The decision to select the Average Crop Revenue Election is challenging since the future price and yields of crops are unknown. Without price and yield knowledge, farmers are simply speculating on which government program might be most beneficial to their farm business. There is some expectation that wheat acres will receive significant ACRE payments in 2009. Although there may be ACRE payments, farmers need to think through the program parameters before spending the cash.
The ACRE program parameters state the State ACRE Revenue Guarantee is calculated by multiplying the average cash market price for wheat times the Ohio five year Olympic average. This average cash market price for wheat contains all wheat, not just soft red winter wheat and is currently estimated at $6.67 per bushel. Likewise, the 2009 average cash market price is for all wheat, not just soft red winter. So using the local Ohio wheat price will underestimate the wheat price and conversely over estimate the potential ACRE payments for wheat.
Another misconception is the time period that is used to determine the 2009 average market price for wheat. The 2009 wheat market year begins July 1 2009 and concluded on June 30, 2010. So estimating the average market price requires predicting market prices for the next 12 months. The USDA farm Services Agency posts an estimate for all program crops on their webpage
http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landing
Using results from the University of Illinois ACRE comparison calculator, the following graph displays the projected ACRE payments under several different yield and price assumptions. In order for these payments to be made the state’s actual average revenue and the FSA farm actual revenue need to be below the state revenue guarantee and the farm revenue guarantee levels. In this example, the assumption was the farm’s average yield was identical to the state’s average yield of 68 bushels per acre.
The forecasted price from the USDA FSA website estimates the average cash market price for all wheat to be $5.40 for the 2009 wheat crop. Using the $5.40 wheat price, ACRE will be similar to DCP-CC in payment levels if the average Ohio wheat crop is 72 bushels per acre. If the average Ohio wheat crop is 60 bushels, the expected ACRE payment increases to approximately $75.00 per acre resulting in a ~$55.00 better payment compared to DCP-CC. Since farmers have until August 14, 2009 to make the ACRE election, they have time to wait for the actual wheat yields. Following wheat harvest, farmers with significant what acres will be in a better position to determine if signing up for ACRE in 2009 is a good decision for their farm business.