farmgate: Yields, Price, And ACRE: Working Toward A Decision
How do potential yields look compared to normal? Is the crop getting larger? Will crop prices recover after their recent plunge? Where are prices in relation to crop revenue insurance guarantees? Will revenue from low prices trigger an ACRE payment? And when is that ACRE signup deadline, anyway?
My, you have a lot of questions! But since you only have 25 more days until the August 14th ACRE sign-up deadline, you’ll need to do some significant cogitating about yields, prices, and whether ACRE will benefit your individual farm. And remember, since every farm is a bit different, this year ACRE may benefit you but not your neighbor, and vice versa.
At Purdue, marketing specialist Chris Hurt uses the term “flushed” in his newsletter to describe the corn market, which peaked at $4.67 on June 2 for December futures and has traded under $3.30. Hurt says more acres, improved yields, lower usage, and higher ending stocks have all combined to reduce the value of corn. And that value is one of the elements of the ACRE formula. While crop conditions are better than usual, Hurt says weather forecasts point to a deterioration of the crop size in August. He is expecting a 156 bu. national yield, compared to the 153.4 bu. average that USDA predicts, but he also says acreage is not as much as the June 30 Planted Acreage report projected. The Purdue economist believes that demand will also increase because of lower prices, and that will raise corn prices. He says grain producers might avoid price any corn now, arrange for storage, and expect to see December futures in the $3.75 to $4.00 vicinity.
One question to consider is the potential size of the corn crop based on current crop conditions, which Darrel Good at the University of Illinois says would point to a 163 bu. national average yield, if crop conditions remain steady, and there is not an early frost or freeze. His newsletter suggests the current prices have been a factor of the corn acreage fundamental, along with weakness in financial and energy markets. And for the next several weeks, yield and production prospects will likely determine if a low in prices has been established.
Good believes the markets are quite satisfied with the size of 2009 production, "Corn and soybean markets have priced in relatively large crops, but considerable production and price uncertainty remains. The November soybean futures are now about $.50 above the spring price guarantee for crop revenue insurance products offering an opportunity for some additional pricing of the 2009 crop. In contrast, December corn futures remain well below the crop revenue insurance price guarantees." Those revenue insurance guarantees are $4.04 for corn and $8.80 for beans.
Hurt suggests that corn may be too cheap, based on the potential for increased use and fewer corn acres than USDA believes. But the relative low price of corn is pushing many farmers toward the FSA office to get the appropriate ACRE forms to fill out before the sign-up deadline. Hurt says if yields are 1-2% better than normal, then the US average price has to be $3.70 for ACRE to provide more financial benefits than the conventional program. As a point of information, $3.75 is the midpoint of the current USDA forecast price range for new crop corn. At that point, Hurt says the likelihood is slim that ACRE would make any payment. However, the futures market is projecting a $3.30 season average price, and if that is the case, ACRE would pay about $45 more per acre than the conventional program. That also depends on whether your farm trigger is met, according to Hurt, “If your yields look to above normal this year, then this makes it less likely your own farm will trigger. To the extent your yields look normal or below-normal, then that makes it more likely you will meet your own farm trigger.”
Chris Hurt doubts the USDA’s expected average farm price would trigger an ACRE payment on corn, but he says the low futures prices may make that possible, if, your yields are not as good as your farm average.
If you need more assistance in making the ACRE sign-up decision, a good explanation supplemented by audio can be found here.
Summary:
If you are trying to make the decision on whether to sign up for the ACRE farm program, get a good estimate of how your yields will be in relation to your yield record that is part of the sign-up documents. In addition to your farm triggering a payment, there must also be a trigger pulled by the state average yield and the national average price. While USDA’s price forecast may not be low enough, the average price being projected by the futures market may trigger an ACRE payment. Collect as much data as possible before the August 14 sign-up deadline.
Posted by Stu Ellis on July 21, 2009 12:17 AM to farmgate