Food, Conservation, and Energy Food, Conservation, and Energy Act of 2008:Act of 2008: Programs for Programs for

CommoditiesCommoditiesJody Campiche

Mike DicksLarry Sanders

Commodity ProgramsCommodity 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 ProgramsCommodity ProgramsDirect Payments DP2008 and 2012 - 85% * Base * Yield * Rate 2009 – 2011 - 83.3% * Base * Yield * Rate

Commodity 2007 2008-12Corn (bu) $0.28 $0.28Soybeans (bu) $0.44 $0.44Wheat (bu) $0.52 $0.52Barley (bu) $0.24 $0.24Cotton (lb) $0.0667 $0.0667Peanuts (ton) $36 $36

Commodity Programs -DCPCommodity Programs -DCP

Counter Cyclical Payments CCPTarget prices for selected commodities

Commodity 2007 2008-2009 2010-2012Corn (bu) $2.63 $2.63 $2.63Soybeans (bu) $5.80 $5.80 $6.00Wheat (bu) $3.92 $3.92 $4.17Barley (bu) $2.24 $2.24 $2.63Cotton (lb) $0.724 $0.7125 $0.7125Peanuts (ton) $495 $495 $495

Commodity ProgramsCommodity ProgramsAverage Crop Revenue Election (ACRE)Manage short term shortfalls in revenuePart of suite of risk protection programsSimilar to a “put option” on expected state

revenue◦ Odds for a payment increase if ACRE is in the

money

Direct – Countercyclical PaymentManage chronic low prices

Average Crop Revenue Election Average Crop Revenue Election (ACRE) (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 ProgramsCommodity ProgramsACRE Payment - GeneralTwo triggers – state and farm◦State – revenue guarantee > actual state revenue◦Farm – revenue guarantee > actual farm revenueBased on planted acreage yields

◦ACRE payments not tied to base

Average Crop Revenue Election (ACRE)Average Crop Revenue Election (ACRE)

8

TWO TRIGGERS MUST BE MET BEFORE PAYMENTS CAN BE ISSUED 1. STATE TRIGGER

MUST EXCEED

AND2. FARM TRIGGER

90% times

Benchmark State Yield(5-year Olympic average planted yield)

times ACRE Program Guarantee Price (2-year national average price)

State ACRE Guarantee

100%times

Actual State Planted Yield times higher of:

National Average Market Price or 70% of National Loan Rate

Actual State Revenue

100%times

Farm Average Yield(5-year Olympic average planted yield)

timesACRE Program Guarantee Price(2-year national average price)

plusProducer-paid Crop Insurance Premium

State ACRE GuaranteeActual Farm

Revenue100%times

Actual Farm Yieldtimes higher of:

National Average Market Price or 70% of National Loan Rate

Source: http://agriculture.senate.gov/

MUST EXCEED

Average Crop Revenue Election (ACRE)Average Crop Revenue Election (ACRE)

9

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

Lesser of:

State ACRE guarantee

State ACRE guarantee minus Actual State Revenue

times 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.

Disaster ReliefDisaster ReliefSupplemental 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

SURESURE 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

SURESUREWhat 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 revenueAnd◦Farm must suffer at least a 10% eligible production

loss on at least 1 crop of economic significanceAnd ◦Must have NAP or federal crop insuranceAnd◦Must meet AGI limits

SURESURETotal 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!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

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◦ Lose 20% of DP for next 4 years

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

◦ Still pay same “premium” cost for ACRE even if it is out of the money

ACREACRE

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

How do I make the Decision?How do I make the Decision?

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

What do I do Now?What do I do Now?