U. S. Crop Program May Reshape Farmland Values

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.

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 enrol 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 per cent 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.

Last year, the first year of ACRE, only eight per cent of U. S. farmers seeking supports opted for that program, as farmers did not want to give up their accustomed DCP payments.

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.

“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 per cent. 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 per cent of the time, for soybean producers 50 per cent of the time, and for corn producers 40 per cent 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.”

India May Divert Farm Water As Reservoirs Dip

Depleting water levels in most of India, worsened by rising temperatures, may force a diversion of farm water for drinking and power generation ahead of the four-month monsoon that begins in June, a senior water department official told Reuters April 22.

“Drinking water first, and only after that other priorities come…till monsoon rain starts we have to manage with existing availability of water,” A. K. Bajaj, chairman, Central Water Commission (CWC), told Reuters in a telephone interview.

Water level in Bhakra, one of the biggest dams in the country and a main source of drinking water to capital New Delhi, has fallen to 12 per cent of its capacity, compared to 24 per cent a year ago.

He said priorities of every state government are different and based on that they will decide how much water should be diverted for drinking and power generation from farms.

In March and most of April, temperature over most parts of India have been significantly higher than normal, data with India Meteorological Department (IMD) showed.

Of the 20 areas where the IMD monitors temperatures, maximum temperatures in March surpassed the record in seven cities and within 1 of the record in eight others, data from the IMD shows.

Higher temperature after a year of drought will accelerate evaporation rate and deplete India’s major water reservoirs, Bajaj said.

Of the 21 reservoirs in northern and eastern India whose levels are monitored by CWC, 20 have below 40 per cent of their live capacities, while one holds less than half.

Monsoon rains in India, Asia’s third-largest economy, is crucial for farm output and economic growth, as only 40 per cent of its farms are irrigated. A good monsoon boosts rural income, raising demand for consumer goods to motorcycles.

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