ACRE VS DCP ACRE VS DCP Food, Conservation, and Energy Act of 2008Food, Conservation, and Energy Act of 2008

Michael R. DicksMichael R. Dicks

Department of Agricultural EconomicsDepartment of Agricultural Economics

Oklahoma State UniversityOklahoma State University

June 6, 2008

Thanks to:Larry SandersKim AndersonDan SkipperFrancie Tolle

It’s Done, Finally!!!

OverviewOverview

Two Commodity Program OptionsTwo Commodity Program Options1.1. DCP same as in past with some DCP same as in past with some

changes in Target price and Loan rates. changes in Target price and Loan rates.

2.2. Average Crop Revenue Election (ACRE)Average Crop Revenue Election (ACRE)

ACRE assumptionsACRE assumptions

30 years of historic yield forecasts 30 years of historic yield forecasts future yield volatility future yield volatility

Price volatility in actual price changes Price volatility in actual price changes (percent change – elasticity computed (percent change – elasticity computed for wheat only)for wheat only)

County planted yield = farm planted County planted yield = farm planted yieldyield

Loan rate is price floor, not 30% Loan rate is price floor, not 30% reduction in loan rate. reduction in loan rate.

No payment restrictionsNo payment restrictions

Historic ComparisonHistoric Comparison

Apply ACRE and DCP to past 30 years Apply ACRE and DCP to past 30 years and compare. and compare.

Comparison of ACRE and DCPKingfisher County

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ACRE DCP Yield - bushels/acre

Comparison of ACRE and DCPTillman County

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ACRE DCP Yield - bushels/acre

Comparison of ACRE and DCPTexas County

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ACRE DCP Yield - bushels/acre

SummarySummary$3.30 Avg. Annual Price$3.30 Avg. Annual Price

  Kingfisher Tillman Texas  

  ACRE DCP ACRE DCP ACRE DCP

Mean $87.77 $98.59 $87.36 $96.64 $81.52 $89.57

Median $87.81 $95.76 $84.45 $96.33 $83.34 $91.11

Standard Deviation $16.50 $14.58 $26.20 $24.00 $37.67 $39.84

Range $61.56 $59.98 $140.70 $148.87 $211.28 $217.02

Minimum $63.88 $68.46 $50.16 $44.65 $34.06 $30.63

Maximum $125.44 $128.44 $190.86 $193.52 $245.33 $247.65

Years of ACRE 7   7   7  

Years of DCP 17   17   17  

Years of Both 4   4   4  

Future ComparisonFuture Comparison

Past 30 years yield and price Past 30 years yield and price volatility @ USDA baseline average volatility @ USDA baseline average annual priceannual price– $4.55/ bushel wheat$4.55/ bushel wheat

Comparison of ACRE and DCPKingfisher County$4.55 average price/bu

$0.00$20.00$40.00$60.00$80.00

$100.00$120.00$140.00$160.00$180.00$200.00

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Comparison of ACRE and DCPTillman County

$4.55 average price/bu

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$100.00$120.00$140.00$160.00$180.00$200.00

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ACRE DCP Yield - bushels/acre

Comparison of ACRE and DCPTexas County

$4.55 average price/bu

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$100.00$120.00$140.00$160.00$180.00$200.00

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ACRE DCP Yield - bushels/acre

SummarySummary$4.55 Avg. Annual Price$4.55 Avg. Annual Price

  Kingfisher Tillman Texas  

  ACRE DCP ACRE DCP ACRE DCP

Mean $114.18 $115.58 $113.56 $114.31 $104.36 $105.79

Median $113.84 $116.84 $106.86 $109.12 $104.83 $104.77

Standard Deviation $21.68 $24.19 $34.03 $34.30 $49.84 $50.26

Range $81.79 $99.33 $187.29 $189.15 $279.70 $283.92

Minimum $86.74 $72.19 $61.40 $62.20 $41.39 $39.48

Maximum $168.53 $171.53 $248.69 $251.35 $321.09 $323.40

Years of ACRE 8   8   7  

Years of DCP 6   6   6  

Years of Both 3   3   1  

Breakeven AnalysisBreakeven Analysis

At what average annual price does it At what average annual price does it pay to switch to ACRE from DCP?pay to switch to ACRE from DCP?– Compare average annual total payment Compare average annual total payment

over 30 years yield and price volatility.over 30 years yield and price volatility.

16 crop insurance premium/acre3.97 Target Price

Average Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

3.5 $2.44 $14.43 $10.34 $25.33 $2.54 $13.19 $9.18 $22.49 $1.63 $10.89 $7.99 $19.563.6 $2.50 $14.49 $8.66 $23.65 $2.61 $13.25 $7.69 $21.00 $1.71 $10.97 $6.69 $18.263.7 $2.56 $14.55 $7.18 $22.17 $2.67 $13.32 $6.37 $19.68 $1.79 $11.05 $5.54 $17.123.8 $2.62 $14.61 $5.79 $20.78 $2.74 $13.38 $5.14 $18.45 $1.88 $11.14 $4.47 $16.053.9 $2.69 $14.68 $4.51 $19.50 $2.80 $13.45 $4.01 $17.31 $1.96 $11.22 $3.48 $15.06

4 $2.75 $14.74 $3.44 $18.43 $2.87 $13.51 $3.05 $16.36 $2.04 $11.30 $2.66 $14.234.1 $2.80 $14.79 $2.52 $17.50 $2.92 $13.57 $2.24 $15.54 $2.11 $11.37 $1.94 $13.524.2 $2.85 $14.83 $1.71 $16.69 $2.97 $13.61 $1.52 $14.82 $2.18 $11.44 $1.32 $12.894.3 $2.88 $14.87 $0.99 $15.98 $3.01 $13.65 $0.88 $14.19 $2.24 $11.50 $0.77 $12.344.4 $2.92 $14.91 $0.55 $15.54 $3.05 $13.69 $0.49 $13.80 $2.30 $11.56 $0.43 $12.004.5 $2.96 $14.95 $0.21 $15.19 $3.09 $13.73 $0.18 $13.49 $2.36 $11.62 $0.16 $11.734.6 $3.00 $14.99 $0.00 $14.99 $3.13 $13.77 $0.00 $13.31 $2.42 $11.68 $0.00 $11.584.7 $3.04 $15.03 $0.00 $14.99 $3.17 $13.81 $0.00 $13.31 $2.48 $11.73 $0.00 $11.574.8 $3.11 $15.10 $0.00 $14.99 $3.22 $13.87 $0.00 $13.31 $2.54 $11.79 $0.00 $11.574.9 $3.23 $15.22 $0.00 $14.99 $3.28 $13.93 $0.00 $13.31 $2.59 $11.85 $0.00 $11.57

5 $3.35 $15.34 $0.00 $14.99 $3.34 $13.99 $0.00 $13.31 $2.65 $11.91 $0.00 $11.575.1 $3.47 $15.46 $0.00 $14.99 $3.40 $14.05 $0.00 $13.31 $2.71 $11.97 $0.00 $11.575.2 $3.96 $15.95 $0.00 $14.99 $3.64 $14.28 $0.00 $13.31 $2.95 $12.21 $0.00 $11.575.3 $4.58 $16.57 $0.00 $14.99 $3.96 $14.60 $0.00 $13.31 $2.96 $12.22 $0.00 $11.575.4 $5.24 $17.23 $0.00 $14.99 $4.31 $14.95 $0.00 $13.31 $3.31 $12.57 $0.00 $11.575.5 $5.74 $17.73 $0.00 $14.99 $5.70 $16.34 $0.00 $13.31 $3.66 $12.92 $0.00 $11.575.6 $6.62 $18.61 $0.00 $14.99 $6.56 $17.21 $0.00 $13.31 $3.95 $13.21 $0.00 $11.57

Probability of Receiving a Payment

Average Price ACRE CCP ACRE CCP ACRE CCP

3.5 0.30 0.50 0.30 0.50 0.23 0.503.6 0.30 0.43 0.30 0.43 0.23 0.433.7 0.30 0.37 0.30 0.37 0.23 0.373.8 0.30 0.37 0.30 0.37 0.23 0.373.9 0.30 0.33 0.30 0.33 0.23 0.33

4 0.30 0.23 0.30 0.23 0.23 0.234.1 0.30 0.23 0.30 0.23 0.23 0.234.2 0.30 0.20 0.30 0.20 0.23 0.204.3 0.30 0.10 0.30 0.10 0.23 0.104.4 0.30 0.07 0.30 0.07 0.23 0.074.5 0.30 0.07 0.30 0.07 0.23 0.074.6 0.30 0.03 0.30 0.03 0.23 0.034.7 0.27 0.00 0.27 0.00 0.23 0.004.8 0.30 0.00 0.27 0.00 0.23 0.004.9 0.30 0.00 0.27 0.00 0.23 0.00

5 0.30 0.00 0.27 0.00 0.23 0.005.1 0.30 0.00 0.27 0.00 0.23 0.005.2 0.30 0.00 0.27 0.00 0.23 0.005.3 0.33 0.00 0.30 0.00 0.23 0.005.4 0.33 0.00 0.30 0.00 0.23 0.005.5 0.33 0.00 0.33 0.00 0.23 0.005.6 0.33 0.00 0.33 0.00 0.20 0.00

WheatTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Kingfisher $3.97 $8 $4.70 $3.04 $15.03 $0.00 $14.99Tillman $3.97 $8 $4.50 $2.92 $13.57 $0.18 $13.49Texas $3.97 $8 $4.90 $2.31 $11.57 $0.00 $11.57

Kingfisher $3.97 $16 $4.70 $3.04 $15.03 $0.00 $14.99Tillman $3.97 $16 $4.50 $3.09 $13.73 $0.18 $13.49Texas $3.97 $16 $4.60 $2.42 $11.68 $0.00 $11.58

Kingfisher $4.17 $8 $4.80 $3.11 $15.10 $0.00 $14.99Tillman $4.17 $8 $4.70 $2.98 $13.62 $0.18 $13.49Texas $4.17 $8 $4.90 $2.31 $11.57 $0.00 $11.57

Kingfisher $4.17 $16 $4.80 $3.11 $15.10 $0.00 $14.99Tillman $4.17 $16 $4.60 $3.13 $13.77 $0.49 $13.80Texas $4.17 $16 $4.70 $2.48 $11.73 $0.16 $11.73

Breakeven Price – Switch from DCP to ACRE

WheatTarget Price

Crop Insurance Premium

Breakeven Price

Total ACRE Payment

Total DCP Payment

Breakeven Price

Probability of ACRE Payment

Probability of DCP Payment

Kingfisher $3.97 $8 $4.70 $15.03 $14.99 $3.90 0.30 0.33Tillman $3.97 $8 $4.50 $13.57 $13.49 $4.00 0.27 0.23Texas $3.97 $8 $4.90 $11.57 $11.57 $4.00 0.23 0.23

Kingfisher $3.97 $16 $4.70 $15.03 $14.99 $3.90 0.30 0.33Tillman $3.97 $16 $4.50 $13.73 $13.49 $3.90 0.30 0.33Texas $3.97 $16 $4.60 $11.68 $11.58 $4.10 0.23 0.23

Kingfisher $4.17 $8 $4.80 $15.10 $14.99 $4.10 0.30 0.33Tillman $4.17 $8 $4.70 $13.62 $13.49 $4.20 0.27 0.23Texas $4.17 $8 $4.90 $11.57 $11.57 $4.40 0.20 0.20

Kingfisher $4.17 $16 $4.80 $15.10 $14.99 $4.10 0.30 0.33Tillman $4.17 $16 $4.60 $13.77 $13.80 $4.10 0.30 0.33Texas $4.17 $16 $4.70 $11.73 $11.73 $4.30 0.23 0.23

WheatTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Kingfisher Val Chnge $3.97 $8 $4.70 $3.04 $15.03 $0.00 $14.99Tillman Val Chnge $3.97 $8 $4.50 $2.92 $13.57 $0.18 $13.49Texas Val Chnge $3.97 $8 $4.90 $2.31 $11.57 $0.00 $11.57

Kingfisher % change $3.97 $8 $5.00 $3.44 $15.43 $0.29 $15.28Tillman % change $3.97 $8 $4.80 $3.45 $14.10 $0.67 $13.98Texas % change $3.97 $8 $5.20 $2.35 $11.61 $0.02 $11.59

Kingfisher Val Chnge $4.17 $16 $4.80 $3.11 $15.10 $0.00 $14.99Tillman Val Chnge $4.17 $16 $4.70 $2.98 $13.62 $0.18 $13.49Texas Val Chnge $4.17 $16 $4.90 $2.31 $11.57 $0.00 $11.57

Kingfisher % change $4.17 $16 $5.20 $3.61 $15.60 $0.52 $15.51Tillman % change $4.17 $16 $5.00 $3.60 $14.24 $0.90 $14.21Texas % change $4.17 $16 $5.40 $2.44 $11.70 $0.09 $11.67

Comparison of price volatility measures

Irrigated CottonTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Tillman $0.7125 $12 $0.73 $13.94 $41.74 $6.89 $41.65Jackson $0.7125 $12 $0.70 $17.72 $45.52 $10.90 $45.65Caddo $0.7125 $12 $0.80 $9.30 $37.11 $2.34 $37.09

Tillman $0.7125 $24 $0.73 $13.94 $41.74 $6.89 $41.65Jackson $0.7125 $24 $0.70 $17.72 $45.52 $10.90 $45.65Caddo $0.7125 $24 $0.80 $9.30 $37.11 $2.34 $37.09

Tillman $0.7125 $40 $0.73 $13.94 $41.74 $6.89 $41.65Jackson $0.7125 $40 $0.70 $17.72 $45.52 $10.90 $45.65Caddo $0.7125 $40 $0.78 $10.14 $37.94 $3.05 $37.81

CornTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Texas $2.63 $30 $6.50 $7.92 $39.37 $0.00 $39.32Tillman $2.63 $30 $6.50 $3.00 $14.80 $0.00 $14.75Muskogee $2.63 $30 $6.50 $5.75 $28.40 $0.00 $28.31

Texas $2.63 $55 $6.40 $7.92 $39.37 $0.00 $39.32Tillman $2.63 $55 $6.80 $3.00 $14.80 $0.00 $14.75Muskogee $2.63 $55 $6.40 $5.75 $28.40 $0.00 $28.31

SorghumTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Caddo $2.57 $20 $6.60 $2.87 $14.30 $0.00 $14.29Cimarron $2.57 $20 $6.20 $2.31 $11.40 $0.00 $11.36Grant $2.57 $20 $6.00 $2.69 $14.12 $0.00 $14.19

Caddo $2.63 $45 $6.60 $2.87 $14.30 $0.00 $14.29Cimarron $2.63 $45 $6.20 $2.31 $11.40 $0.00 $11.36Grant $2.63 $45 $6.00 $2.69 $14.12 $0.00 $14.19

SoybeansTarget Price

Crop Insurance Premium

Breakeven Price

AVG. ACRE Payment

Total ACRE Payment

AVG. CCP Payment

Total DCP Payment

Kay $5.80 $20 $6.30 $3.65 $11.80 $1.52 $11.71Ottawa $5.80 $20 $6.50 $3.10 $11.76 $0.84 $11.66Wagoner $5.80 $20 $6.20 $4.57 $13.53 $2.19 $13.38

Kay $5.80 $45 $6.30 $3.65 $11.80 $1.52 $11.71Ottawa $5.80 $45 $6.30 $3.79 $12.45 $1.62 $12.44Wagoner $5.80 $45 $6.10 $4.84 $13.79 $2.71 $13.90

Kay $6.00 $20 $6.50 $3.74 $11.89 $1.52 $11.71Ottawa $6.00 $20 $6.70 $3.20 $11.86 $0.84 $11.66Wagoner $6.00 $20 $6.40 $4.72 $13.67 $2.19 $13.38

Kay $6.00 $45 $6.50 $3.74 $11.89 $1.52 $11.71Ottawa $6.00 $45 $6.50 $3.79 $12.45 $1.62 $12.44Wagoner $6.00 $45 $6.30 $4.97 $13.92 $2.71 $13.90

Yield explains 63% of the variation in Yield explains 63% of the variation in TR for the DCP payment, more than TR for the DCP payment, more than twice the value for the ACRE twice the value for the ACRE payment, 25%.payment, 25%.– Three counties in Oklahoma for Wheat.Three counties in Oklahoma for Wheat.

Commodity Programs

SEC. 1601. ADMINISTRATION GENERALLY.

(c) REGULATIONS.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, not later than 90 days after the date of enactment of this Act, the Secretary and the Commodity Credit Corporation, as appropriate, shall promulgate such regulations as are necessary to implement this title and the amendments made by this title.

Commodity Programs

(d) ADJUSTMENT AUTHORITY RELATED TO TRADE AGREEMENTS COMPLIANCE.—(1) REQUIRED DETERMINATION; ADJUSTMENT.—If the Secretary determines that expenditures under this title that are subject to the total allowable domestic support levels under the Uruguay Round Agreements (as defined in section 2 of the Uruguay Round Agreements Act (19 U.S.C. 3501)) will exceed such allowable levels for any applicable reporting period, the Secretary shall, to the maximum extent practicable, make adjustments in the amount of such expenditures during that period to ensure that such expenditures do not exceed such allowable levels.

This simply won’t help!!

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