ACRE's Impact on Farm Values

May 10, 2010 03:23 PM
Even after a year's experience with the new Average Crop Revenue Election (ACRE) program, questions continue to mount about the new government plan. While much of the conversation has focused on the program's value to producers, who must sacrifice 20% of direct payments if he elects the program, there is also the concern about what that might do to farmland values.
A report in the latest issue of the Main Street Economist from the Kansas City Federal Reserve Bank, says that through 2010 there is a 75% chance ACRE payments may reach higher than the total counter-cyclical and direct payments through 2012. This could then be capitalized back into farmland values.
So how much ACRE offsets that 20% loss in direct payments becomes the big question in the value of the program for individual producers and landowners. And it depends on which state you're located, says one of the report's authors, Jody Campiche, an economist at Oklahoma State University. A lot of this has to do with the fact that once you're in the program, you're locked in through the 2012 crop year.
"It's kind of hard to speculate what's going to happen with farmland values, just because of how the sign up works,” she says. "ACRE for some states will have a significant payment for 2009-10, but that doesn't mean necessarily there will be high payments for following years. Any possibility of ACRE increasing farmland values could be possibly offset by that loss in direct payments, which seems to be an issue for many landowners.”
The impact of driving farmland prices higher or lower on a national are less likely she says. This is largely due to the low sign-up levels to date, and the fact that variances in payments are so severe from state to state.  
"I don't necessarily know that it will impact values on a national basis. Even last year with farmers who had wheat in Kansas and Oklahoma. Oklahoma wheat is getting significant payments, but just across the border in Kansas they're not because the Kansas state yields we so much better. It may impact farmland values, but it's hard to say at this point because we may have potential for an ACRE payment, but we also have to consider the cut in direct payments.”  
In Oklahoma, Campiche says the chances of triggering ACRE payments for wheat acres in 2010-11 are relatively meager compared to last year. This year's crop looks much better than it did last year and yields should be better.
Conversely, Gary Schnitkey, farm management economist at the University of Illinois, says the chances of ACRE payments being triggered on corn acres in that state for 2010-11 are pegged at 51%. . "From a standpoint of obtaining payments, 2010 is likely to be an opportune year to sign up for ACRE due to these higher chances of receiving ACRE payments. This is particularly true for farmers that plant a large amount of their acres in wheat and corn,” he says.

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