Government Program Decisions for 1993

Program Provisions

The 1993 government program is similar to last year’s, but some key provisions, which may alter some farmers’ decisions, have changed. The set-aside level is 10% for corn, compared to 5% last year. Wheat has a zero set-aside requirement, compared to 5% last year. The wheat loan rate is $2.45 per bushel this year, up from $2.21 last year, while the corn loan rate is unchanged at$1.72. Target prices remain at $2.75 per bushel for corn and $4.00 for wheat.

Compared to the 1992 program, the increased corn set-aside reduces the incentive to be in the 1993 program. However, lower market prices anticipated for the 1993 crop favor program participation. The government program is designed to protect farmers from low-price years like those in 1992 and, as it now appears, 1993.

Again for 1993, corn and wheat programs allow for alternative crops on 15% Normal Flex Acres (NFA) and 10% Optional Flex Acres (OFA). Since crops on the NFA do not receive deficiency payments, farmers will want to plant their most profit-able crop with no government payments to those acres.

The program crop is usually the most profitable on OFA acres. Each OFA acre of corn base planted to corn receives a deficiency payment, but if it is planted to any other crop, the corn deficiency payment is not paid. In a similar manner, if the wheat OFA is planted to wheat, it receives the wheat deficiency payment, but if it is planted to any other crop it does not.

County Extension Ag Agents have worksheets and a computer pro-gram “1993 Crop Program Analysis,” available to evaluate farmer participation. This program identifies the highest return crops for each acre in the farm, including the NFA and the OFA acres. Worksheets and the computer program can be used to evaluate returns to operations under both the corn and the wheat programs. The following observations are based on returns above direct costs per acre using direct costs from Purdue 1993 crop budgets.

Observations on the 1993 Program

Returns in the 1993 corn program are about $33 per acre higher than out of the program for average quality Indiana land and anticipated new crop prices. It would take a price of about $2.45 for corn out of the program to match the return over variable costs for corn in the program, given a harvest price of $2.20 and a national average price of$2.15. If the price available to the farm is higher relative to the national average that determines the deficiency payment, as might be expected near the river markets, an even higher price would be needed to equal returns in the program.

Soybeans must be near $6 per bushel to be as profitable as rotation corn on corn NFA acres. If a portion of the corn base is in continuous corn, lower yields and higher direct costs for corn favor soybeans on NFA at a lower price. Our analysis suggests that soybeans will compete well with continuous corn on NFA corn base acres. Soybeans are not likely to compete with corn on corn OFA acres because of the sacrifice of deficiency payments.

Participation in the wheat program should be strongly considered since the set-aside is 0% and the $4 per bushel target is nearly $1 higher than anticipated harvest prices.

On single crop wheat, plant corn on wheat NFA, except for low-quality land or where wheat was already seeded in the fall of 1992. In areas of the state where double crop is practical, no single crop competes effectively with double cropping beans after wheat.

Use of the 0-92 option (zero planting for 92 percent of the deficiency payment) is unlikely to be the most profitable option except in very unusual circumstances.