ILLINOIS WHEAT NEWS

Managing Fusarium Head Blight (Scab) of Wheat

Fusarium head blight (FHB), also known as “scab”, is a disease of wheat that can cause both yield and quality losses.  Symptoms of FHB appear as “bleached heads” or heads with both green and bleached areas. The fungus, Fusarium graminearum (a.k.a. Gibberella zeae) causes FHB of wheat and can cause Gibberella stalk and ear rot of corn.  The fungus also produces the toxin deoxynivalenol (DON) that can contaminate grain, which can be a serious problem for millers.  Weather is an extremely important factor involved in the development of FHB, especially from flowering through kernel development.  Moderate temperatures (75 to 85°F), prolonged periods of high humidity, and prolonged wet periods favor FHB development.
Successfully managing FHB requires an integrated approach, where the use of resistant varieties, better crop sequences, and fungicides can limit losses due to FHB:
Resistant Varieties:  Although no varieties are immune to FHB, some are more resistant than others.  Dr. Fred Kolb’s wheat-breeding program at the University of Illinois has rated wheat varieties for FHB severity under high-pressure FHB environments over multiple years.  These ratings are available on-line at the University of Illinois Variety Testing site, located in the “Small Grains” section (http://vt.cropsci.uiuc.edu).
Cropping Sequence:  Because corn stubble can harbor the FHB fungus, wheat following soybean is at a lower risk of developing FHB than wheat following corn.
Foliar Fungicides:  The use of a foliar fungicide is the only “in-season” option for control of FHB.  Although fungicides are a good control option, losses will still occur on a highly susceptible variety sprayed with a fungicide in an environment conducive for FHB; therefore, it is always important to start off on the right foot and plant a variety with good resistance to FHB.
For the first time ever, multiple effective fungicide products will be available for use on wheat in 2009.  These fungicides, which have good efficacy against FHB and some foliar diseases include: Caramba (BASF), Folicur (Bayer CropScience), Proline (Bayer CropScience) and Prosaro (Bayer CropScience).
For control of FHB, fungicides should be applied at Feeke’s growth stage 10.5.1 (early anthesis).  It is also important to spray with nozzles oriented to spray forward, which helps coverage of the wheat head.  In the past, recommendations were to use nozzles that sprayed both forward and backward; however, recent research out of North Dakota State University has shown that “forward-facing” nozzles may be all that are needed.
Fungicides that contain an active ingredient in the “strobilurin” class should NEVER be applied to control FHB.  This includes products like Headline, Quadris, Quilt, and Stratego.  Research has shown that strobilurin fungicides can actually increase DON levels in harvested grain.  These strobilurin products are very good at controlling foliar diseases of wheat, and if used, should be applied earlier in the season (around Feekes 8 – flag leaf emergence).
Forecasting System for FHB.  To help with fungicide application decisions, an FHB forecasting system is available.  The Fusarium Head Blight Risk Assessment Tool is available on-line at www.wheatscab.psu.edu.  A “risk map” is available that allows you to see what your risk of FHB is throughout Illinois.  This risk is based on weather conditions that have occurred. 
Carl A. Bradley
Assistant Professor of Plant Pathology / Extension Specialist
University of ILlinois - Department of Crop Sciences
Urbana, IL 61801
217-244-7415 

Return to the top.

76% of Wheat Growers Approve Biotech Petition

More than three-quarters of wheat growers responding to a recent National Association of Wheat Growers (NAWG) survey approved a petition supporting the commercialization of biotechnology in wheat.
The survey was commissioned by NAWG as a project of the NAWG Foundation to measure and document the level of support of biotech trait commercialization among wheat growers.
Anecdotal evidence has long suggested many wheat producers would like biotech traits in their arsenal, and national wheat organizations support biotech commercialization. However, private technology providers need to be assured of ground-level support for their efforts before undertaking the decade-long, multimillion-dollar path toward commercialization of a trait.
“Until now, there has only been speculation about the breadth of grower support for biotechnology in wheat,” said NAWG CEO Daren Coppock.  “This petition was designed to gather those answers from across our wheat producing areas, and now we have an objective and clear answer.”
To date, the survey has enjoyed a 32 percent response rate, with approval rates similar across states and farm sizes. The survey was mailed in January and February to about    21,000 producers with more than 500 acres of wheat and 1,000 acres in total production.
More information about the petition and survey is available online at               www.wheatworld.org/biotech. Items posted there include the full petition language, an expanded Q and A about the effort and numerical break-outs of results by state and farm size.
NAWG leaders have scheduled a media availability on the biotech survey for Thursday from 4:30 to 5:30 p.m. local time at the Wheat Industry Booth (#806) at the Commodity Classic trade show. Additional media inquires may be directed toward Melissa George Kessler at mkessler@wheatworld.org.

Return to the top.

University of Illinois Economists Recommend Changes to Wheat Contract

The basis for corn and soybeans in recent months has returned to a more normal relationship, according to Darrel Good, University of Illinois Extension ag economist.
But the Chicago wheat contract remains flawed and appears to have some “structural issues,” Good said last week during a meeting about the convergence issue hosted by the Illinois Farm Bureau Profitability Advisory Team.
“Wheat still remains at very wide basis levels” after reaching $2 below futures prices last summer, said Scott Irwin, U of I ag economist. “These contracts somehow are out of balance.”
The U of I economists believe a number of factors have contributed to wide discrepancies between cash and futures prices in recent years.
But, overall, the situation seems to revolve around an unusually large carry in nearby spreads as the main factor driving poor convergence performance of corn, soybean, and wheat futures contracts in recent years.
Factors that may be contributing to the long period of large carry are the fact that CME Group maximum storage rates in some cases have been below actual commercial storage costs; large “long-only” index funds that roll from contract to contract may contribute to a permanent increase in the spread; and a significant increase in uncertainty about future commodity prices has resulted in a large “risk premium” built into the price structure, according to the U of I economists.
“Not only have we had non-convergence but it also is negatively affecting hedging effectiveness,” Irwin said.
And the “poster child” for the problems is the wheat contract, according to Irwin.
Jeff Hainline, of Advance Trading who also serves on the National Grain and Feed Association risk management committee, noted soft red winter wheat contracts have not converged since 2005 (see graphic).
The U of I economists believe a key problem with the wheat contract is there is not much commercial activity moving through the deliverable markets in Chicago and Toledo.
The locations also are in soft red winter wheat territory, which doesn’t always trade at the same price as other classes of wheat.
Therefore, the economists proposed the elimination of Chicago and Toledo as deliverable markets for the wheat contract with a move to a Mississippi Waterway delivery system similar to the Illinois Waterway delivery system for corn and beans.
Hainline also recommended CME Group add new futures contracts for corn, beans, and wheat that double the monthly storage charge from 5 cents to 10 cents per bushel.
The IFB Profitability Advisory Team recommended the IFB board adopt the proposals concerning changes to storage rates and the wheat delivery system.
Re-printed with the permission of FarmWeek.

Return to the top.

’Excessive Speculation’ Found in Wheat Market

A report released last week by the U.S. Senate Permanent Subcommittee on Investigations concluded there is “excessive speculation” in the wheat market.

The report Called for a clampdown on index traders buying of wheat futures after finding the traders made such large purchases on the Chicago wheat futures market that it drove up futures prices; disrupted the normal relationship between futures and cash prices; and caused farmers, elevators, processors, consumers, and others to experience unwarranted costs and significant price risks.

“It is another case of speculative money overwhelming a market and federal regulators failing to take the steps needed to protect the market,” said Senator Carl Levin (D-Michigan), chairman of the Senate subcommittee that conducted the investigation.

Commodity index traders increased their holdings from about 30,000 wheat contracts in 2004 to 220,000 contracts by 2008, according to the 247-page report.

The sevenfold increase in contract holdings enlarged the market share of commodity index trading to the point that, since 2006, commodity index traders held between 35 and 50 percent of all outstanding Chicago wheat futures.

“The report reflects a view that has been expressed by the National Grain and Feed Association (NGFA) for several years,” according to a NGFA news release.

“The CBOT (Chicago Board of Trade) market for wheat has fundamental problems and is not providing the kind of pricing and hedging performance needed to market grain efficiently and to provide forward-pricing contracts to producers that reflect the market.”

The average gap between futures and cash prices basis increased dramatically from 13 cents per bushel in 2005, 34 cents in 2006, and 60 cents in 2007 on up to $1.53 last year.

The Senate subcommittee report recommended the Commodity Futures Trading Commission (CFTC) phase out existing waivers which permit commodity index traders to exceed the standard limit of 6,500 wheat contracts per trader.

The subcommittee also recommends the CFTC impose a position limit of 5,000 wheat contracts per index trader, if necessary’ analyze other agricultural commodities; and strengthen data collection for nonagricultural commodities.

Contributed by Dan Grant, Illinois Farm Bureau FARMWEEK, July 2009

Return to the top.

The ACRE Decision

By Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois

The 2008 Farm Bill gives a choice on how Federal commodity payments can be received. Payments can continue in the traditional manner through direct, marketing loan, and counter-cyclical programs. Alternatively, an Average Crop Revenue Election (ACRE) alternative can be selected. ACRE makes three changes relative to the traditional alternative: 1) direct payments are lowered by 20 percent, 2) loan rates are lowered by 30 percent, and 3) ACRE payments are received rather than counter-cyclical payments.
Direct payments are fixed yearly payments that average between $18 and $25 per acre on most Illinois farms. Under ACRE, direct payments will be reduced by 20%. Given the $18 to $25 range, direct payments will be reduced from $3.60 to $5.00 per acre.
In the past, most farmers have received marketing loan payments by taking loan deficiency payments (LDPs). LDPs can be received when posted county prices – which are usually near cash prices -- are below loan rates. Under the 2008 Farm Bill, national loan rates are $1.95 per bushel for corn, $5.00 for soybeans, and $2.94 for wheat. Under ACRE, national loan rates are reduced by 30 percent to $1.37 per bushel for corn, $3.50 for soybeans, and $2.06 for wheat. It is unlikely that prices will fall below national loan rates between now and the end of the Farm Bill in 2012. Hence, the chance of receiving LDPs is low under both the traditional and ACRE alternatives.
Under the traditional alternative, counter-cyclical payments will be received when season average prices fall below trigger prices. Trigger prices in 2009 are $2.35 for corn, $5.36 for soybeans, and $3.40 for wheat. The chances of receiving counter-cyclical payments are low because it is unlikely that commodity prices will average below trigger prices.
ACRE is a state revenue program for corn, soybeans, wheat, and other program corps. It has two eligibility requirements: one for farm revenue and the other for state revenue. ACRE payments are based on the difference between state revenue and a state guarantee. The state guarantee will adjust up or down based on a recent history of state yields and national season average prices. Because the ACRE guarantee adjusts based on recent history, ACRE has a higher chance of making payments than the counter-cyclical program. Using history as a guide, ACRE will pay for corn in 32 percent of the years and average $17 per planted acre. For soybeans, ACRE will pay in 16 percent of the years and average $6.50 per planted acre. These average payments will vary across farms based on the farm's average yield relative to the state's average yield.
Only direct payments are likely to be received under the traditional alternative. Under ACRE, there is a good chance of receiving ACRE payments but direct payments will be 20% lower than under the traditional alternative. ACRE payments could be substantial and will provide risk protection. A Microsoft Excel spreadsheet called the ACRE Comparison Tool allows users to analyze situations in which ACRE will make payments. This program is available in the FAST section of farmdoc (www.farmdoc.uiuc.edu). In addition, other information on the ACRE decision is available on farmdoc.

Return to the top.

Questions and Answers about ACRE Provision

Question 1: What is ACRE?
ACRE stands for Average Crop Revenue Election provision and is an alternative to the current price counter-cyclical program. Beginning in 2009, producers have an option of choosing ACRE. Once ACRE is elected, it is irrevocable through the 2012 crop year. Even if ACRE is elected , producers will still receive direct payments (with a 20% reduction) and be eligible for marketing loans (with a 30% reduction in loan rates). See figure 1.

Question 2: What if I do not elect the ACRE provision?
ACRE must be elected by the producer at program sign-up. If the producer does not elect ACRE, the default will be the current counter-cyclical program. Sign-up for the 2009 Direct and Counter-cyclical Payment program began December 22, 2008. Enrollment for the ACRE program will not start until this spring.

Question 3: Do I have to elect ACRE for 2009?
No, I can wait and choose ACRE for the 2010 crop year, 2011 crop year, etc. But once I choose ACRE, it is irrevocable through the 2012 crop year.

Question 4: Do I have to elect ACRE on all my crops and all my farms?
Payments are crop specific and the whole farm must be enrolled in ACRE. I cannot enroll my corn base and not my soybean base. It is expected that the ACRE election will be made by Farm Services Agency (FSA) farm number, so an operator could have some farms enrolled in ACRE and some under the traditional counter-cyclical program.

Question 5: How does ACRE work?
ACRE provides revenue protection based on state revenue. The revenue protection is based on a 2-year moving average of the U.S. marketing year average crop price and a 5-year Olympic moving average of state yields. Olympic average means that the high and low yields are dropped out when calculating the average. Except to determine whether the farm is eligible for an ACRE payment, a farm's revenue does not enter into the calculation of the revenue payment.

Question 6: How is the ACRE payment calculated?
The ACRE payment equals the lesser of the (ACRE state revenue guarantee minus state actual revenue or 25% of the ACRE state revenue guarantee) times 83.3 percent of the farm's acres planted to the covered crop times (the farm's Olympic average yield divided by the State's ACRE benchmark yield). 

Question 7: How is an ACRE payment triggered?
Two triggers must be met before an ACRE payment is received (see figure 2). First, the state's realized revenue must be less than its target revenue. If the state trigger is met, the farm must also trigger a payment, which means that the farm's actual revenue for the crop must be less than the farm's ACRE benchmark revenue for that crop.

Question 8: What are the ‘costs' of electing ACRE?
If a producer elects ACRE, their direct payments will be equal to 80% of the direct payments under the traditional program. For Illinois farms, this cost usually will be between $4 and $6 per acre. Marketing loan rates will be reduced by 30% of the loan rates established in the 2008 Farm Bill. This would affect marketing loan payments (LDP's) if they come into play. Also, the producer is not eligible for counter-cyclical payments.

Question 9: What acres are covered by ACRE?
Payments are based on planted acres but are limited to a farm's total base acres. If a farm's total planted acres exceed the farm's total base acres, then the producer chooses which acres to enroll in the program.

Question 10: What are the payment limitations if I elect ACRE?
The direct payment limitation is $40,000 minus an amount equal to 20% of the reduction in direct payments, or a total limit of $32,000. The ACRE payment limit is $65,000 plus 20% of the direct payments, or a total limit of $73,000.

Terminology
ACRE State Revenue Guarantee: ACRE benchmark state yield per planted acre times the ACRE price guarantee times 90%.
ACRE Actual State Revenue: State yield per planted acre times the national average market price.
Farm's ACRE Benchmark Revenue: Olympic average of the farm's yields for the most recent 5 years times the ACRE guarantee price plus per acre crop insurance premiums paid for that crop year.
Farm's Actual Revenue: Farm's actual yield times the U.S. marketing year average price for that crop.

Example for corn for 2009:
ACRE benchmark state yield = 172 bu. per acre (5-year Illinois Olympic average yield)
ACRE price guarantee = $4.10 per bushel (2007-2008 average marketing year price-U.S.) The $4.10 is an estimate at this time as the 2008 marketing year price will not be finalized until September, 2009.
2009 state revenue guarantee = 172 bu. x $4.10 x 90% = $634.68

Farm's ACRE benchmark yield = 160 bu. per acre (5-year farm Olympic average yield, most recent years)
Farm's ACRE benchmark revenue = 160 bu. x $4.10 (ACRE guarantee price) plus $35 (crop insurance premiums) = $691.

Assume 2009 actual state yield = 165 bu. per acre
Assume 2009 farm yield = 157 bu. per acre
Assume 2009 marketing year average price is $3.50.

2009 actual state revenue = 165 bu. x $3.50 = $577.50
2009 actual farm revenue = 157 bu. x $3.50 = $549.50

An ACRE payment is triggered since both the state and farm level actual revenues are below the guarantees.

ACRE payment = ($634.68 - $577.50) x 83.3% x (160/172) = $44.31

Issued by: Dale Lattz, Gary Schnitkey and Nick Paulson, Department of Agricultural and Consumer Economics, University of Illinois

Return to the top.

ACRE Signup and Deadlines

The deadline for producers to elect and enroll in the Average Crop Revenue Election (ACRE) for 2010 is June 1, 2010. USDA will not accept any late-filed applications.

Producers who elect the ACRE program for a farm agree to:

• forgo counter-cyclical payments;
• accept a 20-percent reduction of the direct payments; and
• accept a 30-percent reduction in loan rates for all commodities produced on the farm.

Commodities eligible for ACRE payments are wheat, corn, grain sorghum, barley, oats, upland cotton, long grain rice, medium and short grain rice, peanuts, soybeans, sunflower seed, canola, flaxseed, safflower, mustard seed, rapeseed, sesame seed, crambe, dry peas, lentils, small chickpeas and large chickpeas.
The ACRE program was created in the 2008 Farm Bill to give producers an option in lieu of traditional counter-cyclical payments. Producers may elect and enroll in ACRE for the 2009 crop year even if they have already accepted advance direct payments under the Direct and Counter-cyclical Program.
To elect ACRE for a farm, producers must complete Form CCC-509 ACRE, which irrevocably elects ACRE for the farm through crop year 2012. Form CCC-509, the contract to participate in ACRE, must then be completed each year the producer intends to participate and receive benefits.

Return to the top.

[Home] [About Us] [About IL Wheat] [IWA News] [IWA Board] [Current Events] [IWA Membership Form] [Other Links]