Farm Bill Signup Begins
Farm Business Management Update, October-November 2002
By Jim Pease
Producer signup for 2003 commodity programs under the new Food Security and Rural Investment (FSRI) will take place from October 1, 2002 to June 1, 2003. These programs provide payments to eligible producers of wheat, barley, corn, soybeans, cotton, peanuts, and a few other feedgrain and oilseed commodities. Payments under the FSRI commodity program take three forms:
The marketing loan program provides price protection by establishing a floor price for these commodities. Producers may elect to put their commodities under loan (and possibly forfeiting the commodity to the USDA as repayment) or to take an LDP. The loan rate varies by commodity and also between counties for the same commodity. In some years during the 1996 FAIR Act, LDPs were paid on nearly all of these commodities to producers in Virginia. All production receives the benefit of the price floor, but (as may be the case this year) if there is no production, there also is no benefit from the marketing loan program.
Direct payments are the second component of commodity programs. DPs are similar to the AMTA or PFC payments of the 1996 FAIR Act, and are decoupled from current production and prices. Payments are made on 85% of the base acres times the base yield times the direct payment rate. With a direct payment rate of $0.28 per bushel for corn, a 100-acre corn base acreage and a 100-bushel base yield, the direct payment would be 85% * 100 acres * 100 bushels/acre * $0.28/bushel = $2,380. Advance payment up to 50% of the total payment may be paid at the producer's option beginning in December of the year before harvest.
Counter-cyclical payments are the other component of commodity programs. CCPs are similar to deficiency payments prior to the 1996 FAIR Act. Like DPs, CCPs are paid on 85% of the base acres. Unlike DPs, CCPs yields may be partially updated to reflect more current historical yields. The CCP rate is equal to the difference between the target price and the effective market price plus the direct payment rate. The effective market price is the higher of 1) the 12-month marketing year average price of the commodity, and 2) the national loan rate for that commodity. The maximum CCP rate occurs when the market average price is at or below the loan rate plus the direct payment rate. For example, the 2002 target price for corn is $2.60 per bushel, the loan rate is $1.98 per bushel, and the direct payment is $0.28 per bushel. If the marketing year average price is at or below $2.26 per bushel ($1.98 plus $0.28), the corn CCP rate is at its maximum of $2.60-$2.26 = $0.34 per bushel. If the price is between the loan rate and the target price minus the direct payment rate (between $1.98 and $2.32), the CCP rate is correspondingly reduced. At or above a price of $2.32 per bushel, there is no CCP. Using the same example as above, assume that the producer has 100 acres of corn base but has been able to update base yields to 110 bushels. If the marketing year price were $2.20 per bushel, then the CCP rate would be $2.60 - $2.20 - $0.28 = $0.12 per bushel. The CCP would then be 85% * 100 acres * 110 bushels/acre * $0.12/bushel = $1,122. Producers may also receive advance CCP of up to 35% of the expected annual CCP beginning in October of the year of harvest. USDA announced on September 27 that its forecast of marketing year average price indicates that, because of generally high market prices, no CCP will be paid for any commodity in the program except for peanuts, rice, and upland cotton. USDA will re-estimate expected prices in January, and a second partial CCP may be paid in February depending on the result of that forecast. The final CCP is paid at the end of the marketing year for the crop. Final CCP are paid in July for wheat, barley, and oats, in September for upland cotton, and peanuts, and in October for corn, sorghum, and soybeans.
Upon signup, producers will receive the remainder of their 2002 direct payments, which will be the difference between 2002 AMTA payments (already received) and the total 2002 program direct payments. Producers and USDA face a formidable task as they prepare for signup. Since soybeans have been added by FSRI to the DP and CCP programs, and because the legislation permitted partial updates of base yields, producers must choose among options to update base acres and base yields. These options include retaining the 2002 PFC contract acres as the base, updating all bases on the farm using 1998-01 plantings, and three options that allow a producer to add oilseeds to existing PFC acres. A different option may be selected for each FSA-defined farm, but an option selected for one program crop on a farm applies to all such crops.
Programs to assist producers in making these decisions are available from such sources as the National Corn Growersą Association (http://www.ncga.com/). I have two spreadsheets that are not currently on the Web that include the ability to add peanut base. Please contact me at (540) 231-4178 or email@example.com if you are interested in obtaining these spreadsheets. The base acres/yields options must be selected by April 1, 2003, or such acres/yields will default to the 2002 acres/yields. A related difficulty for producers involves the requirement that all landowners must agree in writing to any base update options. The landowner may sign the required USDA forms, or the producer may obtain a new power of attorney for this purpose from the landowner. In any case, this process will be very time-consuming for producers, landowners, and USDA personnel and may delay signup for weeks, if not months.
Included below are the national loan rates (Virginia county loan rates may vary), direct payment rates, and target prices under the FSRI Act
National Loan Rates Under 1996 and 2002 Farm Bills
Direct Payment Rates Under 1996 and 2002 Farm Bills
Target Prices Under 1990 and 2002 Farm Bills
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