The Farm Security and Rural Investment Act of 2002

General Overview

Crop Program Changes

Dairy Provisions

Key Features

Higher loan rates for most crops.

Direct payments for wheat, feed grains,cotton, and rice (previously calledproduction flexibility contract payments).

Expanded eligibility for direct paymentsto producers of oilseeds and peanuts.

Key Features (Continued)

Additional payments (called counter-cyclical payments) to farmers when commodity prices fall below their target prices.

An option for producers to update the bases and yields used to calculate counter-cyclical payments.

New programs for dairy, pulse crops (dry peas, lentils, and chickpeas), peanuts, honey, wool, and mohair.

Key Features (Continued)

Reauthorizing the Conservation Reserve Program and expanding the acreage cap from 36.4 million acres to 39.2 million acres.

Reauthorizing the Environmental Quality Incentives Program and increasing the funding from about $200 million per year to $400 million this year, ranging to $1.3 billion in fiscal year 2007

Authorizing other new Environmental programs

FAIR Act 2002 Farm Bill

Maximums 2002-03 2004-07

Corn $1.89 $1.98 $1.95

Wheat $2.58 $2.80 $2.75

Soybeans $5.26 $5.00 $5.00

Sorghum Rel. to corn $1.98 $1.95

Cotton 51.92 cents 52.00 cents 52.00 cents

Rice $6.50 $6.50 $6.50

Loan Rates

Fixed Payments

FAIR

Act2002

Farm Bill

2002 2002-07

Corn $0.26 $0.28

Wheat $0.46 $0.52

Soybeans --- $0.44

Sorghum $0.31 $0.35

Cotton $0.0572 $0.0667

Rice $2.05 $2.35

Not tied to current production

Paid on 85% of base acres, but base acres can be updated

Paid on program yields used for FAIR Act payments—no updates

Soybean payment yield: 78% of 1998-2001 yield

Target Prices

2002-03 2004-07

Corn $2.60 $2.63

Wheat $3.86 $3.92

Soybeans $5.80 $5.80

Sorghum $2.54 $2.57

Cotton $0.724 $0.724

Rice $10.50 $10.50

Used to determine counter-cyclical payments (CCPs)

CCP rate = Target Price – Fixed Payment – (higher of loan rate or season avg. farm price)

Paid on 85% of base acres If producers do a full base

update, then CCPs paid on updated program yield

Expected CCP for Corn - 2002

Target Price $2.60

Less Fixed Payment $0.26

Less Loan Rate $1.98

Equals CCP per Bushel $0.36

PLUS LDP IF MARKET PRICE IS LESS THAN LOAN RATE. GUARANTEES $2.60/BU. ON 85% OF BASE ACRES @ PROGRAM YIELD

EQIP Features

Funding increased from $1.3 billion over 6 years to $1.3 billion annually by 2007.

Allocation to livestock increased from 50 percent to 60 percent.

Cost sharing at 75 percent; 90 percent for low-resource and beginning farmers.

EQIP Features (Continued)

Removes animal unit cap for eligibility

CAFOs must have Comprehensive Nutrient Management Plan to be eligible for payments.

Payment cap = $450,000 total for FY 02-07. Up from $10,000 annual and $50,000 total for FY 96-01.

Dairy Title Features

$9.90 support price extended through December 31, 2007.

Dairy CCP program authorized from December 2001 through September 2005.

Continues Dairy Export Incentive and Dairy Indemnity Programs.

Dairy Title Features (Continued)

Continues processor fluid milk promotion program and requires importers to pay an assessment equivalent to $0.15 per hundredweight NDPR checkoff.

Mandates three economic studies.

Authorizes (without appropriations) Johnes research program.

National Dairy Market Loss Payments

Uses $16.94 target price relative to Boston Class I price to set monthly deficiency payments (45 percent of difference).

2.4 million pound annual payment cap.

No cap on total expenditures.

Retroactive to December 2001.

Recent Boston Class I Prices

Boston Class I Price

12.00

12.50

13.00

13.50

14.00

14.50

15.00

15.50

16.00

16.50

17.00

17.50

18.00

18.50

19.00

19.50

20.00

Jan '00 Apr Jul Oct Jan '01 Apr Jul Oct Jan '02 Apr Jul Oct

$/C

wt.

BostonClass I

$16.94

Estimated Monthly Payment Rates

Rates from December 2001

– July 2002 based on actual Boston Class I prices.

Rates from August – December 2002 based on “Higher of” Class III or Class IV futures prices on June 20, 2002 plus $3.25 Boston Class I differential

Dec '01 15.23 0.77Jan '02 15.21 0.78Feb 15.20 0.78Mar 14.87 0.93Apr 14.72 1.00May 14.51 1.09Jun 14.28 1.20Jul 13.87 1.38Aug 13.82 1.40

Sep 14.49 1.10

Oct 14.35 1.17

Nov 14.25 1.21

Dec 14.25 1.21

MonthBoston Class I

Payment Rate

Projected Total Payments for 2002*

Based on monthly payment rates from previous slide and

Milk per cow @ 55 lbs/day

Larger farms may qualify for larger payments if payment

cap is liberally interpreted

*January-December 2002 payments plus December 2001 retroactivepayment received in 2002

Cows50 11,769 1.0875 17,653 1.08

100 23,538 1.08150 28,140 0.86200 28,140 0.64500 28,140 0.26

1,000 28,140 0.132,500 28,140 0.05

Herd SizeTotal

PaymentPayment per Cwt.

$

Subjective Assessment

Further separates production decisions from marketplace conditions.

A very inefficient means of promoting rural development

Conformance with GATT?

Costly, but less so when compared with supplemental payments outside of FAIR.

Much more a political product than in the past.