Transcript Ethics and The Role For Economists

Food, Conservation, and Energy
Act of 2008: Programs for
Commodities
Jody Campiche
Mike Dicks
Larry Sanders
Commodity Programs
◦ Continues many of the commodity programs
introduced in recent farm legislation
 Adjustments to payment limits and eligibility
 New average crop revenue election program
 Permanent disaster assistance program
 Adjustments to long-standing crop insurance
program
Commodity Programs
Direct Payments DP
 2008 and 2012 - 85% * Base * Yield * Rate
 2009 – 2011 - 83.3% * Base * Yield * Rate
Commodity
2007
2008-12
Corn (bu)
$0.28
$0.28
Soybeans (bu)
$0.44
$0.44
Wheat (bu)
$0.52
$0.52
Barley (bu)
$0.24
$0.24
Cotton (lb)
$0.0667
$0.0667
$36
$36
Peanuts (ton)
Commodity Programs -DCP
Counter Cyclical Payments CCP
Target prices for selected commodities
Commodity
2007
2008-2009
2010-2012
Corn (bu)
$2.63
$2.63
$2.63
Soybeans (bu)
$5.80
$5.80
$6.00
Wheat (bu)
$3.92
$3.92
$4.17
Barley (bu)
$2.24
$2.24
$2.63
Cotton (lb)
$0.724
$0.7125
$0.7125
$495
$495
$495
Peanuts (ton)
Commodity Programs
Average Crop Revenue Election (ACRE)
 Manage short term shortfalls in revenue
 Part of suite of risk protection programs
 Similar to a “put option” on expected
state revenue
◦ Odds for a payment increase if ACRE is in the
money
Direct – Countercyclical Payment
 Manage chronic low prices
Average Crop Revenue Election
(ACRE)

20% reduction in DP

30% reduction in MLA

One time election in any year 2009-2012

Must enroll all base acres for farm

If you have multiple farms, do not have to enroll all farms

Once enrolled, must remain in ACRE for remainder of 2008
farm bill
Commodity Programs
ACRE Payment - General

Two triggers – state and farm

Based on planted acreage yields
◦ State – revenue guarantee > actual
state revenue
◦ Farm – revenue guarantee > actual
farm revenue
◦ ACRE payments not tied to base
Average Crop Revenue Election (ACRE)
TWO TRIGGERS MUST BE MET BEFORE PAYMENTS CAN BE ISSUED
1. STATE TRIGGER
Actual State
State ACRE Guarantee
Revenue
90%
100%
times
times
MUST
Benchmark State Yield
Actual State Planted Yield
(5-year Olympic average planted yield) EXCEED
times higher of:
times
National Average Market Price or
ACRE Program Guarantee Price
(2-year national average price)
70% of National Loan Rate
2. FARM TRIGGER
State ACRE Guarantee
100%
times
Farm Average Yield
(5-year Olympic average planted yield)
times
ACRE Program Guarantee Price
(2-year national average price)
plus
Producer-paid Crop Insurance Premium
Source: http://agriculture.senate.gov/
AND
MUST
EXCEED
Actual Farm
Revenue
100%
times
Actual Farm Yield
times higher of:
National Average Market Price or
70% of National Loan Rate
8
Average Crop Revenue Election (ACRE)
Calculation of a Farm’s Payment
FARM PAYMENT = 83.3% of farm's planted acresa
times
(farm's average yield divided by State benchmark yield)
times
State ACRE guarantee
minus
State ACRE guarantee
times
Lesser of:
Actual State
Revenue
25%
a
The total number of planted acres for which a producer may receive ACRE
payments may not exceed the total base acres for the farm. If the total number of
planted acres exceeds the total base on the farm the producers may elect which
planted acres to enroll in ACRE.
9
Disaster Relief

Supplemental agricultural disaster
assistance program
• Supplemental Revenue Assistance Payments
(SURE) Program
•Livestock Forage Disaster Program (LFP)
• Livestock Indemnity Program (LIP)
• Tree Assistance Program (TAP)
• Emergency Assistance for Livestock, Honey
Bees, and Farm-Raised Fish (EALHF) Program
SURE

Payment = 60% * (SURE guarantee Total Farm Revenue)

to be eligible, must have purchased or
be enrolled in crop insurance for any
and all mechanically harvested crops
◦
For insurable crops on the farm, a policy or plan of insurance under
the Federal Crop Insurance Act
◦
For noninsurable commodity on the farm, filed the required
paperwork and paid the assistance fee by the applicable State
deadline, for NAP
SURE

What farms are eligible for SURE payments?
◦ Farm located in county covered by qualifying
national disaster
Or
◦ Expected revenue on farm < 50% of its normal
expected revenue
And
◦ Farm must suffer at least a 10% eligible production
loss on at least 1 crop of economic significance
And
◦ Must have NAP or federal crop insurance
And
◦ Must meet AGI limits
SURE


Total Farm Revenue:
estimated actual value based on
◦
◦
◦
◦
◦
◦
◦
◦
actual crop acreage harvested
estimated actual yield
national average market price
15 percent of any direct payments issued
total counter-cyclical or average crop revenue payments
total marketing loan proceeds (including certificate gains)
total crop insurance or NAP indemnities
value of any other natural disaster assistance payments
Get in Now!

As price falls, the 2 year average price in the
revenue benchmark declines

As yield falls, the Olympic average yield in the
revenue benchmark declines

As the revenue benchmark declines, ACRE
payment declines
ACRE

Historically, ACRE would only have paid in 1 year out
of several years
◦ History does not show multiple consecutive years of
“large” payments from ACRE

Cost is higher to enroll in 1st year

In 2010, cost drops to a 20% loss in DP for 3
years for a chance of one “large” payment

Probably don’t want to enroll in ACRE in 2009 if
it is out of the money
◦ Lose 20% of DP for next 4 years
◦ Still pay same “premium” cost for ACRE even if it is out
of the money
How do I make the Decision?

Planted acre yield history (10 years)

Price expectation (5 year average)

Yield expectation (5 year average)

Desired Risk Protection - Objective of ACRE or DCP for
Operation

SURE and Crop Insurance coverage (premium)

What crops will I grow?

Risk and some things to think about
What do I do Now?

Sign up for DCP as soon as possible

Select crop insurance options

Gather data for ACRE and SURE
calculation

Check with your County Educator to see if
they will be offering assistance with the
decision tool