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Now That This Farm Bill is Law
Monday, April 1, 1996
filed under: Marketing/Risk Management
The revolutionary 1996 farm bill — or “Federal Agriculture Improvement and Reform (FAIR) Act” — is finally law. The Consolidated Farm Service Agency is rushing new regulations to county offices to catch up with spring planting. Congressional Republicans are heralding the beginning of a new era of government-free farming, while the Administration is promising to push legislation next year that will improve the safety net for growers. Secretary Glickman has even suggested that producers not expect to receive market transition payments after 1997 crops.
We will now wait to see what impact “Freedom to Farm” has on crop selection; whether any crop disasters will force another reform of the federal crop insurance program; and whether the world will face a major food shortage this fall. While we wait, it may be a good time to evaluate whether programs already in place will benefit the sunflower industry, based on anticipated market conditions. It also is a good time to begin to identify alternative programs that could provide greater benefits.
Oilseed producer organizations, including the National Sunflower Association, were successful in changing the method for determining oilseed market loan rates in the new farm bill. Instead of being fixed at $8.70 per hundredweight, the sunflower loan will be set at 85 percent of average market prices for sunflower in the previous five years (excluding the high and low years). The law establishes a loan floor of $8.70 and a ceiling of $9.30 for the 1996 through 2002 crops.
Based on 1991-95 prices, USDA announced on April 12 that the market loan for 1996 crop sunflower will be $8.79 per hundredweight. Assuming prices for the 1996 crop are at or above the 1995 level, the sunflower loan for 1997 and future years will be about $9.00.
With current market prices well above $11.00 per hundredweight, this year’s loan will not, thankfully, be needed as a safety net for grower income. Some producers may use the loan as a source of low-interest financing. If prices stay in the cur-rent range, the loan may be unnecessary.
However, it has been just two years since sunflower prices were below loan. Growers remember when oil-type prices dropped below the loan during the 1992 harvest, resulting in loan deficiency payments. And no one has been able to forget 1987 when prices bottomed.
No one likes to remember the not-so-good years. Unfortunately, they happen more often than the “boom” markets like we have today. At some point during the next seven years, the market loan is likely to be a factor in protecting sunflower producer income.
Another program that may seem unnecessary today is the Sunflower Oil Assistance Program (SOAP). Sun oil supplies are low, and planting intentions suggest a 15-percent reduction in oil-type sunflower seed acreage this year.
Yet it has been only about two years since processors were using SOAP to sell a majority of U.S. sun oil exports. The industry actively used SOAP from 1989 through 1994 to compete with heavily subsidized exports from the European Union and South America. Are those days over for good?
It is nearly impossible to find good answers to good questions in Washington, D.C. We do know that the export subsidy programs and incentives of other oilseed-producing nations are not disciplined by the Uruguay Round trade agreement. And we know that soybean oil stocks are rapidly increasing, which has a particularly negative impact on soft seed prices.
The American Oilseed Coalition, in which the National Sunflower Association actively participates, has asked the Clinton Administration to reactivate the Export Enhancement Program (EEP) to move part of the soybean oil surplus to foreign markets. However, with prices for soybeans and other crops at relatively high levels, renewal of EEP is going to be a tough sell.
In the meantime, NSA is preparing to again seek appropriation of funds to operate SOAP in the event it is needed in fiscal year 1997. We have an advantage this year since the Administration’s budget included — for the first time — funding of SOAP and its companion program for cottonseed oil, COAP.
And while SOAP may not be needed next year to maintain sun oil exports, it may be possible to authorize the use of surplus SOAP funds for research to develop new uses for sunflower. This initiative would augment current efforts to introduce a range of products with altered fatty acid composition aimed at specific markets.
Proposals to divert funding between programs often face opposition in Congress. However, shifting SOAP funds to new-uses research can be justified as a necessary means of meeting a consistent goal. If the Uruguay Round has the effect of gradually reducing exports of U.S. sun oil, Congress and the Administration should be willing to assist the sunflower industry in developing alternative markets for the 21st century.