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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 $1.79
Annual Average Wheat Prices Received by Farmers: 1980-2007
2
2.5
3
3.5
4
4.5
5
5.5
1980
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$ 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