Making the final decision on which farms to enroll in the optional ACRE program

Today, August 12, 2009, the USDA released its Crop Production report. The report indicates increased corn and soybean production over last year, mainly due to production increases caused by good growing conditions.
According to the Crop Production report, corn yields are expected to average 159.5 bushels per acre, the second highest yield on record. The USDA also revised planted acreage in this report from the June report, in which they slightly decreased corn acreage by 100,000 acres from the June report. Producers are expected t o harvest 80.0 million acres, up 2 percent from last year. Coupling good yields with a small decrease in acreage corn production is expected to increase by 5 percent from last year to 12.8 billion bushels. This would mark the second largest corn crop on record.
The U.S. soybean crop is also looking good. According the Crop Production report, soybean yields are expected to average 41.7 bushels per acre, an increase of 2.1 bushels per acre over 2008 but .9 bushels lower than the July Crop Production report. Revised planted soybean acreage came in slightly higher than the June report. Producers are expected to harvest 76.8 million acres, up 3 percent from last year. Additional acres and good yield prospects pushes soybean production into a record tie with 2006 of 3.2 billion bushels, 8 percent more than last year.
Kentucky corn and soybean producers are also looking at good yields, while wheat yields were lower than expected. According to the USDA, expected corn yields are up 14 bushels per acre over last year to 150 bushels per acre. This would be the second highest corn yield in Kentucky. For soybeans, the USDA increased expected yields by 6 bushels per acre over last year to 40.0 bushels per acre. For wheat, the USDA decreased yields by 14 bushels per acre over last year to 57 bushels per acre.
Using Kentucky yields and the average World Agriculture Supply and Demand Estimates (WASDE) average farm price received (report is available at: http://www.usda.gov/oce/commodity/wasde/ ), we can determine which crop(s) have the highest probability of receiving an ACRE payment. This helps in identifying what farms to sign up based upon their planted crops. Using the University of Kentucky ACRE calculator, found at: http://www.ca.uky.edu/agecon/index.php?p=110, we can predict potential ACRE payments by crop. State yields (prices) used in the calculator are 150 ($3.5/bushel), 40 ($9.4/bushel)), and 57 ($5.2/bushel) for corn, soybeans, and wheat, respectively. This combination of state yields and national prices results in an ACRE payment at the state yield for only wheat. Moving corn and soybean price to the WASDE lower bound drops the national corn price to $3.1/bushel and national soybean price to $8.4/bushel. This combination of state yields and national prices results in an ACRE payment for both Corn and Soybeans. At this point in time it is possible for corn, soybean, and wheat to all receive ACRE payments. There is a higher probability of receiving a wheat payment than corn or beans. After wheat, corn looks to have the next highest probability of receiving an ACRE payment. Soybeans have the smallest probability of receiving an ACRE payment. This example assumes that the farm level trigger was met so the producer qualifies for the state ACRE payment. Keep in mind that if your proven farm level yields are significantly lower than the expected yield of the currently growing crop it becomes harder to trigger at the farm, even if an ACRE payment exists at the state level. Cory Walters can be reached at cgwalters@uky.edu