, ag economist Pat Westhoff of the University of Missouri’s Food and Agricultural Policy Research Institute joined many of his colleagues in delving into the details of the ACRE program, in a recent presentation. The first two-thirds of the presentation lay out the details about ACRE, but beginning on slide 21 Westhoff expresses his thoughts about the seriousness of the rule-making procedure underway at the US Department of Agriculture.
Westhoff says one of the critical questions is which two years of prices will be used to calculate the benchmark for the ACRE price guarantee? Most of his colleagues have previously noted that if 2008-2009 prices are the basis for the ACRE guarantees, then farmers will benefit from the relatively high prices that will guarantee a high ACRE payment for 2009-2010. However, the 2007-2009 average price will not be finalized until after August 31, 2009, and Westhoff says USDA may use the 2006-2008 average price, which is already known, but much lower, as the ACRE guarantee. In Westhoff’s term “MUCH” lower.
On his slide 22 Westhoff shows that ACRE payments will be greater than the alternative of direct and counter-cyclical payments in all states, except the southernmost tier from California to Florida. But that would only be the case if the USDA uses the 2007-2009 average prices. If USDA opts for the 2006-2008 average price for the ACRE guarantee in 2009, then 75% of the US would not benefit from ACRE. The only Cornbelt states that would see ACRE having more financial benefit than the traditional program payments would be the Dakotas, Minnesota, Michigan, and Ohio; and only for the entire span of the Farm Bill. If you look at the 2009 crop year results, Westhoff says ACRE comes in second to direct and counter cyclical payments.
Westhoff says using the 2007-2009 market year prices and using the entire life of the Farm Bill, the average net benefit per acre of the ACRE program would be $6.42 for corn, $12.93 for beans, and $2.68 for wheat. But he warns that because of the variables in the ACRE program, some farms will get nothing and other farms may get very large payments.
Another indicator of the impact of USDA’s choice of years for calculating the ACRE guarantee is the total amount of outlay by USDA. For the 2009-2010 crop year, the use of the lower prices would mean about $200 million in payments, but with the higher price calculation, the total outlay would exceed $1.5 billion. For the 2010-2011 crop year, the use of the lower price alternative would mean a total outlay of $250 million, compare to $2.25 billion if the higher price alternative were used. And there are similar comparisons for the balance of the Farm Bill.
Westhoff says participation in the ACRE will be reduced if the USDA uses the 2006-2008 price average, if farmers expect market prices to rise, if there is more base acreage than is planted, if program yields are high relative to actual harvest yields, and if the state Olympic yield is unusually low.
Summary:
Farmers who are still undecided about signing up for the ACRE program have not lost anything, since many of the details of the program are undecided. Those details are being written by USDA and depending upon the structure of the rules, a significant rise or drop in farm program payments could result. The primary issue circulates around the ACRE payment guarantee, and if it includes 2006 and 2007 prices the ACRE payments will likely be less than traditional direct and counter cyclical payments, but if the ACRE program uses 2007 and 2008 prices, then the ACRE program will be more attractive to Cornbelt farmers.
Posted by Stu Ellis on September 15, 2008 12:22 AM to farmgate