Farm Security and Rural Investment Act of 2002

1
Farm Security and Rural Investment Act of 2002

• Title I, Subtitles A and B
• Commodity Programs for Covered Commodities
  Sign-up Decisions

2002 Farm Bill Education Conference Kansas City,
Missouri May 20-21, 2002 Jim Novak Brad
Lubben Auburn University Kansas State University
2
Commodity Program Sign-up Decisions

• Overview
• Producers must decide whether to sign up for farm
  program
• If producers sign up, then they must decide
  whether to use their old or new acreage base
• If producers use their new acreage base, then
  they must decide whether to use their old or
  new yields, and if new, which method to
  calculate new yields

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Commodity Program Sign-up Decisions

• Overview
• Existing or old program acreage base refers to
  contract acreage used to calculate the 2002
  Production Flexibility Contract (PFC) payment
  under the 1996 Farm Bill
• Existing or old payment yield refers to the
  payment yield established for the 1995 crop
  covered under the 1990 Farm Bill
• Same yield as was used for PFC payments under the
  1996 Farm Bill
• Payment yields under previous farm programs were
  frozen since 1985 and should be reflective of the
  1981-1985 production period

4
Commodity Program Sign-up Decisions

• Overview
• Average acreage or new acreage refers to acres
  planted and prevented from planting for each
  covered commodity for the years 1998 through 2001
• Average yield or new yield refers to the
  average yield per planted acre for the covered
  commodity for the years 1998 through 2001, not
  including years in which when the crop was not
  planted

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Commodity Program Sign-up Decisions

• Overview
• Regardless of acreage base and yield decisions,
  producers will need information and documentation
  for acreage and yield from 1998-2001
• At a minimum, oilseeds will be added to the old
  base
• Or, all crops will be updated to the new base

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Commodity Program Sign-up Decisions

• Decide whether to participate
• In 1996, this was the only decision
• As with the 1996 Farm Bill, participating
  producers maintain planting flexibility and no
  set-aside requirements
• Program participation requirements
• Conservation compliance
• Wetlands protection requirements
• Planting flexibility restrictions regarding
  production of fruits, vegetables, and wild rice
  on contract acres
• Farmland remains in agricultural use
• Neither the producer nor the land had to
  previously participate in the farm program to be
  eligible for sign-up

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Commodity Program Sign-up Decisions

• Decide which acreage base to use
• Average acreage for each covered commodity for
  1998-2001 (new base)
• Including acres planted and prevented planted
• Average of acreage for all four years, including
  years in which crop was not planted
• OR

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Commodity Program Sign-up Decisions

• Decide which acreage base to use
• Existing program acreage base (old base) plus
  average acreage for each oilseed for 1998-2001
• Includes acres planted and prevented planted
• Average of acres for all four years, including
  years in which crop was not planted

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Commodity Program Sign-up Decisions

• Decide which acreage base to use
• Existing program acreage base (old base) plus
  average acreage for each oilseed for 1998-2001
• Total oilseed acres added under this option are
  limited to the total average acres of the covered
  commodities for 1998-2001 minus the existing base
  acreage
• Additional oilseed acres may be added up to their
  1998-2001 average acreage with a one-for-one
  reduction in another crops base acreage
• On farms where a history of double-cropping is
  established, the total acreage limit is adjusted
  to account for the double-cropped acres

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Commodity Program Sign-up Example Base Acreage
Decision(100 acre farm)

• Existing base
• 50 acres wheat
• 30 acres cotton
• 20 acres with no base
• Average acreage for 1998-2001
• 50 acres corn
• 50 acres soybeans

• Use new base
• 50 acres corn
• 50 acres soybeans
• Use old base plus oilseeds
• 50 acres wheat
• 30 acres cotton
• 20 acres soybeans
• Additional soybean acres allowed up to 50 with a
  one-for-one reduction in wheat or cotton base
  acreage

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Commodity Program Sign-up Decisions

• Decide which payment yield to use
• If producer uses old base plus oilseeds,
  producer must use old yields
• Use existing (old) payment yields for all
  commodities except oilseeds
• Use new yields for oilseeds and adjust them
  back to old yields reflective of 1981-1985

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Commodity Program Sign-up Decisions

• Adjusting new oilseed yields back to old
  oilseed yields
• Determine average yield per planted acre for each
  oilseed for 1998-2001
• Exclude years in which no acres of the oilseed
  were planted
• In years in which the farm yield is less than 75
  percent of the county average yield, substitute
  75 percent of the county average yield
• Adjust new yield to old yield based on ratio
  of 1981-1985 national average yield to 1998-2001
  national average yield for each oilseed

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Commodity Program Sign-up Example Soybean Yield
Calculation

• Farm yields (per planted acre)
• 1998 20 bu/ac
• 1999 50 bu/ac
• 2000 no planted acres
• 2001 55 bu/ac
• County average yields (per planted acre)
• 1998 40 bu/ac
• 1999 41 bu/ac
• 2000 42 bu/ac
• 2001 43 bu/ac

• National average yields (per planted acre)
• 1981-1985 29.341 bu/ac
• 1998-2001 37.548 bu/ac
• Ratio of 1981-1985 national average yield to
  1998-2001 national average yield
• 29.341/37.548 78.14

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Commodity Program Sign-up Example Soybean Yield
Calculation

• Calculate average farm yield
• 1998 higher of 20 bu/ac or 75 of 40 bu/ac 30
  bu/ac
• 1999 higher of 50 bu/ac or 75 of 41 bu/ac 50
  bu/ac
• 2000 no planted acres
• 2001 higher of 55 bu/ac or 75 of 43 bu/ac 55
  bu/ac
• Farm average for 1998-2001 (30 50 55)/3
  45 bu/ac
• Multiply average farm yield by ratio of national
  average yield
• 45 bu/ac by 78.14 35.16 bu/ac

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Commodity Program Sign-up Decisions

• Decide which payment yield to use
• If producer uses new base plus oilseeds,
  producer has 3 options
• Use existing payment yields and old oilseed
  yields
• OR
• Use partially updated yields based on 70 percent
  of the difference between old and new yields
• OR
• Use partially updated yields based on 93.5
  percent of new yields

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Commodity Program Sign-up Example Soybean Yield
Calculation

• Decide which payment yield to use
• Use existing payment yields and old oilseed
  yields
• Payment yield 35.16 bu/ac

17
Commodity Program Sign-up Example Soybean Yield
Calculation

• Decide which payment yield to use
• Use partially updated yields based on 70 percent
  of the difference between old and new yields
• Payment yield (new yield old yield) x 70
  old yield
• Payment yield (45 35.16) x 70 35.16
• 6.89 35.16 42.05 bu/ac

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Commodity Program Sign-up Example Soybean Yield
Calculation

• Decide which payment yield to use
• Use partially updated yields based on 93.5
  percent of new yields
• Payment yield new yield x 93.5
• Payment yield 45 x 93.5 42.08 bu/ac

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Commodity Program Sign-up Decisions

• Decide which payment yield to use
• Additional considerations
• New yields are calculated for other commodities
  in the same manner as that for oilseeds
• For commodities other than oilseeds for which
  old payment yields are unavailable, the
  Secretary shall establish an appropriate payment
  yield relative to similar farms
• Whichever option is used to establish payment
  yields must be used for all commodities

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Commodity Program Sign-up Decisions - Summary

• Sign-up Options
• Use old acreage base plus new oilseed acreage
  and use old yields
• Use new acreage base and use old yields
• Use new acreage base and use partially updated
  yields based on 70 percent of difference between
  old and new yields
• Use new acreage base and use partially updated
  yields based on 93.5 percent of new yields

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Commodity Program Sign-up Decisions - Summary

• Making sign-up decisions under risk
• Do you select the option that provides the
  largest guaranteed payments (direct payments)?
• Do you select the option that provides the
  largest expected payments (direct payments plus
  counter-cyclical payments)?
• Do you select the option that minimizes risk?
• Do you select the option that optimizes the
  combination of risk and expected payments given
  the producers risk preferences?

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Commodity Program Sign-up Decisions - Summary

• Parting shots and caveats
• Remember the timing of payments when deciding
  preferences
• Remember the impact of payment limits on expected
  payments
• Remember that counter-cyclical payments could be
  reduced if amber box payments would exceed WTO
  limits
• Finally, the calculations are based on the best
  current interpretation of the legislation exact
  details and numbers are yet to come