REFILE-US crop program may reshape farmland values-KC Fed

(Refiles to add dropped word ACRE in paragraph 9)

* US farmers to choose between crop support programs

* Farmer decisions could reshape farmland values

CHICAGO, April 14 (BestGrowthStock) – U.S. farmer choices between
two crop subsidy programs in 2010 will affect farm profits and
even farmland values, according to a report published by the
Kansas City Federal Reserve on Wednesday.

The multi-year U.S. farm bill passed in 2008 allows farmers
to receive price support payments for grain, cotton and other
row crops through a direct counter-cyclical payment (DCP)
program, which kicks in during periods of low prices. That
program dates back to the earlier 2002 national farm bill.

But farmers can opt for the average crop revenue election
(ACRE) program, with payments triggered by either low prices or
low yields. That option was added with the 2008 farm bill.

“The decision to enroll in either DCP or ACRE will affect
farm profits, which, in turn, could reshape farmland values and
the overall costs of farm programs,” KC Fed economist Brian C.
Briggeman and Oklahoma State University professor Jody Campiche
said in an article in the Kansas City Fed’s latest newsletter.

“By enrolling in ACRE, crop producers relinquish 20 percent
of their certain direct payment for the potential of a larger,
albeit uncertain, ACRE payment,” they said.

ACRE probably offers the best opportunities for corn,
soybean and wheat farmers while cotton, peanut and rice farmers
benefit from higher direct counter-cyclical payments, they
said.

Deadline for sign-up for the 2010 programs is June 1.

Last year, the first year of ACRE, only 8 percent of U.S.
farmers seeking supports opted for that program, as farmers did
not want to give up their accustomed DCP payments — especially
after crop prices plummeted in Fall, 2008.

DCP is also easier to understand and requires farmers to
project farm incomes over several years. Once enrolled farmers
must stay in the ACRE program until it ends in 2012.

ACRE SEEN LONG-TERM SUPPORT FOR GRAIN LAND VALUES

“In general it (ACRE) could underpin land values because
ACRE by definition makes payments when they are needed the
most,” Briggeman told Reuters, adding that is especially true
for corn, soybean and wheat areas.

“Through 2012, on average, the ACRE total payment is
projected to exceed the direct and counter-cyclical total
payment for all representative corn, soybean, and wheat farms
by more than 75 percent. These higher payments could then be
capitalized into farmland values, which are the largest asset
on farm balance sheets,” the authors wrote.

In 2010 “ACRE payments should be higher than DCP payment
for wheat producers 60 percent of the time, for soybean
producers 50 percent of the time, and for corn producers 40
percent of the time,” according to the report.

“Moreover, when ACRE payments are larger, they are
substantially larger. If revenues decline due to falling prices
or low yields, the analysis shows ACRE payments for corn,
soybeans, and wheat could exceed DCP payments up to $90, $70,
and $35 per acre, respectively.”

On average, the authors projected the 2010 ACRE payment for
corn at $60 an acre, vs $20 under DCP. Soybean and wheat farms
should receive an average ACRE payment of $38 and $23,
respectively, compared to $10 under DCP.

The benefits of ACRE are larger for crop areas with more
variable yields, citing Oklahoma winter wheat yields compared
to Kansas wheat yields as an example, the Fed says.

Subsidies could rise significantly if prices and yields
both plunged in a year and ACRE sign-up rates rose sharply.

“If all U.S. corn farms had received their maximum ACRE
payment, the payments could have totaled $10 billion,” the
authors said of 2009. “The combination of these conditions
could have raised expected total farm subsidies costs in 2009
from $12 billion to $28 billion.”
Stock Market Advice

(Reporting by Christine Stebbins; Editing by David Gregorio)

REFILE-US crop program may reshape farmland values-KC Fed