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Farmers Commodity Program Choices

Farmers Commodity Program Choices. Wesley N. Musser Farm Management Specialist Department of Agricultural and Resource Economics University of Maryland . New Commodity Programs. Average Crop Revenue Election (ACRE) Supplemental Revenue Assistance (SURE)

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Farmers Commodity Program Choices

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  1. Farmers Commodity Program Choices Wesley N. Musser Farm Management Specialist Department of Agricultural and Resource Economics University of Maryland

  2. New Commodity Programs Average Crop Revenue Election (ACRE) Supplemental Revenue Assistance (SURE) Farmers must make choices to participate in these programs This presentation reviews the programs and presents Maryland Examples of the choices

  3. Limitations of this Presentation All programs regulations have not been developed for these programs My presentation reflects my current level of understanding given this program development As the program develops, this presentation may become outmoded Keep in touch with your FSA Office for the most recent information

  4. Some ACRE Requirements Must Elect to participate Sign-up in 2009 and later years Must give up Counter-Cyclical Payments and 20% of Direct Payments and 30% of Marketing Loan Assistance or Loan Deficiency Payments Decision is irrevocable Applies to all crops on each FSA Farm # but not all Farm #’s

  5. Review of ACRE Program • ACRE is a state level gross revenue protection plan for covered commodities • ACRE payments are made if: • Actual State Revenue is less than ACRE Program Guarantee for the crop • Actual Farm Revenue is less than the ACRE Farm Benchmark Revenue for the crop • Farm payments are based on State Revenue • Revenue Components are illustrated with a MD example below

  6. ACRE Program Guarantee 90% of Product of: Olympic average of state corn yields for last five years: with yields of 114, 142, 121, 128, & 89, eliminate the high and the low, and average 114, 121, & 128 to obtain 121 bushels and 2-year national market year price of corn of $5.80 Program Guarantee is 90% of 121 x 5.8 or $632

  7. Actual State Revenue Actual State Average Corn Yield of 80 bushels times National Market Year Price of Corn of $6.50 Actual State Revenue is 80 x 6.5 = $520 Difference between Guarantee and Actual is $632-$520 = $112

  8. Farm ACRE Benchmark Farm’s 5-year Olympic Average Yield of 125 bushels times 2-year national market year price of corn of $5.80 plus Per-acre crop insurance premium for 75% CRC coverage of $32 ACRE Benchmark is 125 time 5.8 + 32 = $757

  9. Actual Farm Revenue Actual Farm’s Planted Acre Yield of 85 bushels times National Market Year Price of Corn of $6.50 Actual Farm Revenue is 85 x 6.5 = $552.5

  10. Example Farm Eligible for ACRE Payment State Condition for Payment Met: Guarantee of $632 is more than Actual State Revenue of $520 Farm Condition for Payment Met: Benchmark of $757 is more than Actual of $522.5

  11. Farm Corn ACRE Payment Calculated as 83.3% of: Difference between State Guarantee and State Actual of $632-$520 or $112 times Yield Ratio of Farm Olympic Average to State Olympic Average of 125/121 = 1.03 Payment per Planted Acre is 83.3% x 112 x 1.03 = $96 Farm Gives up 20% of Direct Payment of $26 or $5

  12. Soybean Example ACRE Payment Uses same calculations ACRE Example for Maryland handout includes a soybean example Per-Acre Soybean Payment is $77 Farm gives up 20% of Direct Payment per acre of $12 or $2

  13. What should farmers do about ACRE? In example, farm not eligible for counter-cyclical or LDP payments because prices too high Large ACRE payments from much lower than average yields and prices about the same Lower prices than previous two years could also result in ACRE payments Both situations, could have no counter-cyclical or LDP payments

  14. More on What should farmers do about ACRE? ACRE payments large because current prices are higher than traditional prices With traditional price levels, farmers eligible for payments given up and ACRE payments lower If prices or yields don’t drop, ACRE payments will not be made At low prices, could get traditional payments but not ACRE payments

  15. More on What should farmers do about ACRE? At current prices and variable yields, ACRE seems to have advantages At traditional lower prices, current program payments will be made and could be advantageous Choice may depend on expectations of future price levels Are we in a new pricing environment or a price bubble?

  16. Payment Calculators Available Do some analysis for your farm and your expectations of future prices See: http://www.extension.iastate.edu/agdm/articles/babcock/BabAug08.html From Bruce Babcock at IA State University Others including MD Grain Producers will have calculators

  17. Questions?

  18. Eligibility for SURE Must farm in a Secretary of Agriculture declared disaster county Or, farm in a county contiguous to a disaster county Or, have yields 50% or lower than normal yields

  19. Crop Insurance Requirements All land in farm must be enrolled in crop insurance Crops without crop insurance, such as pasture and watermelons, must be enrolled in FSA’s Noninsured Crop Disaster Assistance Program or NAP Must not miss deadlines for crop insurance Small grains 9/30/08 for 2009 crops Perennial crops such as hay and fruit also in the Fall See your crop insurance agent and FSA

  20. Special Enrollment for 2008 SURE starts in 2008 Most farmers do not have all land enrolled in crop insurance or NAP for 2008 Special enrollment for non-insured crops at FSA by 9/16/08

  21. MD SURE Example Handout for a 1000 acre corn/soybean farm Will summarize calculations Only present corn and total farm numbers Example assumes no ACRE payments

  22. SURE Payment Calculations Crop Revenue Guarantee Crop Revenue to Count SURE Payment Total Farm Calculations rather than Crop Calculations

  23. Corn and Farm Revenue Guarantee Multiply: Planted Acres of 500 Crop Insurance Indemnity Price of $6.00 Crop Insurance APH of 125 bushels/acre Crop Insurance Coverage of 75% Product is Crop Insurance Revenue Guarantee of $281,250 Total Farm Guarantee is $491,250 Total Farm Guarantee times 115% is SURE Guarantee or $564,938

  24. Corn Crop Insurance Indemnity Multiply: Harvested Acres of 500 Actual Harvested Yield of 80 bushels Harvest time Insurance Price of $6.00 Revenue to Count for Insurance is $240,000 Crop Insurance Indemnity is Crop Insurance Guarantee of $281,250 minus Revenue to Count of $240,000 equals $41,250 Total Farm Indemnity is $76,250

  25. Farm SURE Revenue to Count Multiply Harvested Yield of 80 bushels by Marketing Year Actual Average Price of $6.50 times 500 acres = Corn Crop Sales Revenue of $260,000 Add Soybean Sales Revenue to obtain Total Farm Revenue to Count of $435, 000 Add Crop Insurance Indemnities of $76,250 Add 15% of Direct Payments of $3,000 Add ACRE and Other FSA Payments of 0 Total SURE Revenue is $514, 250

  26. SURE Payment From SURE Guarantee of $564,938 Subtract SURE Revenue to Count of $514,250 Equals Revenue Shortfall of $50,688 Multiply by 60% to obtain SURE Payment of $30,413

  27. SURE Calculator for Your Farm http://www.extension.iastate.edu/agdm/articles/edwards/EdwAug08.html Developed by William Edwards of Iowa State University

  28. Relationship between SURE and ACRE No ACRE payment in SURE Example Relevant for 2008 with only SURE After 2008, only small ACRE payments can be made and also a SURE payment If ACRE (or counter-cyclical) payments $50, 688 or more, the Crop Revenue for SURE would increase to $564, 938 or more and the Revenue Shortfall would be 0 or less. So no SURE payment

  29. Relationship between SURE and ACRE, continued SURE payments made only when ACRE payments small or zero Farm eligible for SURE payments when its yield is low but state average yield normal SURE protects against low farm yields not in the whole state

  30. Should Farm Have SURE Eligibility? If not enrolled in ACRE and prices stay high, SURE provides additional protection against low yields Also provides protection against price drops if not in ACRE If enrolled in ACRE, protects against low farm yields but normal state yields if prices stay high Cost low--$300 per crop or $900 per county for CAT and $250 per crop and $750 per county for NAP

  31. Crop Insurance and NAP for SURE and ACRE Level of Coverage affects SURE Revenue Guarantee Indemnities reduce SURE payment Premium increases farm ACRE guarantee For SURE, remember to enroll in crop insurance or NAP for all acreage See crop insurance agent and FSA

  32. Summary Both programs complicated Both protect against low yields and price drops during growing season Regulations are still being written Examples in this presentation based on current understanding and may not be completely accurate Crop insurance very important

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