Postponing the ACRE Election Decision: What will 60-90 Days Matter?

In late April, the U.S. Government gave farmers a gift and that gift was not part of the Economic Stimulus Package. What they did was move the DCP sign-up and ACRE election decision deadline from June 1, 2009 to August 14, 2009. The reason I believe this was a gift is because in late July, early August, more information critical to determining which program will be better in 2009 will be known.

To calculate the state revenue guarantee under the ACRE election, the two year average cash market price for 2007 and 2008 along with the five year Olympic yield from 2004-2008 must be known. The five year Olympic yields are known now, but the two year average price is still being determined. For wheat, the marketing year for 2008 began July 1, 2008 and will end June 30, 2009. Corn and soybean 2008 marketing years started September 1, 2008 and will not conclude until August 31, 2009. So by postponing the decision until summer, farmers will know the two year average price for wheat and will have 23 of 24 months of corn and bean prices needed to determine the two year average price. With the two year market price known or very close to being known, the state revenue guarantee used as the benchmark to trigger ACRE payments will also be known or very close to being known.

The other piece of information, that might be more important, is that wheat yields will already be known and farmers will have some idea of potential corn and soybean yields. ACRE payments are a result of 2009’s crop revenue relative to the state and farm revenue guarantees. Crop revenue per acre is calculated by multiplying actual yield by the 2009 average market price. If yields or a good approximation of yields are known, then that side of the equation can be completed. Farmers will then only have to “guess” on what the average market price will be for each crop to determine if ACRE might pay in 2009.

Having the additional information by late July early August should improve the probability of correctly predicting if ACRE will perform better than DCP-Counter Cyclical (DCP-CC) in 2009. Although there is still missing information, at least some of the blanks can be filled into the equation with some degree of confidence. If ACRE appears to be a good alternative at that time, make the election. If yields and prices appear to be strong causing ACRE not to be a beneficial election, remain in DCP-CC. If a farmer chooses to remain in DCP-CC, he/she should re-examine the ACRE program in the spring of 2010 and then decide between ACRE and DCP-CC again. Because of the potential for additional information, I believe at this time the prudent thing to do would be to sign-up for DCP-CC, collect the 22.5% advance payment, plant your crops, and wait until summer to determine if the ACRE election is right for your farm.

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