Farmers and crop-share landowners have until June 3 to enroll their farm or farms in USDA's 2013 Average Crop Revenue Election program. It is expected that most farms will enroll in the traditional Direct and Counter-cyclical Payment program, although ACRE is an option to the DCP.
Some advisers are recommending enrolling all farms in the ACRE program for 2013, because potential large payments could be made if crop prices drop significantly. In addition, ACRE payments could provide crop revenue risk similar to crop insurance revenue products.
Steve Johnson, Iowa State University Extension farm management specialist, has been getting lots of questions from farmers now that the June 3 sign-up deadline is approaching. The most often-asked question is: Should I enroll in ACRE?
Odds of triggering an ACRE payment for corn in 2013 in Iowa seem remote
"I'm lukewarm regarding signing up for ACRE in 2013," says Johnson. "Despite the low 2013-14 national average cash prices forecast by USDA in the May 10 WASDE report (those prices are $4.70 per bushel for corn and $10.50 per bushel for soybeans) the odds of triggering a payment in Iowa for 2013 seem remote."~~~PAGE_BREAK_HERE~~~
This is especially true for the large corn and soybean producing states like Iowa and Illinois, he explains. Nebraska farmers can have two classifications, irrigated or dryland for calculating ACRE revenue triggers, and the dryland looks like it will provide ACRE payments from 2012. However those payments won't be received until October 2013.
ACRE has a revenue trigger at state level that's capped at a 10% annual increase
Another consideration in making your ACRE enrollment decision for 2013 is that ACRE has a revenue trigger at the state level capped at a 10% increase annually, says Johnson. Thus, these triggers are slow to rise despite the higher crop prices the past few years. Iowa's triggers for ACRE in 2013 are still $781 per acre for corn and $574 per acre for soybeans, respectively. To trigger a payment in 2013, the state's final yield times the national cash price (weighted average) must fall below this trigger. A farm enrolled in ACRE would receive this difference reflecting the actual number of acres planted in 2013 to that particular crop times 85%.
USDA's World Ag Supply/Demand Estimates forecasts for 2013 were released on May 10. The midpoint national average cash price forecasts were $4.70 per bushel for corn and $10.50 per bushel for soybeans. With that consideration, here's how to determine potential ACRE payments for corn.
The final state average yield for corn in Iowa would need to be below 166 bushels per acre ($781 divided by $4.70 = 166 bushels per acre). So if Iowa has a final 2013 state corn yield below-trend and the average cash price for corn nationally falls below $4.70 per bushel, it would pay to enroll because you'd collect a payment.
Cash prices for corn may be low at harvest in 2013, but probably not for the entire marketing year
Keep in mind that $4.70 per bushel would be the average cash price for every bushel sold nationwide from September 1, 2013 to August 31, 2014. "We might have cash prices low at harvest, but probably not for the entire 2013-14 marketing year," Johnson points out.~~~PAGE_BREAK_HERE~~~
He adds, "My belief is that if the cash corn price is low at harvest in 2013 (below $4.50 per bushel) at harvest, farmers are going to be reluctant to sell. Most will be storing, and will sell later when basis would likely be narrower and cash prices hopefully higher."
ISU Extension specialists have written extensively on ACRE the past few months. Here's a link to Steve Johnson's May newsletter.
No one has written on ACRE more than farm management economist Gary Schnitkey at the University of Illinois. Here's a link to his latest article.
Note that Schnitkey even added a probability of receiving an ACRE payment based on new crop futures prices for most states and the potential size of that payment.
SUMMING UP: As a result of the May 10, 2013 midpoint price forecast in the USDA WASDE report, would Johnson enroll a farm in ACRE for 2013? "Probably not if the farm was in Iowa," he answers. "If the farm was dryland in Nebraska or in South Dakota, maybe. It's just too hard to get a low state yield in the same year you have a low national cash price -- that's a weighted average." In Iowa or Illinois, the final state yield would be high enough in most years to have an inverse effect on that national cash price.
What about soybeans? The probability of receiving a 2013 ACRE payment is higher for soybeans than corn, notes Johnson. "I might consider ACRE enrollment more seriously if I was planting soybeans on a farm in Iowa," he says. "I would suggest farmers in states like South Dakota, North Dakota and dryland Nebraska to consider enrolling in ACRE for 2013 for both corn and soybeans."