Econ 330 Spring 2009 Government Farm Programs. THE FOOD, CONSERVATION, AND ENERGY ACT OF 2008 The farm bill authorizes USDA’s: –Commodity program support

Econ 330

Spring 2009

Government Farm Programs

THE FOOD, CONSERVATION, AND ENERGY ACT OF 2008

• The farm bill authorizes USDA’s:– Commodity program support– Conservation and Forestry– Renewable Energy– Research – Trade – Food stamps and other nutrition assistance – Rural Development – Fruit and vegetable research

• Farm bill expires with the 2012 crop year

USDA 2008 FARM BILL BUDGET - $289 BILLION

• Commodity Programs decreased by 13%

• Food and nutrition increased by 12%– 70% of $289 billion 5-year program

• This change in allocation of money is critical to obtain support of urban lawmakers

Bulk of Farm Bill for NutritionMore than two-thirds of the five-year Farm Bill will be distributed to food stamps, school lunch and other domestic nutrition programs.

*Includes weather-related disaster payments SOURCE: Congressional Budget Office

Farm Bill Allocation

Nutrition70%

Crop subsidies 11%

Crop Insurance8% Environmental

programs to preserve farmland

9%Other*2%

TWO MAJOR CHANGES

• Payment Limits and Eligibility

• Decision of Traditional vs. Average Crop Revenue Election (ACRE)

TRADITIONAL PROGRAM

• Direct Payment

• Counter-Cyclical Payment

• Loan Deficiency Payment

• Direct Payment rates remain the same

• Payment will be based on 83.3% of base acres, down from 85%, for 2009-2011. Goes back to 85% in 2012 to restore budget baseline.

DIRECT PAYMENTS

200 Acres Cropland100 Acre Corn Base100 Acre Soybean Base120 bu/Ac Corn Yield Index 39 bu/Ac Soybean Yield Index

Government Direct Payment for Corn100 Ac. Corn Base X 83.3% X 120 bu/Ac. X $.28/bu. = $2,799

Guaranteed Direct Payment for Soybeans100 Ac. Bean Base X 83.3% X 39 bu/Ac. X $.44/bu. = $1,429

Total Proposed Direct Payment $4,228

Per Acre $4,228 ÷ 200 Ac. = $21.14/Ac.

EXAMPLE OF DIRECT PAYMENTSFOR 2009

COUNTER-CYCLICAL PAYMENTS

• Eligible for payment when market prices are below target prices

• 12 month average

THE FOOD, CONSERVATION AND ENERGY ACT OF 2008

EXPIRES IN 2012

Direct payments and counter-cyclical payments are based upon 83.3% in 2009 of a farm’s crop bases times 100% of the yield index. This may be reduced to meet budget constraints.

Per Bushel Prices Corn Soybean Wheat National Target Prices $2.63 $5.80 $3.92 Direct Payments .28 .44 .52 $2.35 $5.36 $3.40 National Loan Rate $1.95 $5.00 $2.75 Maximum Counter-Cyclical Payments $ .40 $ .36 $ .65

Loan Deficiency Payments (LDP’s) can be earned whenever the posted county price is lower than the above loan rates. This involves the same procedure as with the 1996-02 Farm Program.

• Maximum Annual Direct Payments - $40,000

• Maximum Annual Counter-Cyclical Paymentsor ACRE - $65,000

• Loan Deficiency Payments – no payment limit

• Producers with adjusted gross income (AGI) over $750,000 in farm income will be denied Direct Payments.

• Those with an AGI over $500,000 in non-farm income will lose all program eligibility. (Previously $2.5 Million)

PROGRAM PAYMENT LIMITATIONS

• There is no income test for price supports and Counter-Cyclical Payments.

• The Bill establishes direct attribution of payments and eliminates the three entity rule.

• A husband and wife would be able to qualify for their own payment limit.

• There is a $1 million limit on AGI for Conservation Programs, but for those with more than two thirds of their income from farming there would be no Conservation Program limit.

PROGRAM PAYMENT LIMITATIONS

AVERAGE CROP REVENUE ELECTION (ACRE) vs. TRADITIONAL

Alternative Payments Under Traditional and ACRE Program

Traditional ACRE

Direct Payments 80% of Direct Payments

Loan Payments at Full Loan Rates

Loan Payments at 70% of Full Loan Rates

Counter-Cyclical Program ACRE Program

• Optional, revenue base program, state level program that provides payments for a commodity when actual state revenue is less than the revenue guaranteed.

• Enrollment – Begins with 2009 crop. Can enroll any crop year, but once enrolled, must remain for duration of farm bill.

ACRE

• Provides state-level guarantee on acres planted equal to 90% of the product of a state average yield factor, times the national season average price for the previous two years of the specific commodity.

• State average yield factor is the state average yield per acre for the previous five years after dropping the highest and lowest years.

ACRE - Payments

• If the actual state-per-acre revenue is less than the guarantee AND if a producer suffers an actual revenue loss for the crop on the farm, then the producer will receive an ACRE payment equal to the difference between the state-per-acre revenue guarantee and the state actual revenue calculation paid on 83.3% of the acres planted to the covered commodity on the farm.

• Payment rates will increase to cover 85% in the year of 2012.

ACRE - Payments

• Limitations – Once the guarantee is set, it cannot vary by more than 10% from the previous year’s guarantee. The total payment cap for ACRE participants is $32,000 for direct payments and $73,000 for counter-cyclical payments.

ACRE

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2002 Farm Bill effectiveTarget Price

ACRE Target Price 2009Crop

$ per Bushel

Comparison of 2002 Farm Bill Counter-cyclical Program and 2008 Farm Bill ACRE Program for 2009-Crop corn

2002

Farm Bill2008

ACRE

Target Price $2.63 $4.391

Direct Payment $0.28 2

Effective Target $2.35 $4.93

Assumed farm price $3.30 $3.30

Payment per Bushel 0 $1.09

Est. Payment per acre 0 $152

Counter-cyclical Pay (Bil. $)

0 $9.93

1 90% of 2007/08 and 2008/09 average price

2 Producer eligible for 20% reduction on direct payments. Revenue guarantee not affected by direct payment

3 Assumes 90% participation and yield equal to the previous 5-year olympic avg.

Chart from USDA via AgWeb/Pro Farmer, June 2008.

Understanding ACRE: Breakeven Price with Traditional Programs, Corn, Soybeans, Wheat

Carl Zulauf, June 2008

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

Corn Soybeans Wheat

ACRE Breakeven Price

Department of Agricultural, Environmental, and Development Economics, The Ohio State University

More Info Needed for ACREKevin McClure, state production adjustment specialist for USDA’s Farm Service

Agency in Iowa, believes most farmers need more information on the Average Crop Revenue Election of the 2008 Farm Bill to make an informed decision on whether or not to participate.

Farm Futures readers agree. Below is a question asked in a fall survey. Almost half of the farmers who responded want more information.

Question:Details of the new ACRE farm program are still being worked out. Based on what you know so far, how likely is it you will sign up for the program?

Very likely to use ACRE5%

Somewhat likely to use ACRE16%

Will stick with existing program28%

Don’t know enough to say what I’ll do47%

• Supportive of farm income, cash rents and land values

• Maintains planting flexibility• Provides payments for soil and water

conservation activities• Allows grain markets to trade below the loan

rates through LDP’s and market loan provisions.

SUMMARY

• Insurance Decision• 20% Less Direct Payments• 30% Less Marketing Loan Rate• Possible payment in year when gross

revenue is low• Payment could be zero or sizable• All producers on farm must elect to participate

SUMMARY (ACRE)

• Traditional program better if market price in 2009-2012 remains above Average price level of 2007-2008

• If price is below 2007-2008 Average, then payment will be significantly greater than old traditional program

SUMMARY (ACRE)

Conservation Programs

• Conservation Reserve Program• Cost Share Programs• Conservation Security Program

Ag Land Management Conservation Practices

Federal ProgramsWildlife Habitat Incentives Program (WHIP)

Allows landowners to work with a NRCS technician to prepare and implement a wildlife habitat development plan on their private land. WHIP provides cost share assistance up to 75%. Land already in a federal program like CRP is not eligible.


Federal Programs

Environmental Quality Incentives Program (EQIP) Provides cost-share up to 50% of the cost to implement practices such as erosion control structures and improved animal waste storage structures.

Incentive payments for implementing nutrient, manure, integrated pest, and wildlife management plans


Federal Programs

Forest Stewardship Program

Provides funding to the Department of Natural Resources and private consultants to design Forest Stewardship Plans for private land owners.

Land owners become eligible for the Forest Incentives Program (FIP), Stewardship Incentives Program (SIP)


Federal ProgramsThe Continuous Conservation Reserve Program (CCRP)

Goals are protecting soil and water resources while paying landowners for implementing CRP practices on their land and CCRP is always available to landowners

Practices are grassed waterways, filter strips, riparian buffers (wildlife habitat plantings), and wetland restorations


Federal ProgramsConservation Reserve Program (CRP)

Enrolls highly erodible or environmentally sensitive cropland that has been farmed 2 of the last 5 yearsLandowner controls access and must have owned acreage for at least one year Landowner also agrees to plant and maintain permanent areas of vegetation to improve water quality or provide food and habitat for wildlife


Federal ProgramsWetland Reserve Program (WRP)

Enrolls restorable farmed or prior converted wetlandsLand must have been farmed for at least one year during the last five years States can allow a percent of non-hydric soils to be added alsoAdjacent land with a 100 foot buffer may also be enrolledLandowner maintains owner-ship and hunting rights, controls access, pays taxes, and maintains practices


Federal ProgramsWetland Easement

Enrolls naturally occurring wetlands restored under the Wetland Development Agreement Only wetlands are covered under this program and adjacent upland is not eligible The landowner maintains ownership and hunting rights, controls access, and pay taxes


Federal Programs

Wetland Development Agreement

Enrolls areas where the Fish and Wildlife Service can construct a small earthen dam or remove 50 to 100 feet of tile from drainage system to restore a drained wetland. The length of the agreement extends 10 years or the length of a remaining CRP or Waterbank contract. Land owner controls access.

Questions?

Documents

Econ 330 Spring 2009 Government Farm Programs. THE FOOD, CONSERVATION, AND ENERGY ACT OF 2008 The farm bill authorizes USDA’s: –Commodity program support