ACRE VS DCP Food, Conservation, and Energy Act of 2008 Michael R. Dicks Department of Agricultural Economics Oklahoma State University June 6, 2008 Thanks to: Larry Sanders Kim Anderson Dan Skipper Francie Tolle

It’s Done, Finally!!!

Overview Two Commodity Program Options Two Commodity Program Options 1.DCP same as in past with some changes in Target price and Loan rates. 2.Average Crop Revenue Election (ACRE)

ACRE assumptions 30 years of historic yield forecasts future yield volatility 30 years of historic yield forecasts future yield volatility Price volatility in actual price changes (percent change – elasticity computed for wheat only) Price volatility in actual price changes (percent change – elasticity computed for wheat only) County planted yield = farm planted yield County planted yield = farm planted yield Loan rate is price floor, not 30% reduction in loan rate. Loan rate is price floor, not 30% reduction in loan rate. No payment restrictions No payment restrictions

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

Summary $3.30 Avg. Annual Price KingfisherTillmanTexas ACREDCPACREDCPACREDCP 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$211.28$ Minimum$63.88$68.46$50.16$44.65$34.06$30.63 Maximum$125.44$128.44$190.86$193.52$245.33$ Years of ACRE7 7 7 Years of DCP17 Years of Both4 4 4

Future Comparison Past 30 years yield and price USDA baseline average annual price Past 30 years yield and price USDA baseline average annual price –$4.55/ bushel wheat

Summary $4.55 Avg. Annual Price KingfisherTillmanTexas ACREDCPACREDCPACREDCP Mean$114.18$115.58$113.56$114.31$104.36$ Median$113.84$116.84$106.86$109.12$104.83$ Standard Deviation$21.68$24.19$34.03$34.30$49.84$50.26 Range$81.79$99.33$187.29$189.15$279.70$ Minimum$86.74$72.19$61.40$62.20$41.39$39.48 Maximum$168.53$171.53$248.69$251.35$321.09$ Years of ACRE8 8 7 Years of DCP6 6 6 Years of Both3 3 1

Breakeven Analysis At what average annual price does it pay to switch to ACRE from DCP? At what average annual price does it pay to switch to ACRE from DCP? –Compare average annual total payment over 30 years yield and price volatility.

Breakeven Price – Switch from DCP to ACRE

Comparison of price volatility measures

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

Commodity Programs SEC 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!! Questions?