JUNE 1996
Overview of the New Farm Program
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
It is the first title of the new farm bill - the Agricultural Market Transition Act - which most directly affects farmers. The new law eliminates target prices, deficiency payments based on market prices, 0/85 and 0/92, the farmer-owned reserve program, and set-aside acres.
Farmers who sign up for the new farm program will receive fixed but declining payments over a seven-year period. The payments do not fluctuate with market prices, and farmers have almost total planting flexibility with no set-aside acreage requirement.
A summary of the program details:
Sign-up
Will start on May 20 and continue until July 12, 1996. This eight-week period is a one time sign-up for the seven-year "production flexibility contract" (PFC). Only CRP land coming out of production may be enrolled in the remainder of the seven-year program period.
Eligibility
Owners, operators, and tenants who assume all or part of the risk of producing a crop, on established crop acreage bases for corn, wheat, barley, or oats. Those who have filed or certified an acreage report in at least one of the past five years (1991-95) but have not participated in the farm program would qualify as well. Base acreage enrolled into a PFC will become contract acreage: its history and payment level won't be affected or changed by what is planted on it (Contact your Farm Service Agency office in the case of fruits, vegetables, dry beans and potatoes; there are special rules for these crops). Land enrolled in a PFC must still follow conservation compliance and wetlands protection requirements.
Payment calculation
Will be figured for each previous program crop base and totaled for the annual PFC payment on the farm unit. The formula for each base: Crop base x FSA established yield x payment rate x .85 = base acre payment. The base acre payment for each crop grown would then be added to figure the total market transition payment. Example for 1996, excluding 1995 deficiency payback:
Corn = 200 A. x 110 bu. x $.24 x .85 = $4,488
Wheat = 300 A. x 38 bu. x $.62 x .85 = $6,008
Barley = 100 A. x 60 bu. x $..23 x .85 = $1,173
Total '96 market transition payment = $11,669
Estimated payment rates
In late April, the USDA announced estimated PFC payment rates for 1996 through 2002, under the assumption of 100 percent program participation. Total payment estimates (per bushel) for 1996: wheat, 62 cents; corn, 24 cents; barley, 23 cents; oats, 2 cents. Counting the add-in refund for 1995 deficiency repayment, the total payment for 1996 would be 87 cents for wheat, and 32 cents for barley. Bear in mind, actual program participation will likely be in the range of 90-95 percent, which will push final adjusted payments higher. In general, the estimated payment rates will increase by 1 cent per bushel for wheat and feed grains, for every 1 percent reduction in contract acreage participation for wheat; 4 percent for corn; and 3 percent for barley. Thus, if the final wheat participation level is 93 percent, the payment rate would increase by 7 cents, from 87 cents to 94 cents.
Payment timing
This year, advance payments (50 percent of the estimated total payment for 1996) will be made no later than 30 days after the date on which a PFC contract is approved. Thereafter, advance payments will be made on Dec. 15 or Jan. 15, at the option of the producer (and his or her tax situation). Advance notice must be given as to which date is preferred, and a producer may change his advance payment date from year to year. The final payment will be made on or before Sept. 30 of each year.
1995 deficiency repayment
Growers (except 0/85 and 0/92 participants) must repay unearned 1995 advance deficiency payments (wheat, 35 cents/bu.; corn, 20 cents; barley, 20 cents), since the market price exceeded the target price. If not already repaid, the amount due will be subtracted from producers' final 1996 PFC payments, to be made by Sept. 30. Producers of program crops will receive an additional payment to offset the deficiency repayment. (For corn, the additional payment and deduction of unearned 1995 deficiency payments will be made when growers receive their advance payments for 1997, which will be Dec. 15, 1996 or Jan. 15, 1997.) Note that the additional estimated payments of 25 cents for wheat, 9 cents for barley, and 13 cents for corn will only partially cover the cost of 1995 deficiency repayment. That's because more producers are likely to sign up for the 1996 program than participated in the 1995 program. The net effect being that the fixed government refund for deficiency repayment will be shared by more producers, causing the payment rates to drop slightly.
Payment limits
The limit on contract payments drops from $50,000 to $40,000 per person. The 1995 deficiency repayment is subject to a separate $50,000 payment limitation. Marketing loan gains and loan deficiency continue to be limited to $75,000 per person, and the three-entity rule continues.
Planting Flexibility
Any commodity may be grown on contract acreage, except fruits and vegetables (which includes dry edible beans and potatoes). Some exceptions are made for fruits and vegetables, with an acre-for-acre loss of payment. Contact your local FSA office for details. Any crop can be planted on non-contract acres. Haying and grazing restrictions no longer apply to any acres, except for CRP, which may be hayed or grazed only under emergency conditions, such as drought. Alfalfa and other forage crops can be grown on contract acreage without loss of payments. Contracted acreage may not be used for nonagricultural, commercial, or industrial use.
Crop insurance
A producer can decline catastrophic risk protection beginning with the 1996 crops and still remain eligible for all payments and benefits of the new farm program. However, anyone who does not purchase crop insurance will be required to sign a statement waiving any eligibility for disaster assistance.
Loan rates
Current loan rate formulas are maintained for wheat and feed grains. However, loan rates are capped at their 1995 level. USDA will offer nonrecourse marketing loan to producers with production flexibility contracts at the following rates in 1996: wheat, $2.58; soybeans, $4.97; barley, $1.55; corn, $1.89; oats, $1.03; minor oilseeds, $8.91. r
Landowners, renters, and the new farm program
There's been plenty of confusion about how landowners and tenants fit into the payment equation of the new seven-year farm bill. If anything, a lot more attention will be paid to the fine print of land arrangements over the next seven years. Following are some notes on land arrangements under the new farm bill; consult your local Farm Service Agency office with more detailed questions.
A tenant with a lease on the full acreage base of a farm can sign up for market transition payments without the landowner's signature on the contract. The landowner's signature is required, however, if only some or part of a crop acreage base is enrolled.
When a lease expires, the land can be rented out to someone else and the payment goes with it. Contract acreage moves with the farm, just as base acres are transferred currently.
When a lease expires, an owner can take over the land and receive the remaining market transition payments. The owner may also have a new lease drawn up (after the old lease agreement expires) and require a share of the market transition payment from a new or existing tenant. (Incidentally, this situation could be used to the renter's favor. The landowner becomes an entity if he or she receives the market transition payment instead of the renter. The renter, in turn, may be able to negotiate a lower rent from the landowner.)
A new farmer can enroll a farm into the market transition program provided the farm has a crop acreage base and it is enrolled at sign-up. A new owner or tenant could not enroll land that wasn't enrolled during the original sign-up period.
If a landowner sharecrops along with a tenant, the landowner, because he or she is sharing in the production risk, is entitled to a proportionate share of the market transition payment from land enrolled in the program. Payment should be divided as the crop would be; 25 percent/75 percent, for example.
Under the seven-year contract agreement, you can reduce at any time the amount of acreage under contract, which upon removal becomes unpaid and cannot be re-enrolled at a later date. After the one-time sign-up this summer, no land except eligible CRP can be added to the original contract.
FSA officials are urging that contract payments be treated equitably among tenants and landlords.
Payment recipients should be actively engaged in farming, and in general, tenants on a cash-rent basis should receive the program payments.