What is in this article?:
- Model-based results show that switching from a state-level trigger for the ACRE program to a trigger closer to the farm level would generally increase expected payments, but the impact would vary by crop, region, and market price.
The Average Crop Revenue Election (ACRE) program was introduced under the Food, Conservation, and Energy Act of 2008 (the 2008 Farm Act) (see “New Market Realities Affect Crop Program Choices” in the November 2008 issue of Amber Waves). ACRE differs from other commodity programs in two ways. First, the program uses recent crop prices and yields to establish revenue guarantees and benchmarks. Second, State average revenue and farm revenue must both fall below their guarantee or benchmark levels for a farm to receive ACRE payments.
Coverage under the ACRE program is aligned with recent increases in field crop prices. Even so, at the initial enrollment deadline in August 2009, only about 8 percent of U.S. farms with about 13 percent of total eligible acres elected to forgo some of the benefits of the fixed-price and direct payment commodity programs and switch to ACRE. Few additional acres were enrolled in ACRE in 2010 and 2011.
The relatively low ACRE signup rate, as well as rising interest in shifting from direct payment and price-based commodity programs to a revenue-based approach, has spurred considerable discussion among farm groups and legislators about possible changes to ACRE and, more generally, about a new revenue program that would also use average revenue for the area in which a farm is located. For example, one option discussed would be to increase expected payments and make the program more attractive to producers by switching from the State-level trigger of the ACRE program to an area closer to the farm level. Results of model-based analysis by researchers from ERS and Mississippi State University show that such a switch could potentially result in higher payments. The gains, however, would vary across crops and regions. A number of other factors, including expected market prices and tradeoffs with other programs, also complicate the outcomes and the potential effects on participation.
Crop Revenue Variability Differs Across the U.S.
Changes in revenue variability depend on the variability of prices and production (yields multiplied by acres) and the interactions between the two. Because crop prices depend largely on world markets, variability in the price of a crop is similar across much of the U.S. Yields, in contrast, depend on weather, disease, pests, and other factors that are often localized. Therefore, the area over which average revenue is measured—national, State, crop reporting district (CRD), county, or farm—will affect variability. If yield variability is greater within a smaller area than across the entire State, switching the trigger to a smaller area could lead to higher ACRE payments for farmers.
Revenue variability differs by crop, reflecting the variety of conditions under which each crop is produced. For corn and soybeans, county-level revenue variability (measured by the coefficient of variation, or variance relative to mean revenue) is, on average, about 7 percent greater than statewide variation. Average county variability for wheat, cotton, and grain sorghum is about 20 percent greater than statewide variability. Rice is grown under irrigation and has little yield variability, so average county revenue variability is less than 1 percent greater than State variability.
For a particular crop, revenue variability differs by region because of disparity in yield variability and in the local relationship between a crop’s yield variability and price variability. For corn and soybeans, revenue tends to vary least in counties that stretch across the center of the Corn Belt, an area with low yield variability and large shares of U.S. production of these crops. Because U.S. corn and soybean production is relatively concentrated geographically and because U.S. production of these crops has a large effect on world prices, prices and yields in the center of the Corn Belt tend to move in the opposite direction (are negatively correlated), which dampens revenue variability. Wheat production, in contrast, is spread over a broader U.S. geographic area and includes several types that are sold in different markets at different times of the year. Revenue variability for wheat is low in irrigated areas in Washington and Oregon and in nonirrigated areas across the middle of Kansas. It is relatively high in the Southern Plains areas of Oklahoma and Texas, in western Kansas and eastern Colorado, and in parts of the Northern Plains in North Dakota, South Dakota, and Montana.
Revenue variability is high for cotton, which is produced in widely separated growing regions and for which correlations between price and yield are weaker than for other crops. Revenue varies least for irrigated cotton production in California and Arizona and is highest for dryland production in the plains of Texas. Grain sorghum revenue variability is generally low in Kansas and high in Oklahoma and Texas. Rice revenue variability differs little across growing regions because yields vary little and price variability, which is the same across regions, largely determines revenue variability.