George HaynesProfessor and Extension SpecialistMontana State University

Vincent SmithProfessorMontana State University

Ft. Peck Community College/MSU Energy ConferenceOctober 30, 2008

By itself, the Commodity Credit Corporation manages funds for about 80 commodity and conservation programs

The Risk Management Agency operates hundreds of crop insurance programs

CSREES manages dozens of research and education programs

Trade Issues are addressed in a separate title The 2008 Farm Bill will increase the complexity of

farm programs and create new choices for many producers

Energy, Livestock, and Beginning Farmer programs

will now have their own title

A new Disaster Aid Program has been created.

An alternative commodity program - the Average

Revenue Program - has been established

The Food Stamp Program has been renamed and

revamped

Conservation programs have been renewed and

some renamed

Marketing Loan/Loan Deficiency Program: Price supports for some crops. Changes have been made to some loan rates.

Direct Payments: fixed and unrelated to current production decisions and, for most operations, based on farm level production in the early and mid 1980s. Payments have been reduced for three years in the 2008 (farmers will be paid on only 83.3 percent of base acres in 2009, 2010 and 2011 with the goal of reducing annual direct payments by about $100 million, a 2 percent reduction).

Counter Cyclical Payments (linked to major crops): triggered by low

prices and therefore not fixed, but unrelated to current production

decisions because, as with direct payments, the payment basis is

predetermined by historical yields. Some commodity target

prices are increased but with no measurable incentive

effects. The 2 percent reduction in the base area eligible

for payments is also applied to counter cyclical payments.

A new Average Crop Revenue Election (ACRE) Program has

been introduced. Farmers may opt to participate in the new

program but must take substantial reductions in the direct

payments they receive and the loan rates for which they are

eligible.

Marketing Loan/loan Deficiency Payment Programs: Price Supports for a few major crops have been increased. LDP’s now based on the average market price over the preceding 30 days (not the current day’s price).

New Loan Rates for Selected Crops

Crop Old (2002) New (2008)

Wheat (bu) $2.75 $2.94

Corn (bu) $1.95 $1.95

Barley (bu) $1.85 $1.95

Soybeans (cwt) $5.00 $5.00

Other Oilseeds (cwt) $9.30 $10.09

Oats (bu) $1.33 $1.39

Target Price/ Countercyclical Payment Programs: Target prices have been increased for a few major crops, but not by large amounts.

Proposed Changes to Selected Target Prices

Crop Old (2002) New (2008)

Wheat (bu) $3.92 $4.17

Corn (bu) $2.63 $2.63

Barley (bu) $2.24 $2.63

Soybeans (cwt) $5.80 $6.00

Other Oilseeds (cwt)

$10.10 $12.68

Oats (bu) $1.44 $1.79

Annual Average Wheat Prices Received by Farmers: 1980-2007

2

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$ per bus

Old Loan RateNew Loan Rate

New Target PriceOld Target Price

Market Price plusDirect Payment

Market Price

Direct payments are limited to $40,000

per eligible person.

Countercyclical payments are limited to

$65,000 per eligible person

(farmer/rancher and spouse).

Loan rate payments are unlimited.

No three entity rule: payment limits only apply

to individuals, but a spouse counts as a

separate individual

Individuals involved in farming with Adjusted

Gross Incomes in excess of $750 thousand in

farm income lose direct payments.

Individuals not involved in farming with Adjusted

Gross Incomes in excess of $500 thousand in

farm income lose all program eligibility.

New commodity program designed to provide revenue support to farmers as an alternative to the price support that farmers are used to receiving from commodity programs.

Critical considerations Double trigger

State revenue for the crop year for the covered commodity is less than the ACRE program guarantee revenue

Actual farm revenue for the crop year for the covered commodity is less than the farm ACRE benchmark revenue

Critical Considerations (continued) 10% cup/cap

ACRE program guarantees for 2010 – 2012 will not increase or decrease by more than 10% from the preceding crop year

Benefits of previous farm programs reduced No countercyclical payments, 20% reduction in

direct payments and 30% reduction in marketing assistance loan rate.

Critical Considerations (continued) Irrevocable sign-up for 2009 though 2012: once

a farm signs up, it is committed to ACRE until 2012

ACRE must be elected for all eligible program crops planted on the farm

Crop insurance is still important

Not a “No Brainer” Each producer needs to make their own decision about

whether to stay with the existing program or sign up for ACRE

Analysis Triggered ACRE payments in 7 of 30 years

5 times farm (county) triggered with no State trigger

Historical assessment Over the past 10 years, current farm program paid

more than ACRE for many counties

Future assessment Deterministic – farmers need to use their own

numbers Current prices, and last year’s prices, for wheat

and barley are much higher than in previous years

Direct payments are limited to $40,000 per

eligible person minus an amount equal to

the 20% reduction in the farm’s direct

payments.

ACRE payments are limited to $65,000 plus

an amount equal to the 20% reduction in

the farm’s direct payments.

ACRE EXAMPLES:

State Wide Olympic Average Wheat Yield is 39 bushels per acre over the past five years

Initial Two Year National Average Price is $7.33 per bushel

Estimate Total Per Acre Payments and Current Program Payments over all of the four year period 2009-2012

Two Scenarios:1. State achieves its long run average yield

of 39 bushel per acre but the national price is lower over the four

year period2. National Average Price is $6 but state

yields are low (and remain low over the four year period)

Scenario 1: Average State Yields-Lower National Average Prices

PRICE PER

BUSHEL

TOTAL ACRE PAYMENTS

TOTAL CURRENT PROGRAM PAYMENTS

$3 $161.00 $116.00

$4 $165.45 $60.64

$5 $118.12 $60.64

$6 $74.23 $60.64

$7 $48.51 $60.64

Scenario 2: Constant ($6/bu) Price-Lower Average Yields

STATE AVERAGE

YIELD (bu/acre)

TOTAL ACRE PAYMENTS

TOTAL CURRENT PROGRAM PAYMENTS

39 $74.23 $60.64

29 $172.92 $60.64

19 $148.66 $60.64

9 $148.66 $60.64

Import Quotas: these will be continued

Marketing Allotments for both domestic beet

and cane sugar production (re-established in

the 2002 Farm Bill). These will be continued.

Non-recourse loans. The sugar beet loan rate

is currently 22.9 cents per pound of sugar. The

loan rate will be increased in each of the

following years: 2009, 2010, and 2011.

Import Quotas: these will be continued

Marketing Allotments for both domestic beet

and cane sugar production (re-established in

the 2002 Farm Bill). These will be continued.

Non-recourse loans. The sugar beet loan rate

is currently 22.9 cents per pound of sugar. The

loan rate will be increased in each of the

following years: 2009, 2010, and 2011.

YearSugar Beet Loan Rate

(cents per lb)

2008 22.90 cents

2009 23.45 cents

2010 23.77 cents

2011 24.09 cents

2012 24.09 cents

Crop Insurance programs will be continued. Subsidies will

generally be maintained at the current levels. At the

most common level of coverage (effectively a 35 percent

yield deductible), the federal government pays 59 % of

the estimated actuarially fair premium.

In 2009, the Administration Fee for Federal Crop

Insurance Catastrophic Coverage will be increased

from $100 per crop to $300 per crop (for up to a

maximum of three crops).

In 2009, the NAP Administration fee will be increased to

$250 per crop (for a maximum of three crops).

A new standing disaster payment program

(in the Senate Finance Bill) would require

farmers to buy crop insurance or NAP for

all crops and forage for which those

programs are available.

The new standing disaster program is also

known as the Supplemental Revenue

Assistance Program (SURE)

Critical considerations Double trigger

Crop insurance and NAP must be purchased for all crops raised on farm

Farm is: (a) in a declared disaster (or

contiguous) county or (b) adverse growing conditions

reduced the farm’s total production by 50% or more

Critical considerations SURE payment

60% of farm’s SURE guarantee less farm’s estimated revenue

Farm’s SURE Guarantee 115% of per acre insurance coverage (essentially)

Farm’s Revenue (Revenue to Count) Value of crop Insurance indemnities (or prevented planting payments) 15% of direct payments All CCP, ACRE and market loan payments

Analysis SURE is an incentive to buy at least 75%

individual crop insurance (115% x 75% = 86%) SURE most benefits areas with higher yield

variability SURE raises questions about crop rotation

(encourages single-crop farms) Will farmers adopt all-crop alternative year rotation? Will farmers eliminate small acre crops?

Eligible Producers will receive 75% of the

estimated market value of livestock losses in

excess of normal mortality rates for losses

attributable to the disaster.

A livestock forage disaster program has been

established where losses are determined

through drought monitoring.

A honey disaster payment program has been

established.

Land Retirement Programs

Working Lands Programs

Conservation Reserve Program: Nationwide, the maximum allowable CRP area will be reduced from 39.2 million acres to 32 million acres. The new constraint has to be in place in 2010.

Nationwide, after bird nesting season, livestock operators will be allowed to hay and graze CRP lands (an allowance permitted by the Secretary of Agriculture and which is not in the 2008 Farm Bill).

Wetlands Reserve Program: Renewed with some modifications, including provisions for easements.

Grassland Reserve Program: The 2008 Farm Bill continues this program (which funds conservation easement to maintain grassland) with the goal of increasing enrolment by about 1.2 million acres over the life of the Farm Bill.

Conservation Stewardship Program (previously the Conservation Security Program): The Farm Bill renews and expands funding for the program, which provides incentives for farms and ranches to adopt conservation practices. Farms no longer have to have land in a watershed to be eligible.

Environmental Quality Incentives Program: The Farm Bill also renews and expands the EQIP program, which provides cost share funds for farm/ranch investments that improve environmental quality.

Most important provisions in Farm Bill ACRE

SURE

Environmental and Conservation Programs

Questions