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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