Average Crop Revenue Election (ACRE) Versus Traditional Support Programs Analysis of Arkansas Representative Farms Eric Wailes, Jeffrey Hignight, and Brad Watkins Farm Bureau Video Conference July 17, 2008
Analysis is based on our reading of the Commodity Title of the Food, Conservation and Energy Act of 2008. The ACRE program is complex and there are a number of issues open for interpretation and determination by the Secretary of Agriculture. We might expect that FSA will interpret changes in the law differently that what has been assumed in the following analysis.
DISCLAIMER
Overview • • • •
Average Crop Revenue Election Program Representative Panel Farms Historical View of ACRE Program Conclusions
As risk management tools… • Traditional price support programs assist with managing market risks of chronic low market prices of a crop over extended periods of time. • ACRE assists with managing market risks of a decline in revenue of a crop over a short period of time. • Crop insurance assists in managing farm specific risks during the production season
Implicit risk management fee of ACRE: 20% of average Direct Payment/Acre Oats Barley Soybeans
$0.20 $1.95 $2.30
Wheat
$3.05
Sorghum
$3.36
Corn Cotton
$4.87 $6.85
Rice Source: Carl Zulauf, Ohio State University
$19.24
Implicit risk management fee of ACRE: 20% of Farm Specific DP/Acre Oats Barley Soybeans
$0.20
Arkansas Rep Farms had ranges of:
$1.95 $2.30
Wheat
$3.05
Sorghum
$3.36
Corn Cotton Rice
Soybeans: Wheat: Cotton: Rice:
$1.42 - $2.54 $3.89 - $4.15 $5.44 - $9.07 $17.97 - $21.97
$4.87 $6.85 $19.24
Data & Methodology • FAPRI 2008 US and World Prices • Representative Panel Farms – Organized by UA and Texas A&M extension economists – Panel of local farmers provide farm level data
• Excel was used to generate simulation – Stochastic simulation was for the 2009-2012 time period based on state and farm prices and yield distributions: 500 sims/year/farm
AR Representative Panel Farms • • • •
ARNC5000 – Leachville ARCR6500 - Osceola ARCR4000 - Pine Bluff ARC6000 - McGehee
• • • •
ARSR3640 - Stuttgart ARWR1200 - Wynne ARHR3000 – Hoxie ARC4200 – Forrest City
UA AG ECON Staff Paper 02 Access at: http://www.uark.edu/depts/agriecon/staff08/html
The ARNC5000 Farm: Leachville • Total cropland: 5000 acres • 1,000 owned, 3,200 share lease, 800 cash lease
• Planted acres - cotton: • 4,500 irrigated, 500 acres dry
• Base Acres – 4,050 irrigated, 450 dry • Direct pay yield: 480 lbs/acre • CCP pay yield: 725 lbs/acre
2009-2012 Results
ARNC5000
BASE ($/acre) 747.30
ACRE ($/acre) 718.72
Difference ($/acre) 28.58
Each farm was simulated 2000 times over the 4 year period
Percent ACRE>BASE 5.6%
ARNC5000: Gross Returns/Ac 100% 90% 80%
0.37
0.42
70% 60% 50% 40%
0.36 0.40
30% 20% 10%
0.27
0.18
0% BASE
ACRE <$500
$500 - $650
>$650
The ARSR 3640 Farm: Stuttgart • Total cropland: 3640 acres • 728 owned, 2912 share lease
• Planted acres – rice, soybeans, wheat: • 1620 lg rice, 1620 irrigated beans, 324 wheat
• Base Acres: • 1620 rice, 1620 beans, 235 wheat
• Direct pay yield: • 55 cwt rice, 29 bu beans, 44 bu wheat
• CCP pay yield: • 59 cwt rice, 36 bu beans, 44 bu wheat
2009-2012 Results
ARNC5000 ARSR3640
BASE ($/acre) 747.30 443.59
ACRE ($/acre) 718.72 438.72
Difference ($/acre) 28.58 4.87
Percent ACRE>BASE 5.6% 21.2%
ARSR3640 100% 90%
0.16
0.14
0.50
0.47
0.34
0.39
BASE
ACRE
80% 70% 60% 50% 40% 30% 20% 10% 0%
<$400
$400 - $500
>$500
The ARC4200 Farm: Forrest City • Total cropland: 4200 acres • 1000 owned, 1700 share lease, 1500 cash lease
• Planted acres – cotton, beans, corn • 2600 irrigated cotton, 1200 dryland beans, 400 corn
• Base Acres – • 780 cotton, 780 beans
• Direct pay yield: • 500 cotton lbs/acre, 20 bu beans
• CCP pay yield: • 825 cotton lbs/acre, 25 bu. beans
2009-2012 Results
ARNC5000 ARSR3640 ARC4200
BASE ($/acre) 747.30 443.59 538.47
ACRE ($/acre) 718.72 438.72 527.98
Difference ($/acre) 28.58 4.87 10.49
Percent ACRE>BASE 5.6% 21.2% 27.1%
ARC4200 100% 90%
0.16
0.18
80% 70% 60%
0.38
0.41
50% 40% 30% 20%
0.40
0.46
BASE
ACRE
10% 0%
<$500
$500 - $600
>$600
2009-2012 All Farm Results
ARNC5000 ARCR6500 ARCR4000 ARC6000 ARSR3640 ARWR1200 ARHR3000 ARC4200
BASE ($/acre) 747.30 551.10 495.96 613.48 443.59 575.25 552.18 538.47
ACRE ($/acre) 718.72 527.57 481.90 596.51 438.72 565.48 539.52 527.98
Difference ($/acre) 28.58 23.52 14.06 16.97 4.87 9.77 12.66 10.49
Percent ACRE>BASE 5.6% 8.6% 15.9% 13.0% 21.2% 23.3% 16.1% 27.1%
Historical Perspective 1980-2007 Years Payment Years ACRE DP Loss Occurred ACRE>DP ($/acre) ($/acre) Corn 6 5 4.29 4.87 Cotton 5 5 9.06 6.79 Grain Sorghum 7 5 3.83 3.37 Soybean-Irr 9 8 5.25 2.30 Soybean-NonIrr 12 12 6.48 2.30 Rice 8 6 12.90 19.26 Wheat 7 7 4.44 3.05 Source: Kansas State University AgManager.info website: http://www.agmanager.info/default.asp
Difference ($/acre) -0.58 2.27 0.46 2.95 4.18 -6.36 1.39
ACRE Analysis versus Base • Preliminary results of analysis by us and others suggest there are no ‘rules of thumb’ • The ACRE decision has many moving parts: farm yield, state yield, marketing year price and expected future price. • And the correlation of moving parts
Irrigated/non-irrigated programs for Arkansas? â&#x20AC;˘ Arkansas has 2 major crops that historically have had significant non-irrigated acres: cotton and soybeans. â&#x20AC;˘ What is the likelihood of having separate ACRE programs?
25% non-irrigated acreage pattern in Arkansas
Cotton
Soybeans
25%
2007
2005
2003
2001
1999
1997
1995
1993
1991
% 80 70 60 50 40 30 20 10 0
Conclusions • Arkansas Representative Panel Farms – BASE average revenue was larger than ACRE a higher percent of the time for all Arkansas representative farms – ACRE did have larger revenue than BASE during for some of the simulations for all Arkansas farms – The relative importance on farms with cotton and rice and their loss of direct payment is dominant in the analysis.
Conclusions â&#x20AC;˘ It is important for each producer to carefully consider their own circumstances before committing to the ACRE program. â&#x20AC;˘ ACRE is not a risk management substitute for crop insurance
Conclusions • ACRE most benefits farms with high yield variability • ACRE does not provide a support floor and farmers will have to adjust to lower market revenues. • ACRE will likely be Amber box in the WTO
Thank You