Wheat will most likely benefit from sign up extension for ACRE program

COLUMBUS — Among the major U.S. field crop commodities, wheat is the crop most likely to benefit from the extension to enroll in the new Average Crop Revenue Election farm support program introduced in the 2008 farm bill.

Extension

The U.S. Department of Agriculture Farm Service Agency has extended the sign-up deadline from June 1 to Aug. 14 to give farmers more time to review details of Average Crop Revenue Election and make a more informed decision of whether they want to try the new program or stay with traditional counter-cyclical farm payment programs.

“Farmers are likely to benefit from the enrollment extension because they will know more about the crop on their own farm and nationally by August,” said Carl Zulauf, an Ohio State University agricultural economist with the Department of Agricultural, Environmental and Development Economics.

“This holds true particularly for wheat farmers because the wheat crop is harvested much earlier than corn and soybeans.”

Farm support programs

The traditional suite of farm support programs — marketing loan, price counter-cyclical and direct payments — are designed to help farmers with what has been the traditional farm income problem since the Great Depression, and that is chronic surplus capacity keeping prices chronically low over an extended period of time.

“The marketing loan and counter-cyclical programs presume that we will have farm prices low enough to trigger a payment,” said Zulauf.

In contrast, “Average Crop Revenue Election is a revenue (price times yield) program, not a price program. More importantly, it does not presume what the market is going to be, it just follows the market. If prices or yields decline dramatically, it provides support given the market conditions we are in at the time,” said Zulauf.

“It is, conceptually, a fundamentally different program. Both Average Crop Revenue Election and traditional programs are risk management programs, but they manage different kinds of risk. Traditional programs help manage the risk of chronic low prices. Average Crop Revenue Election helps manage the risk of a decline in revenue over a short period of a few years. Producers need to understand that they can’t look at it through the same eyes they looked at traditional programs.”

Calculation

Using data from the monthly USDA World Agriculture Supply and Demand reports, Zulauf calculated the amount of uncertainty resolved on average for the upcoming national revenue per acre for each crop between the May and August reports was 5 percent for corn, 12 percent for soybeans and 51 percent for wheat.

“While, on average, it appears that corn and soybeans gain relatively little from the extension in the Average Crop Revenue Election sign-up deadline, market events can happen between now and August to substantively impact the Average Crop Revenue Election decision for corn and soybean producers and landlords.

“We could see a major increase in crop revenue, possibly due to higher prices resulting from a drought, that would clearly reduce the incentive to participate in Average Crop Revenue Election.

“On the other hand, we could see a big decrease in revenue between now and August that would clearly increase the incentive to participate in ACRE.”

Be prepared

Farmers may not know now what they intend to do, but Zulauf recommended they prepare the paperwork now in the event enrolling in Average Crop Revenue Election becomes their choice.

“The incentive now is for farmers to wait and see what the weather and markets bring. But there is practical advice that applies now. If you think you are interested in Average Crop Revenue Election on one or more of your FSA farms, it is a good idea to make an appointment with FSA and get the paperwork ready, so all you have to do is sign the election and enrollment forms when you are ready to sign up for Average Crop Revenue Election,” said Zulauf.

“That way you are prepared should a last-minute rush to enroll in Average Crop Revenue Election occur.”

A series of web-based documents outlining the specifics of the program and how the it works can be downloaded at http://aede.osu.edu/people/publications.php?user=zulauf.1.