Kent Olson, Extension Economist
Earlier this month, the choice between the Average Crop Revenue Election (ACRE) program and the Direct and Countercyclical Program (DCP) seemed to be tilting towards signing up for DCP in 2013. Now in late May, that tilting towards DCP has strengthened for Minnesota farmers after the rapid planting rate, the improvement in soil moisture in Minnesota, and the recent upward price movements in future prices.
The rapid planting rate during May and the soil moisture improvement have made it harder to argue that yields will vary widely from averages and trends. So, ACRE payments appear to depend more on the future prices for the crops being planted now. The recent improvement in future prices for the new crop suggest that prices will not be at levels that make the actual state revenue below the benchmark.
Using trend yields for the state yields and historical yields for individual farms, my analysis of 17 example farms across Minnesota show that the breakeven Marketing Year Average (MYA) prices for individual crops are estimated to be about $4.35 per bushel for corn, $10.90 for soybean, and $5.35 for wheat. These are not absolute, but they do give us some information for decisions. If MYA prices were to drop below these price levels (and yields were at trend levels), the ACRE program would likely make a payment larger than the required 20% cut in direct payments under ACRE. If the MYA prices end up higher than these estimated breakeven prices, the DCP program would be the best program for the farmers.
Looking at recent history, the MYA price has tracked the Chicago futures price very closely for the December contract for corn and wheat and November for soybean. In late May, the Chicago price is over $5 for corn, over $12 for soybean, and over $7 for wheat. These are well above the breakeven prices I estimated for the 17 example farms. If these prices hold and yields are close to average levels, the DCP program would be the best choice.
However, there is still uncertainty on actual state and individual farm yields. So every farmer still needs to evaluate his or her own conditions and payment limits and decide whether the ACRE or DCP program is the best option for their farm in 2013.
Farmers and their advisers can use a worksheet provided by University of Minnesota Extension (http://z.umn.edu/dkf) to help them evaluate their situation for the 2013 decision.
As noted before, the extension of the 2008 Farm Bill opens up the decision to participate in either of the safety net programs: ACRE or DCP. Farmers have until June 3, 2013 to sign up for the ACRE program and August 2, 2013 for the DCP program.
Under the earlier rules of the 2008 Farm Bill, farmers who signed up for ACRE had to remain in ACRE through 2012. The extension changes that requirement. Even if farmers signed up for ACRE before, the extension allows them to change their choice and sign up for DCP if they think that is a better choice for them in 2013.