Understandingthe 2002 Farm Bill

 

         Figuring out how and where the new legislation will impact growers has becomethe number one topic for growers since the signing of the Farm Bill.

         The most important aspect of the new Bill for growers to understand is thatwhile it is a significant improvement in the level and certainty of supportthat will be available for program crops, it is also a different animal interms of how that support is structured and delivered.

         With the reintroduction of target prices and counter-cyclical payments (on adecoupled basis); the continuation of direct, decoupled payments; and thecontinuation of the marketing loan there are lots of ways that the program canbe misunderstood in terms of how much support is provided compared toyear-to-year production of a given commodity.

         First and foremost for growers to keep in mind is that support provided throughthe direct and the counter-cyclical payments are not dependent on what crop agrower chooses to plant in any given year.

         In fact, the only portion of the current Bill that is tied directly toproduction are those associated with the loan program and the ability of thegrower to receive loan level support on actual production amounts.

         One important aspect of the final agreement was the inclusion of rules allowing2001 crops grown on non-AMTA farms to be able to receive loan deficiencypayments (LDP’s) with beneficial interest requirements waived for the 2001crop.

         Under the new program direct and counter-cyclical payments are decoupled fromany planting requirement and are paid based on an established base acreage andpayment yield on every farm enrolled in the program.

         With that basic understating the task of sorting out just how each of thesephases will be implemented and carried out can be attempted. The following isbased on current understanding of the legislation.

 
Payment Limitations

         For purpose of the FSRI, payment limitations have been imposed which limit theamount of support a single producer is eligible to receive through each phaseof the program.

         The other new limitation, set for implementation in 2003, is a Means Test thatwill exclude any person/entity from receiving farm program payments whosethree-year average Adjusted Gross Income is greater than $2.5 million dollars.A persons/entity whose AGI is greater than $2.5 million can retain programeligibility if they receive 75 percent of the average AGI from farming andranching.

         Of key importance to cotton is the fact that the current rules regardingspouses, actively engaged in farming and the 3-entity rule have been maintainedwith no changes.

         Loan - Individual producers willmaintain 100 percent access to the benefits provided through the marketing loanprogram. The FSRI Act renews the $75,000 per person limit on benefits receivedthrough loan deficiency payments and marketing loan gains included in the 1996Farm Bill and adds the ability to redeem cotton entered in the loan withnon-transferable generic marketing certificates.

         Direct - The FSRI Act limits theamount a single producer can receive through direct, decoupled payments to$40,000.

         Counter-Cyclical – The FSRIpayment limit on new decoupled counter-cyclical program payments is set at$65,000 per person.

 

Marketing Loan Program

         Marketing loan provisions are essentially unchanged under the FSRI Act. Theonly real differences are in the levels at which base commodity loan rates areset and the change to a 9-month loan repayment period.

         The following chart shows the applicable base loan rates for loan eligiblecommodities, excluding graded and non-graded wool and mohair.

 

Commodity

Loan Rate

2002-2003

Loan Rate

2004-2007

Upland Cotton (lb)

$0.52

$0.52

ELS Cotton (lb)

$0.7977

$0.7977

Corn (bu)

$1.98

$1.95

Sorghum (bu)

$1.98

$1.95

Wheat (bu)

$2.80

$2.75

Soybeans (bu)

$5.00

$5.00

Rice (cwt)

$6.50

$6.50

Barley (bu)

$1.88

$1.85

Oats (bu)

$1.35

$1.33

Peanuts ($/ton)

$355.00

$355.00

Min. Oilseeds (lb)

$0.0960

$0.0930

Dry Peas (cwt)

$6.33

$6.22

Lentils (cwt)

$11.94

$11.72

Small Chickpeas (cwt)

$7.56

$7.43

Source:House Agriculture Committee

 

 

Direct, Decoupled Payments

         Payment Formula - Direct,decoupled payment rates have been established for individual program cropsunder the FSRI Act as shown in the table above. Direct payments will be madeusing the following formula:

(DirectPayment Rate) X (Current AMTA Yield) X (Established Base Acres X 0.85)

         Bases - Growers will have theoption to retain either their current AMTA Base acres plus any additionaloilseed base they qualify for; OR, update the AMTA base acres using their1998-2001 planted and prevented planted acres to all covered commodities.

         Payment Yields – Payment yield forthe direct decoupled payment will remain at the current AMTA payment yield forall crops except soybeans which will have a yield calculated to reflect theaverage soybean payment yield for the comparable 81-85 time frame in whichcurrent payment yields were established.

         Timing of Payments - Directpayments under this section will be made as follows: an Advance payment equalto 50 percent of the direct payment rate will be available beginning December 1of the year prior to the year the crop is harvested, and the balance of thepayment will be made in October of the year in which the crop is harvested.

 

Counter-Cyclical Payments

         Payment Formula – Counter-CyclicalPayments (CC) have been established for individual program crops under the FSRIAct using the target prices shown in the table above. CC payment rates will befigured using the Target Price established for the individual crop minus thedirect payment rate for the crop minus the higher of the Base Loan rate for thecrop or the Average Price received by Farmers for the crop at the end of the12-month marketing year (August1-July 31 for Cotton).

CCpayment rates will be calculated using the following formula:

CCRate = (Target Price) – (Direct Payment Rate) – (Higher of Loan Rate or AvePrice received by Growers)

         If triggered, CC payments will be paid using the following formula:

(CCRate) X (CC Payment Yield) X (Established Base Acres X 0.85)

         Payment Yields – Producers willhave the option to update the current AMTA payment yield for purposes ofcalculating CC payments or retaining their current AMTA payment yield.

         Anyone opting to update AMTA payment yields for purposes of calculating theirCC payment will be required to also update their AMTA base acres to reflect theaverage of 98-01 planted and prevented planted acres.

         If elected, updated yields will be assigned at the higher of 70% of thedifference between current AMTA yields and a full yield update based on 98-01yields on planted acreage OR 93.5%of 98-01 yields on planted acreage. The provision also provides a “plug” of 75%of the county average yield for years in which the actual farm yield is lessthan the county average yield.

         Timing of Payments –Counter-Cyclical payments under this section will be made as follows: anAdvance payment equal to 35 percent of the projected final CC payment rate willbe available in October of the year in which the crop is harvested; Anadditional 35 percent of the projected payment beginning February of thefollowing year; and the balance of the payment will be made at the end of the12-month Marketing year for the specific crop.

 

Direct Payment Rates and Target Prices

 

 

Direct Payment Rate

Target Prices

 

2002-2007

2002-2003

2004-2007

Corn(bu)

$0.28

$2.60

$2.63

Sorghum(bu)

$0.35

$2.54

$2.57

Barley (bu)

$0.24

$2.21

$2.24

Oats(bu)

$0.024

$1.40

$1.44

Wheat (bu)

$0.52

$3.86

$3.92

Soybeans (bu)

$0.44

$5.80

$5.80

Minor Oilseeds (lb)

$0.0080

$0.0980

$0.1010

Upland Cotton (lb)

$0.0667

$0.7240

$0.7240

Rice (cwt)

$2.35

$10.50

$10.50

 

Cotton Competitiveness Provisions

         Step-2 threshold of 1.25 cents is eliminated through July 31, 2006.