Key Features of the New Farm Program

By Phyllis Nystrom

The new Farm Security and Rural Investment Act of 2002 has the pencil sharpeners flying as we try to decipher how each farm will be affected. New formulas and terms will make it mandatory to sit down and determine, by farm, if you should update acreage bases in order to update yield information for the new counter-cyclical payments. Yields for direct payments cannot be updated.

Some of the key features of the new bill:

• Runs for 6 years from 2002 through 2007.

• No acreage requirements to participate.

• Mostly higher commodity loan rates.

• Oilseeds are now eligible for direct payments.

• One time chance to update base acres.

• To update yields, you must update acreage bases. If a producer just adds oilseed acres to their farm base, they do not have the option to update payment yields.

• Producers receive direct and counter-cyclical payments on registered acres regardless of what is produced.

• Counter-cyclical payments essentially replace emergency or double AMTA payments of the past.

• Base acres and yield updates take on added significance.

• LDPs and Marketing Loan Gains are limited to $75,000. However, this may be exceeded by repaying matured loans with generic commodity certificates.

• Direct payments are limited to $40,000 per person.

• Counter-cyclical payments are limited to $65,000 per person.

• No government ownership.

• “Usually” pays to keep high corn/wheat/barley base versus updating yield.

• Posted county price determinations may change.

• Loan rates change over the course of the bill.

• Wheat loans are by class for the first time ever.

• Counter-cyclical rate: the difference between the target price and the sum of the direct payment plus the higher of the loan rate or the 12-month average market price. Although dependent on price action, counter-cyclical is not tied to what you actually plant.

• Direct payment: uncoupled, paid regardless whether you plant the crop or not. Not dependent on price action.

One of the most important items to remember is that the government does not care what you plant in order for you to collect both direct and counter-cyclical payments. The market will dictate whether counter-cyclical payments will be dispensed or not, while direct payments will be made regardless of prices.

To determine the base acreage for direct and counter-cyclical payments, growers have the choice of:
a) Retaining their current planting data and adding oilseeds, or;
b) Updating their data using 1998-2001 average of planted and prevented planting of all covered crops.

• If producers do not update their base acres, they are required to use their current ATMA yield.

• Producers who update their data to the 1998-2001 average can update yields for CC or target price payments only. Yields for direct payments cannot be updated.

The CC payment yield update can be either:

• The current AMTA yield plus 70% of the difference between a) yields set under the current law and b) the average of 1998-2001 yields, or;

• 93-1/2% of the 1998-2001 yields.

Whichever is chosen for soybeans, the payment yield will not be less than 75% of the county average yield for a given year.

Direct payment yield for soybeans will be determined by:

• National average bean yield from 1981-1985 (30 BPA)/national avg. bean yield from 1998-2001 (38.2 BPA) x average proven bean yield from 1998-2001. See above if your yield is less than 75% of the county average.

• Direct payment = (Base acres x .85) x Payment yield x Payment rate

• Counter-cyclical payment = (Base acres x .85) x Payment yield x Payment rate.

• Counter-cyclical payment rate = Target price - (direct payment rate + (higher of national loan rate or 12- month average price)).

If the producer chooses to update his base acres he may also have to prove past yields. If this is the case, elevators may be asked to provide copies of old settlement sheets. This would take both time and paper. You may want to address these issues soon if you feel there will be a demand for this additional service is your area.

If you’ve taken payment on estimates of the counter payment and in the end the payment wasn’t as large as estimated, you will owe the advance or whatever you shouldn’t have gotten, back to the government (probably as a deduct against future payments).

Nystrom is a market analyst with Country Hedging, Inc., 800-243-3432, Website: www.countryhedging.com .

Example of Wheat Payment

•  Target price $3.86
•  Loan $2.80
•  12-month average farm price $2.90 (assume)
•  Direct payment $.52
•  FSA yield 30 BPA
•  Average yield from 1998-2001 37 BPA – (37 x 93 ½% = 34.6 new 
   yield for CC payment)
•  Base acres 500
•  Direct Payment = (500 acres x 85%) x 30 BPA x $.52 = $ 6,630
•  Counter-cyclical payment= (500 x 85%) x 34.6 BPA x $.44 = $ 6,470-    CC payment rate - $3.86 – ($.52 + $2.90) = $.44

Hands-On Farm Program Training
To get more specifics on the new farm bill, hundreds of grain producers turned out for meetings this summer across North Dakota and Minnesota, sponsored by the Minnesota Association of Wheat Growers and the North Dakota Grain Growers Association.   At the meetings, participants received a computerized decision model, and step-by-step instructions on how to use it, to decide whether or not to update base and yield. The Microsoft Excel spreadsheet was developed by the MAWG and the NDGGA for members to compare which option will be the most profitable for their individual farm. This interactive spreadsheet, designed for northern-grown crops, is free to members of the NDGGA and MAWG. It can be found online at www.smallgrains.org or www.ndmarketmanager.org . Questions about membership or password access to this spreadsheet can be directed to the NDGGA at 1-800-932-8822, or the MAWG at 1-800-242-6118.