New Farm Bill, New Oilseed Changes and Options
Saturday, November 2, 2002
filed under: Marketing/Risk Management
Enrolling in the New Farm Program
Decisions involve new oilseed changes and options
Enrollment in the new farm program will determine the level of payments producers will receive from now until the end of the 2007 crop year. The owner or owners of a farm have until April 1, 2003 to elect an option that establishes the base acreage for the farm.
Most producers understand that the new farm program offers two decoupled payments: direct and counter-cyclical. Both payments are decoupled or independent from actual production on the farm in 2002 through 2007, determined by payment rates per bushel (or lb.), base acres and payment yields.
Direct payments are fixed at an established rate over the life of the farm bill (see table). The payment is made regardless of whether producers plant a crop or not, and is not dependent on price action.
Counter-cyclical payments essentially replace emergency or double “transition” payments made during the low price years of the last farm bill. The counter-cyclical payment is triggered when average prices for program crops are low. The payment rate is the difference between the target price (see chart) and the sum of the direct payment plus the higher of the loan rate or the 12-month average market price. Although dependent on price action, the counter-cyclical payment is not tied to what producers actually plant, and the payment rate can vary, since it is related to the national average marketing year price. The market will dictate whether counter-cyclical payments will be dispensed or not, while direct payments will be made regardless of prices.
Producers and landowners have a one-time opportunity to update their crop acreage bases and yields with the Farm Service Agency (FSA) during signup for the new program. The acreage bases and yields will be used to calculate the direct and counter-cyclical payments through 2007 for each farm, regardless of the crops planted.
Fortunately, you don’t have to know how to calculate the different base acre and payment yield options to determine which provides the greatest income. Computer tools are available to help with the calculations for you, including an electronic spreadsheet developed by NDSU that can be operated with Excel 97 or later versions. It will also work with later versions of Lotus 1-2-3 and QuattroPro. The software, an input form, instructions and county "plug" yields for North Dakota are available on the Web at http://www.ag.ndsu.nodak.edu/aginfo/farmmgmt/farmmgmt.htm. Kansas State University also has an online farm program spreadsheet to help make sign-up decisions, at http://www.agecon.ksu.edu/home/Research&Extension/agpolicy/decisiontools.htm
Loan Rates, Direct Payments and Target Prices for Farm Program Commodities
Loan Rate Direct Pymt Target Price
2001 2002-03 2004-07 2002-07 2002-03 2004-07
Corn $1.89 $1.98 $1.95 $0.28 $2.60 $2.63
Sorghum $1.71 $1.98 $1.95 $0.35 $2.54 $2.57
Barley $1.65 $1.88 $1.85 $0.24 $2.21 $2.24
Oats $1.21 $1.35 $1.33 $0.024 $1.40 $1.44
Wheat $2.58 $2.80 $2.75 $0.52 $3.86 $3.92
Soybeans $5.26 $5.00 $5.00 $0.44 $5.80 $5.80
oilseeds lb $0.0930 $0.0960 $0.0930 $0.0080 $0.0980 $0.1010
Payments already received for 2002 under the old farm program will be deducted from new direct payments for 2002. For more details on the new farm program, visit http://www.extension.umn.edu/farmbill/
Five Options For Updating Crop Acreage Bases And Yields
Option 1) Retain the current 2002 Production Flexibility Contract (PFC) acreage with no oilseed additions. This option can be used by farms that currently have a 100 percent corn and/or wheat base, or in cases where the 1998-2001 planting history is such that payments are not increased.
Option 2) Retain the 2002 PFC acreage and add eligible oilseed acres up to the level that will require no offsetting of current PFC base. This option fits farms that currently have a good corn or wheat base with no barley or oats base acres. The oilseeds can be used to "top up" the base acres.
Option 3) Retain the 2002 PFC acreage and add eligible oilseed acres to the extent that the maximum PFC acres are offset. This option will be appropriate for farms that currently have a reasonable corn or wheat base and have a 1998-2001 planting history that will allow replacing barley or oats base acres with oilseeds without reducing the better-paying corn or wheat base acres.
Option 4) Update all base acres to the 1998-2001 planted history of covered commodities. This is the only option that allows owners to update their existing program yields to their proven yield history from 1998 to 2001. It's important to remember that updated yields will only apply to the countercyclical payments, because direct payment will always utilize the existing PFC yields. This option will also be useful for farms that don't currently have a good corn and/or wheat base.
Option 5) Retain the 2002 PFC acreage and add eligible oilseed acres to the extent that the additional oilseed acres will be somewhere between the minimum and maximum allowed in Option 2 and Option 3, respectively. This option is appropriate for farms that currently have a good corn or wheat base, but that also have barley or oats base that could be replaced by oilseeds.
Each farm is unique: running the data for each farm through the Base and Yield Update Option Analyzer at http://www.fsa.usda.gov/pas/farmbill/tools.asp is a sound strategy when choosing an option.
Production Evidence Needed To Update Yields
Production evidence is necessary to update yields and verify number of bushels, pounds or hundredweight produced.
For production that is sold, stored or disposed of commercially off the farm, evidence must show the producer's name, commodity, buyer or storing facility, transaction or delivery date and quantity. The production can be substantiated through LDP records, CCC loan records, warehouse receipts, warehouse ledgers, warehouse load summaries, settlement sheets, scale tickets or weight slips. The production evidence should be accompanied by other evidence such as a sales document or computer-generated document that's from a licensed warehouse and shows the required information.
The local FSA committee will review the production evidence and determine if information submitted is reasonable. The landowner must be able to provide actual production evidence any time during the six-year life of the farm program.
This overview of the new farm program isfrom information provided by the Extension Service at the University of Minnesota and North Dakota State University. For more program details, contact your local FSA office.
NSA Continues to Seek Sun Loan Fix
The National Sunflower Association continues to work with lawmakers of sunflower producing states to address a glitch in the new farm program that could distort minor oilseed acreage and markets.
Much to the chagrin of the NSA and most other minor oilseed groups, the USDA established separate loan rates for oil-type and confection sunflower, which is referred to administratively as “other” sunflower. The change was made despite congressional language advising UDSA to combine the sunflower loan rate. Congress mandated a $9.60 per hundredweight minor oilseed loan rate in the new Farm Bill, with the loan deficiency payment (LDP) for all types of sunflower based off of oil-type sunflower.
Instead, USDA raised the national average loan rates of safflower, “other” sunflower and mustard seed well above the average $9.60 and lowered flax, oil-type sunflower and canola. The national average loan rate for “other” sunflower was changed to $12.10 per hundredweight, while oil-type sunflower is $9.15. Safflower, for example, is now set at $12.53.
A bill has been introduced in the Senate to clarify the intent of Congress to establish an identical loan rate for all oilseeds. The legislation would amend the new Farm Bill to specify each oilseed individually, and set the loan rate at $9.60 per hundredweight. The NSA is also working to fix the problem administratively, urging USDA Secretary Ann Veneman to place all minor oilseeds at the $9.60 loan level as intended by Congress, or risk severely distorted minor oilseed planting and marketing decisions beginning next year.