**FEFO 09-07**
**April 30 , 2009 **
Five-year Olympic average yields will enter into the calculation of eligibility and amount of payments received under Average Crop Revenue Election (ACRE), an option made available in the 2008 Farm Bill for receiving commodity program payments. In this paper, differences in 2009 Olympic average yields across farms are examined using Illinois Farm Business Farm Management (FBFM) yield data. Given typical state ACRE payments, corn payments will vary by $15 per eligible planted acre across Illinois farms, soybean ACRE payments will vary by $12 per eligible planted acre, and wheat ACRE payments will vary by $33 per eligible planted acre. Over time, farm Olympic average yields will increase, but there will be some years in which Olympic averages will decline. On a state basis, farm Olympic average yields will decline in about one-third of the years, given that history provides a reasonable guide for the future.
**Farm Olympic Average Yields and ACRE**
This paper focuses on how five-year Olympic average yields impacts ACRE payments. More detail on ACRE provisions is provided in "Questions and Answers about the ACRE Provision of the 2008 Farm Bill" and "The ACRE Program Decision and Some Illustrative Examples". Both papers are available from the archive of Illinois Farm Economics: Facts and Opinions newsletter in the management section of *farmdoc *( www.farmdoc.uiuc.edu ).
The farm Olympic average yield is calculated using the previous five-years of yields from a farm. When calculating the Olympic average, the lowest and highest yields are not used and the middle three yields are averaged. Take, for example, five yields of 150, 160, 170, 180, and 190 bushels per acre. The 150 and 190 bushel yields are not used in the average calculation and the Olympic average is 170 bushels (e.g., 170 bushels = (160 + 170 + 180) / 3).
Farm Olympic average yields enter into two calculations related to ACRE payments. The first is determining eligibility for ACRE payments. Each year, a farm must meet two triggers before ACRE payments are received: 1) state revenue must be below a state guarantee and 2) farm revenue must be below a farm guarantee. The farm Olympic average yield influences the second trigger.
The farm guarantee in the second trigger equals:
*Five-year farm Olympic average yield x benchmark price + crop insurance premium*
Farm revenue -- which equals the farms yield times season average price -- must be below the guarantee for a farm to be eligible for ACRE payments. A higher Olympic average yield increases the guarantee, potentially making it easier to meet the farm-level trigger.
Once both triggers are met, a farm receives an ACRE payment. The farm Olympic average yield will influence ACRE payments. ACRE payments will be received for each eligible planted acre of a crop. Total eligible acres are restricted to be no more than total base acres times .833 (.85 in 2012). The payment per eligible planted acre is:
*State payment x five-year farm Olympic average yield / five-year state Olympic average yield.*
-Click image to view larger version-
Farms with higher Olympic average yields will receive higher payments than those with lower Olympic average yields. To illustrate, take a state-level payment equal to $68 per acre. This $68 per acre payment is our estimate of average state payment in years in which ACRE makes a payment. The state Olympic average yield for corn in Illinois in 2009 is 172 bushels per acre (see Table 1). A farm with a 190 bushel farm Olympic average yield will have a payment of $75 per acre ($68 state payment x 190 farm Olympic average yield / 172 bushel state Olympic average yield). A farm with a farm Olympic average yield of 153 bushels per acre will receive an ACRE payment equal to $60 per acre ($68 state payment x 153 bushel average yield / 172 bushel state Olympic average yield).
**Farm Olympic Average Corn Yields**
Farm Olympic average yields were calculated for 2009 using yield data made available from Illinois Farm Business Farm Management (FBFM). Averages were calculated for 2,238 farms having complete, usable yield data from 2003 through 2008. These yield data represent "farm averages" for the entire corn acres farmed by an operation. These farm yield data differ from yields that will be used by the Farm Service Agency (FSA). The FSA will use yields from FSA units. Most farms have more than FSA units as part of their operations. When calculating an average, lower acres usually cause more variability in the average. Hence, ranges shown in the following tables likely understate variability of Olympic averages across FSA units.
-Click image to view larger version-
-Click larger image to launch scroll bar-
The farm Olympic average yield across all FBFM farms is 178 bushels per acre (see Table 2). Ten percent of the farms have farm Olympic averages below 153 bushels per acre while ten percent of the farms have Olympic averages above 199 bushels per acre (see Table 2).
Some of the difference in Olympic averages is regional. Olympic average yields are 180 for northern Illinois and 182 for central Illinois (see Table 2). Southern Illinois has an average of 163 bushels per acre. There are, however, large variations within region. Southern Illinois, for example, has a lower average, but 10% of southern Illinois farms have Olympic averages above 194 bushels per acre (see Table 2). This diversity suggests that farms in all regions need to evaluate ACRE decisions individually as there can be wide variations in Olympic averages within a region.
The placement of yields in a the five-year period influences how Olympic averages change over time. For example, the first year in the 2009 Olympic average is 2004. The 2004 year will be dropped in the calculation of the 2010 Olympic average yield. If 2004 is the lowest yielding year, the 2010 Olympic average may increase because the minimum year will be eliminated and a new minimum year will be selected. The reverse occurs if 2004 is the highest yielding year.
For 75 percent of all farms in the farms, the low yield occurred in 2005. During 2005, a drought occurred that had its largest impacts in parts of northern and western Illinois. As a result more of the farms in northern Illinois had their worst year in 2004 than farms in central and southern Illinois. The worst year is 2005 for 86 percent of northern Illinois, 75 percent of farms in central Illinois, and 55 percent of farms in southern Illinois. This suggests that there is a potential for the 2011 Olympic averages to increase, given that yield shortfalls do not occur in 2009 and 2010.
About 49 percent of the farms had their highest yielding year in 2008 (Table 1). There is little variation in this percentage across regions: 47 percent in northern Illinois, 49 percent in central Illinois and 51 percent in southern Illinois. Following 2008, farms have their highest yields in 2007 (30 percent) and 2004 (20 percent).
Differences in farm Olympic average yields will impact ACRE payments across the state. A typical state ACRE payment likely will be $68 per planted acre. Using 153 bushels (10% of the farms are below this yield) and 190 bushels (10% of the farms are above this yield) as a range that will capture 90% of the farms, farm-level ACRE payments will range from $60 per planted corn acre up to $75 per corn planted acre (see calculations in the previous section). This is a range of $15 per acre from the low 10% breakpoint up to the high 10% breakpoint.
**Olympic Average Soybean and Wheat Yields**
-Click image to view larger version-
-Click larger image to launch scroll bar-
FBFM data indicate that five-year Olympic average soybean yields average 52 bushels per acre in 2009 (see Table 3). Ten percent of the farms have Olympic averages below 46 bushels per acre and 10% of the farms will have Olympic averages above 58 bushels per acre.
Our estimate of the average, state-level soybean ACRE payments is $50 per acre in years in which ACRE payments occur. Given the farm Olympic acreage yield of 52 bushels per acre for 2009 (see Table 3) and the 2009 state Olympic average yield of 47 bushels per acre (see Table 1), the average ACRE payment is $55 per acre ($50 state payment x 52 bushel farm average yield / 47 bushel state Olympic average yield). Given that 10% of the farm Olympic average yields are below 46 bushels, ten percent of the farms will receive payments below $49 per acre ($50 state payment x 46 bushel farm average yield / 47 bushel state Olympic average yield). Given that 10% of the farm Olympic average yields are above 58 bushels per acre, ten percent of the farms will receive payments above $61 per acre. Hence, there is a range of $12 per acre from the low 10% breakpoint up to the high 10% breakpoint.
-Click image to view larger version-
-Click larger image to launch scroll bar-
FBFM data indicate that five-year Olympic average wheat yields average 67 bushels per acre in 2009 (see Table 4). Ten percent of the farms have Olympic averages below 52 bushels per acre and 10% of the farms have Olympic averages of 81 bushels per acre.
Like corn and soybeans, farm ACRE payments will vary across farms. Our estimate of the average state ACRE payment is $89 per eligible acre when ACRE payments occur. Using this state payment, FBFM farms will have an average ACRE payment of $75 per planted acre ($68 state payment x 67 bushel farm average yield / 60.2 bushel state Olympic average yield). Given that 10% of the farm Olympic average yields are below 52 bushels, ten percent of the farms will have payments below $58 per planted acre ($68 state payment x 52 bushel farm average yield / 60.2 bushel state Olympic average yield). Given that 10% of the farm Olympic average yields are above 81 bushels per acre, ten percent of the farms will receive payments above $91 per acre. This is a range of $33 per acre from the low 10% breakpoint up to the high 10% breakpoint.
**Olympic Average Yields over Time **
Tables 2, 3, and 4 show farm Olympic average yields for 2009. Over time, Olympic averages will vary. In most years, Olympic averages will increase as productivity gains cause higher yields. However, Olympic averages will not always increase and some years will decrease.
-Click image to view larger version-
Past changes in Olympic averages may provide guidance as to how yields will change in the future. Figure 1 shows Olympic average yield calculated from 1977 through 2008 using FBFM data. As can be seen in Figure 1, farm Olympic averages have increased. From 1977 through 2008, the average increase is 1.7 bushels per year. During the last ten years, the average increase has been 3.5 bushels per year. Between 1977 and 2008, there have been eleven years out of 31 in which the average declined, or about one-third of the years. The last year in which there was a decline is 2006, having a decline of 1.1 bushels per acre. The largest decline of 7.4 bushels per acre occurred in 1992.
-Click image to view larger version-
For soybeans, Olympic average yields have increased by .38 bushels between 1977 through 2008 (see Figure 2). During the last ten years, the average increase has been .42 bushels per year. Since 1977, there have been 13 out of 31 years in which farm Olympic average yields have declined. The last year in which the Olympic average declined is in 2004. The decline in 2004 is 1.2 bushels per acre, the worst of the thirteen declines between 1977 through 2008.
**Summary and Conclusions **
Olympic average yields vary across farms in this state. Some of the variation is geographically related, but even within areas, there are large variations of farm Olympic average yields across farms in Illinois.
In general, farms with higher farm Olympic average yields will have higher ACRE payments than farms with lower Olympic averages. However, it is likely that farms with lower farm average yields will also have lower direct payments. Since 20% of direct payments are given up with a switch to ACRE, farms with lower farm Olympic average yields may also give up less in direct payments with a switch to ACRE. The weighing of direct payment reductions with ACRE payments need to occur when deciding which commodity program to select.
In most years, farm Olympic average yields will increase due to productivity gains that lead to increasing yields. There will be years in which actual yields lead to decreasing Olympic average yields. From 1977 through 2008, five-year Olympic average yields averaged across FBFM farms decreased about one-third of the time for corn and soybeans.
Submitted by: Gary Schnitkey , Department of Agricultural and Consumer Economics, University of Illinois
. |