In 2012 ACRE May Be Worth A Look for Cotton

Friday, May 18, 2012                                 By Shawn Wade

      In the most recent WASDE Supply/Demand report, USDA made its first estimate of the 2012/13 Market Year Average (MYA) price of $0.65-$0.85 (mid-point of $0.75). If a $0.75 MYA price is realized for the 2012/13 Upland cotton marketing year, then it might be worth looking at a nearly forgotten about provision of the 2008 Farm Bill – the Average Crop Revenue (ACRE) program.

      Fortunately for cotton producers there is still a little time (two weeks) to weigh this option and possibly switch their program choice to ACRE. The deadline for notifying the Farm Service Agency of an election to participate in the 2012 ACRE program is June 1.

      Before going too far in evaluating ACRE as an alternative for 2012, cotton producers who have signed agreements to market 2012 production through a marketing pool, or other mechanism, are STRONGLY ENCOURAGED to contact the entities with which they are dealing to make sure that there is no prohibition on participation in the ACRE program in the contracts that have been signed.

      Choosing to participate in ACRE instead of the traditional Direct and Counter-cyclical (DCP) program comes with some trade-offs, which are discussed in more detail below. These trade-offs are the main reasons for clarifying your own situation with those who have contracted to market or purchase any of your 2012 cotton acreage.

      The reason for the belated interest by cotton producers is that it appears the 2012 ACRE Guarantee Price, which sets the bar for both the State and Farm level triggers, will be higher than the projected 2012 MYA price for Upland cotton.

      Texas AgriLife Extension Service Risk Management Specialist Jay Yates of Lubbock notes that the Preliminary 2012 ACRE Guarantee Price for cotton is $0.863. What this means, according to Yates, is that a 10% drop in price for the 2012/13 season (and assuming the final State average yield matches the 2012 Texas benchmark cotton yields of 885 pounds per acre for irrigated and 315 pounds per acre for dryland) would meet the 10% loss trigger for the state and open the door for ACRE payments to be made. After that the 10% farm level loss trigger would still also have to be met.  

      The farm level trigger (again assuming the farm's actual yield matches the farm's benchmark yield) would also be tripped with a 10% drop in the MYA price below the ACRE Guarantee price.

      Once both triggers are met, the payment rate for the ACRE program is the lesser of the difference between the state ACRE Guarantee and the Actual State Revenue, or 25 percent of the State ACRE Guarantee times the calculated farm productivity factor.

      According to Yates's calculations, a $0.10 drop in price to a MYA price of $0.76 should be enough for most farms to "break-even" with the 20% loss in direct payments that comes with participating in the ACRE program. It should also be noted that the dollars of direct payment that you give up in ACRE are added back to the ACRE program's payment limit.

      "If a producer believes that the eventual 2012/13 MYA price will fall somewhere below $0.76, but above the $0.52 loan rate (since ACRE participants also agree to a reduced base loan rate of $0.364), they might want to take a second look at the ACRE program before the June 1 program election deadline," Yates said.

      "The 2012 ACRE program may not be best for everyone, but every producer needs to evaluate the possibilities based on their own individual situation."

      The bottom line according to Yates is that even though there are some trade-offs, ACRE may be worth a look due to: the current relationship of the benchmark price; state benchmark yields in a production season coming on the heels of the worst drought Texas producers have ever experienced; and finally, the fact that 2012 also is the final year of the ACRE program under the provisions of the 2008 Farm Bill and it is essentially a 1-year commitment.

      Texas Farm Service Agency notes that it is not too late for a producer to switch from a previous decision to participate in the DCP program and go with ACRE for 2012. The important thing to remember is that there is ABSOLUTELY NO grace period after the June 1 deadline for making that decision.

      As noted above there are a couple of loan and direct payment program changes that producers need to fully understand before they pull the trigger on ACRE.

      First, agreeing to participate in the ACRE program includes the voluntary reduction in the base loan rate for program commodities of 30%. For cotton that means the effective base loan rate for cotton produced on farms enrolled in the ACRE program is $.364 cents.

      Second, ACRE participation includes a 20 percent reduction in the amount of direct payments a producer receives. This reduction can total up to $8,000 for a producer that currently qualifies for the $40,000 maximum for direct payments. It is important to note, however, that the amount of this reduction is added to the $65,000 per entity payment limit for counter-cyclical program payments to create a total ACRE program payment limitation of up to $73,000, assuming reallocation of a full $8,000 from direct payments.

 

JUNE 1 IS AN IMPORTANT DAY!

ACRE Program Election Deadline – June 1

DCP Signup for 2012 Crop Ends June 1

SURE Signup for 2010 Crop Ends June 1

 

Farm Bill Hearings Continue for House Ag
Committee; Vaughan, Coley Testify

Friday, May 18, 2012                           By Mary Jane Buerkle

      Commodity group representatives and agricultural economists testified before members of the House Agriculture Committee's Subcommittee on General Farm Commodities and Risk Management on Wednesday and Thursday, sharing their thoughts as the Committee develops their version of the 2012 Farm Bill. U.S. Rep. Mike Conaway (R-Midland) is chairman of that subcommittee.

      Much of the questioning surrounded a proposed bill recently passed by the Senate Agriculture Committee. That bill is waiting to go to the full Senate.

      Dee Vaughan, president of the Southwest Council of Agribusiness and a PCG board member, outlined SWCA's position in six core principles: having a program that kicks in when needed, hopefully avoiding unwanted market distortions; equity among commodities and among regions in terms of the baseline; simple bankable protection tied to deep and persistent price drops; do no harm to crop insurance; assistance should generally be tailored to planted acres; and that outdated payment limits and arbitrary means tests should be eliminated. Vaughan noted that the Senate bill falls short in some of these areas.

      "It is our strong belief that if you pair such a straightforward and bankable Title 1 and Federal Crop Insurance with similarly strong and progressive Conservation and Research titles, then you will lay a good foundation for continued growth in our nation's agricultural sector," Vaughan said in his testimony.

      Read Vaughan's complete testimony on behalf of SWCA at http://agriculture.house.gov/pdf/hearings/Vaughan120516.pdf.

      National Cotton Council Chairman Chuck Coley, who grows cotton in Georgia, said that the NCC-recommended Stacked Income Protection Plan (STAX), combined with the modified marketing loan, will meet cotton's unique challenge in resolving the World Trade Organization dispute with Brazil since the program is insurance-based. The WTO panel has found no trade distortion or price suppression related to insurance programs.

      "In developing new farm legislation, the U.S. cotton industry pledges to work with Congress and the Administration to resolve the Brazil WTO case and remove the imminent threat of retaliation against exports of U.S. goods and services," Coley said in a news release from the NCC.

      The STAX program allows growers the opportunity to purchase a county-based revenue insurance plan as a stand-alone policy OR to supplement an existing federal crop insurance policy. The STAX component can cover losses exceeding 10 percent of county target revenue with a maximum payment not to exceed 20 percent of the county target revenue.

      Read Coley's complete testimony on behalf of the NCC at http://agriculture.house.gov/pdf/hearings/Coley120516.pdf.

      The part of the Senate bill most criticized was the Agricultural Risk Coverage (ARC) program, which is a revenue-assurance program and a supplement to crop insurance. ARC will not affect cotton as an individual commodity, but will affect other crops grown on the High Plains. Critics called the program "essentially free insurance" and noted that it does not meet the needs of peanut and rice growers while almost locking in a profit for some crops for at least a limited time. A potential solution to these issues would be to give producers a choice between ARC and higher reference/target prices.

      The Committee likely will begin their bill markup in June.

     

Connect With PCG!

 

Find us on Facebook and Twitter

http://www.facebook.com/plainscottongrowers

http://www.twitter.com/PCGNews

 

Subscribe to PCG Email Services!

http://www.plainscotton.org/EmailServices/dada/mail.cgi