2002 Farm Bill2002 Farm Bill

TitlesI Commodity Programs

Subtitle A Direct Payments and Counter-Cyclical Payments B Marketing Assistance Loans and Loan Deficiency Payments C Peanuts (Major Changes) D Sugar E Dairy F Administration

II ConservationSubtitle A Conservation Security (New) B Conservation Reserve C Wetlands Reserve Program D Environmental Quality Incentives Program E Grassland Reserve F Other

2002 Farm Bill2002 Farm BillTitles

III TradeSubtitle A Ag. Trade Dev. And Assistance Act of

1954 and Related Statutes B Ag. Trade Act of 1978

IV Nutrition ProgramsSubtitle A Food Stamp Program

B Commodity Distribution C Child Nutrition and Related Programs

V CreditSubtitle A Farm Ownership Loans

B Operating Loans C Emergency Loans

VI Rural DevelopmentVII Research and Related MattersVIII ForestryIX EnergyX Miscellaneous

General OverviewGeneral Overview

• Commodity provisions similar to previous 1996 farm bill– – – –

»

– • Major changes for Soybeans and

Peanuts–

General Overview (Cont.)General Overview (Cont.)

• Required country-of-origin labeling for meat, fish, produce and peanuts by 2004–

– Have since pushed back implementation date

General Overview (Cont.)General Overview (Cont.)

• Added an Energy Title– Commits $405 million to the development of

resources for the production of ethanol and biodiesel facilities

• Initiates a counter-cyclical dairy program• Wool and Mohair provided marketing loan

benefits• Honey provided marketing loan benefits• Added new Conservation Security Program• EQIP funding increased 6 fold• Includes authority for LDPs on grazed

wheat, oats, barley and triticale

DefinitionsDefinitions

• Covered crops:– wheat, corn, grain sorghum, barley,

oats, upland cotton, rice, soybeans, and other oilseeds (sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed)

– Eligible for income support

• Loan Commodities:– Covered commodities plus extra

long staple cotton, wool, mohair, honey, dry peas, lentils, and small chickpeas.

Crop Base UpdatingCrop Base Updating

• Producers of covered crops had five choices:1. Retain current AMTA bases2. Retain current AMTA bases and add max oilseeds (if

applicable)3. Retain current AMTA bases and add min oilseeds (if

applicable)4. Update bases by using 1998-2001 planted and

considered planted acreage for all crops5. Retain current AMTA bases and add some

combination of oilseeds (if applicable)

• Base updating was on a farm (FSA farm number) by farm basis

• What are the implications of 1998-2001 period for Texas? Droughts 1998, 1999, and 2001)

– Bad choice of years used to updated bases

MostUsedChoices

Farm Program Yield Farm Program Yield UpdatingUpdating

• Only applied to counter-cyclical payment• Only allowed if update base acres using 1998-

2001 planted acreage • Producers had three choices:

1. Retain current program yields2. Update yields by adding 70% of the 1998-2001

average yield (excluding any year planted acreage was zero) minus current program yields to the current program yield

3. Update yields by taking 93.5% of 1998-2001 yields, excluding any year planted acreage was zero

• What are the implications for farmers/landowners who underplanted bases or did not plant anything at all?

− Got screwed – would have lost money if updated bases so couldn’t update yields

Farm Program Yield Updating Farm Program Yield Updating (Cont.)(Cont.)

• Could replace any of the 1998-2001 yields with 75% of the county average for that year

– Using 75% of 1998-01 county average yield per harvested acres to replace any yield

• Yield updating was on a crop by crop basis for each FSA farm #

• All crops on a farm were required to use the same method for determining yields

Direct PaymentsDirect Payments

• Farmers could choose to update base but were required to use AMTA (1996 farm bill) yield– Soybeans and peanuts a little different

• Same formula as AMTA paymentsDirect Payment = (payment rate x (base acres x .85) x farm program yield)

• Advance Payments– Producer Option– For 2003-2007 up to 50% in any month

between December 1 of the year before and October 1 (date payment is otherwise made)

Counter-Cyclical Counter-Cyclical PaymentsPayments

• Commodity specific based off of national price trigger

• Base owners and/or producers receive a payment that depends on the effective price for the commodity:

Target price - Effective price

Counter-cyclical payment rate ($/unit)

CCP = CCP rate x (Base acres x .85) x Updated FPY

• Effective price equals the higher of market price or loan rate plus the direct payment rate

• The national market price is the 12 month weighted average marketing year price for the crop

• Decoupled from production decision

Counter-Cyclical Payments Counter-Cyclical Payments (Cont.)(Cont.)

• Won’t know for sure what total payment will be until end of marketing year– This is roughly a year after harvest

• If Secretary determines CCPs are required:– 2002 – 2006 Payment Timing

» Producer can elect to receive up to 35% of the projected counter-cyclical payment in October of the year the crop is harvested

» An additional 35% beginning in February of the following year

» The balance after the end of the 12 month marketing year for the crop

– 2007 Payment Timing» First payment (40%) after 6 months of marketing

year» Final payment after the end of the 12 month

marketing year for the crop

Direct PaymentsDirect PaymentsCrops 1996 Farm Bill

2002 Rate2002 Farm Bill 2002 – 07 Rate

Corn ($/bu) 0.261 0.28

Sorghum ($/bu) 0.314 0.35

Wheat ($/bu) 0.461 0.52

Upland Cotton ($/lb)

0.0572 0.0667

Rice ($/cwt) 2.05 2.35

Barley ($/bu) 0.202 0.24

Oats ($/bu) 0.022 0.024

Soybeans ($/bu) N/A 0.44

Minor Oilseeds ($/lb)

N/A 0.0080

Peanuts ($/ton) N/A 36

New “covered” crops

Loan RatesLoan RatesCrops 1996 Farm

Bill 2001 Rate

2002 Farm Bill

2002 – 03 Rate

2002 Farm Bill2004 – 07

Rate

Corn ($/bu) 1.89 1.98 1.95

Sorghum ($/bu) 1.71 1.98 1.95

Wheat ($/bu) 2.58 2.80 2.75

Upland Cotton ($/lb) 0.5192 0.52 0.52

Rice ($/cwt) 6.50 6.50 6.50

Barley ($/bu) 1.65 1.88 1.85

Oats ($/bu) 1.21 1.35 1.33

Soybeans ($/bu) 5.26 5.00 5.00

Minor Oilseeds ($/lb) 0.093 0.096 0.093

Peanuts ($/ton) N/A 355.0 355.0

Dry Peas ($/cwt) N/A 6.33 6.22

Lentils ($/cwt) N/A 11.94 11.72

Small Chickpeas ($/cwt)

N/A 7.56 7.43

Why?

Why?

Target PricesTarget PricesCrops 2002 -

20032004 – 2007

Corn ($/bu) 2.60 2.63

Sorghum ($/bu) 2.54 2.57

Wheat ($/bu) 3.86 3.92

Upland Cotton ($/lb) 0.724 0.724

Rice ($/cwt) 10.50 10.50

Barley ($/bu) 2.21 2.24

Oats ($/bu) 1.40 1.44

Soybeans ($/bu) 5.80 5.80

Minor Oilseeds ($/lb) 0.0980 0.1010

Peanuts ($/ton) 495.0 495.0

Why?

Market Receipts

CCP

MLG/LDP

Distribution of Government Distribution of Government SupportSupport

Example: CottonExample: Cotton

Revenue per Pound

Target Price – $0.724

LoanRate – $0.52

Fixed payment – $0.0667

}Decoupled (do not have to produce to receive payment)

Coupled (do have toproduce to receive benefits from marketing loans gains or LDPs)

Market Price

Reflects payments not on full productionReflects payments not on full production(payment acres = .85 x base acres)(payment acres = .85 x base acres)

Payment Timeline for Most Payment Timeline for Most (Depends on Marketing Year) (Depends on Marketing Year)

CommoditiesCommodities

Oct 04 Dec 02 Feb 05 Aug 05 Oct 05 Dec 05

1st CCP Advance

for ’05 crop

2nd CCP Advance

for ’05 crop

CCP Final

for ’05 crop

1st CCP Advance

for ’06 crop

Opportunityfor Direct Payment

50% Advancefor ’05 crop

FinalDirect Payment

for ’05 crop

What a mess!

2002 Farm Bill2002 Farm Bill

During 2001 we debated the 2002 Bill

Era: low prices for 6 years and no expectation of high prices, increased call for new safety net program.

New Safety Net in 2002 Bill is return to Deficiency Payment with New Target Price.

2002 Bill Policy Tools:

•New TP

•Direct Payment

•Continued Marketing Loan Program

•No ARP

•***Farmers were permitted to update Base Acres (frozen in 1990) & Payment Yield (frozen in 1985). 7 options for update Base & Yield.

New Target Price:

Decoupled Payment

•Def Payment is not tied to the crops you grow

•Def Payment is based on historical crops base acres & CCP yield

•Def Payment is called a Counter Cyclical Payment (CCP)

CCP= TP - Direct Pay rate – [max of price or LR] * Base acre * CCP yield * 0.85

?

S

NTPPeq

qs

D

Pmt

wheat

Because CCP is not related to crop being

grown, receive payment from cotton history not

for wheat grown.

2002 Farm Bill2002 Farm Bill

The New Target Price does not directly affect quantity supplied because CCP is a decoupled payment.

2002 Bill

Direct Payment

=>decoupled

=>DP = DP rate * Base * .85 * Dp Yield

DP yield < CCP yield – updated 5 yr average actual ylds.

Continued marketing loan – LDP & MLG

2002 Farm Bill2002 Farm Bill

Peq > NTP => No CCP for corn, wheat, sorghum, barley, oats, or soybeans

s

Peq

NTP

D

2002 Farm Bill2002 Farm Bill