Disclaimer: This web page is designed to aid farmers with their marketing and risk management decisions. The risk of loss in trading futures, options, forward contracts, and hedge-to-arrive can be substantial and no warranty is given or implied by the author or any other party. Each farmer must consider whether such marketing strategies are appropriate for his or her situation. This web page does not represent the views of Kansas State University. 

Update for Texas

Thanks to a phone call from a Texas county FSA office, I have discovered that the 10% cap was not correctly calculated.  Texas is hitting the minimum coverage due to the 10% cup built into ACRE, and as result the 2011/12 ACRE guarantee is likely a little higher but still an estimate.  With this correction, and using the USDA price forecast of $7.50, the estimated Texas 2011/12 ACRE payment is at the maximum. 

However, there is an issue for Texas.  The estimated maximum payment is based on the assumption that 46% of the planted wheat acres are classified as failed by FSA.  The 2000 Texas wheat crop had a 46% failed acre value.  It was assumed this crop year was as bad as 2000.  This could be true but because most Texas farmers are not in ACRE there is no economic incentive to report failed acres to FSA.  If those acres are under reported then the payment will be smaller than the forecast.  For example if the FSA failed acres are 20% of planted acres and a $7.50 MYA price then the result is no payment.  The ACRE yield to settle claims is the total Texas wheat production divided by NASS harvested acres plus FSA failed aces.

Texas is still likely to receive wheat ACRE payments unless the price increases above $8, but reaching the maximum payment will require that all failed acres are reported.  All of this had little or no impact on the estimates for the other states that were evaluated.

Art

Estimate for 2010 & 11 Wheat ACRE Payments[1]

Below are estimates for the 2010 and 2011 Wheat ACRE payments.  The estimates are based on the May release of the National Agricultural Statistics Service (NASS) estimated winter wheat yields, estimated prices and estimated failed acres.  The Farm Service Agency (FSA) 2010 failed acres are final but apparently have not been published.  If the author is able to locate the 2010 FSA failed acre value he will update the tables.  However, it is unlikely the final number will have any major impact on the results. 

The largest error will be in the 2011 estimated ACRE payment because it is more than year before the national Marketing Year Average (MYA) price will be set by NASS.  The current USDA forecast is $7.50 for 2011/12 wheat marketing year.  The estimate 2011/12 forecasted MYA price based on futures is $8.20.  

The current price trigger for payments based on the current yield estimate is highlighted in red.  For example the ACRE trigger price for Kansas wheat is $5.67.  This would require a large price decline to trigger a Kansas 2011 ACRE payment that would be paid in the summer of 2012.  The current Kansas yield estimate is 31.5 bushels and a $5.67 MYA price would generate a zero payment.

Those who have already signed up for ACRE are locked in all crops for the reminder of the Farm Bill.  Those who have not elected ACRE must select ACRE by June 1 for the 2011/12 market year.  They will also be locked in to ACRE for next year on farm serial numbers that have elected ACRE. The Expected ACRE Guarantee for next year, 2012, is also included in the tables.

Summary.  Based on current yield and price forecast it is unlikely that either 2010 or 2011 will generate an ACRE payment for Kansas wheat.  The 2010 FSA failed acre value has not been released to the public, so a KSU estimate was included.  The 2011 estimated failed acres were calculated using the highest historical percentage of failed acres times NASS forecasted unharvested acres for Kansas, Oklahoma, and Texas.  The highest historical percentage was used because of the wildly reported drought that will likely cause a large number of FSA failed acres.  The failed acre value for Colorado is a KSU estimate.

It is likely that Texas wheat will generate a 2011 payment.  Hitting the maximum payment will require a MYA price below $7.20 or yield below current estimates.  This is possible.  However, all crops planted on a farm serial number enrolled in ACRE are included in ACRE.  So if there are other crops that have significant planted acres it may still not make sense for unenrolled farmers to elect ACRE prior to June 1.  Estimating expected payments for the other crops will be more difficult because the price forecast is further out and nothing is know about the yield.  The prevented planted acres are not included in ACRE because they are not counted as failed acres and they are not harvested.  The soybean yield is based on NASS planted acres rather than harvested acres plus FSA failed acres.  If the acre is not planted then it does not show up in the ACRE calculation. 

The other states are unlikely to trigger payments because of the decline in the strike price in ACRE combined with a higher expected MYA price for 2011/12.  While the Olympic average yield for Colorado improved greatly, the combination of low strike price and higher MYA price for 2011/12 is expected to prevent any payment.

Warning.  Remember in all cases, if the state triggers an ACRE payment, then the farmer must meet an individual trigger (farm revenue below the farm level benchmark).  The farmer’s payment trigger can’t trigger an ACRE payment; it can only prevent a farmer from collecting an ACRE payment.  Enrollment cost for ACRE is 20% of farmer’s direct payments for the next two years by farm serial number, so the cost has declined.