"In Kentucky, a perfect storm hit the 2009 wheat crop," Walters said. "State yields were below average, and the national average marketing price is significantly below the commodity guarantee. For both corn and soybeans, Kentucky yields were well above average and marketing year prices were not far from their respective program guarantees. Therefore, right now it looks like no payments for corn or soybeans will be made."
The economists were able to estimate ACRE payments for this year by using USDA estimates of the state yield and marketing year average prices. Projected Kentucky ACRE payments are $95 per acre for wheat. These projected payments are estimates, and final payments will likely change based on final marketing year prices once the marketing year ends on Aug. 31.
ACRE is a risk protection program added under the 2008 Farm Bill. Unlike the traditional farm support programs that offer direct payments, counter-cyclical payments and marketing assistance loans if a price of a particular crop falls below a certain level, ACRE pays if crop revenue falls below a revenue guarantee. Revenue includes price and yields.
ACRE payments are determined by taking the state revenue guarantee and subtracting the product of state average yield and the national average marketing price. When this value is positive, a potential payment is available, but that doesn't necessarily guarantee payment for every producer in the state. Individual growers must show that their 2009 farm revenue, which is their actual yield multiplied by the national average price, was less than their farm revenue benchmark, which is calculated by their yields from the past five years, minus highest and lowest yielding years, multiplied by the previous two years' national average marketing prices plus crop insurance premium. Crop insurance payments do not count against ACRE.
Producers eligible for ACRE include those who grow corn, soybeans, wheat, sorghum, barley, rice, upland cotton, oats, peanuts, pulse crops and other oilseeds. Those who enroll in ACRE forgo any counter-cyclical program payments, forfeit 20 percent of direct payments and have loan rates reduced by 30 percent.
"On average, the 20 percent reduction in direct payments costs Kentucky producers $5 per base acre for corn, $2 per base acre for soybeans and $4 per base acre for wheat," Halich said. "Also, producers using Commodity Credit Corporation loans will have to put up more bushels to get the same amount of money under ACRE, since loan rates are reduced by 30 percent."
Since it is based on revenue, price protection with ACRE currently is significantly higher than that found in the counter-cyclical program. ACRE payments for 2009 would be triggered if corn falls below $3.72 a bushel, soybeans drop below $9.04 a bushel, and wheat falls below $5.97 a bushel by the end of the marketing year. In the counter-cyclical program, payments would occur if prices fall below $2.35 a bushel for corn, $5.36 for soybeans and $3.40 for wheat.
The implied ACRE floor price can only go up or down by 10 percent each year. So it would take five consecutive years of significantly reduced revenue, with each year worse than the previous year, for the ACRE price floor to reach the counter-cyclical level for corn, soybeans and wheat.
"Thus, the price protections for ACRE are clearly better then the counter-cyclical program, even in the worst-case scenario, for the next five years," Halich said.
The deadline to enroll into the ACRE program for the 2010-2011 crop year is June 1. To help producers understand and decide if they should sign up for the ACRE program, Halich and Walters will conduct workshops in late April and May at various locations across the state. In addition to describing ACRE, they will also show how the program works in conjunction with crop insurance. For more information on ACRE or the upcoming workshops, contact the local office of the UK Cooperative Extension Service.