Anytime agricultural policy is enacted by Congress – such as the 2008 Farm Bill – there are always two parts to the final resulting actions of the legislation. The first part is enacting the policy portion of the legislation (the farm bill), and second is authorizing the funding to carry out the policies enacted by the legislation. President Obama and Congress are now in the process of developing the federal budget for fiscal year 2010, which will authorize funding for USDA, and various aspects of the 2008 Farm Bill. The federal budget can also eliminate or change funding for certain programs.

President Obama has released his $3.6 trillion federal budget proposal for 2010. Usually, the impact of federal budget proposals on agricultural programs is fairly minimal; however, the 2010 budget proposal contained some significant items relating to the agriculture industry, including:

  • Increase of $1.3 billion in loans and grants to increase broadband capacity and improve telecommunications in rural areas.
  • Increase of $1 billion for child nutrition and WIC programs.
  • Additional $250 million for loans and grants to advance production of renewable fuels.
  • Allocation of $61 million for rural development programs, targeting entrepreneurial programs, value-added efforts and minority agriculture producers.
  • Reductions in the federal subsidy for federal crop insurance premiums, meaning that crop insurance premium costs to farmers will likely increase.
  • Reduce funding by 20% to the Market Access Program, which promotes exports for agricultural products.
  • Establish a firm $250,0000 payment limit/individual for all government farm program payments. Currently, there is a $40,000 payment limit for direct payments, a $65,000 limit on counter-cyclical payments (CCPs) and no limit on gains from marketing loans or loan deficiency payments (LDPs). Interestingly, no CCPs and LDPs have been paid on corn or soybeans in the past two years, due to higher grain market prices.
  • Phase out direct payments over a three-year period to all farm operators with gross annual sales greater than $500,000/year.

Reactions to the $500,000 gross sales proposal
There were many major revisions in farm program payment limits and payment eligibility rules included in the 2008 Farm Bill, mostly base on adjusted gross income (AGI). Starting in 2009, if a person or legal entity has a farm AGI that exceeds $750,000, that person or entity is not eligible for DCPs only, however, they would still be eligible for CCPs, ACRE payments, LDPs, MILC and SURE payments, etc. If a person or legal entity has a non-farm AGI that exceeds $500,000, that person or entity is not eligible to receive any farm program payments or benefits, including direct payments, CCPs, LDPs, SURE payments, MILC payments, etc.

Some members of Congress and farm bill activists did not think those payment limit reforms went far enough, and have discussed the possibility of further reforms in payment limits and eligibility. However, most proposals are based on AGI, and not on actual farm sales. The Obama Administration proposal would initiate a three-year phase-out of direct payments to all farm operators with annual farm sales exceeding $500,000/year, beginning with the 2010 growing season. This would be based on gross annual sales, not on AGI, as discussed earlier. This proposal would save the federal government approximately $3.6 billion over five years from 2010 to 2014.

If the Obama Administration proposal for limitations on direct payments is enacted, a farm operator with 715 acres of corn yielding 175 bu./acre at $4/bu., would have gross sales exceeding $500,000, and would not be eligible for direct payments. Many Midwest corn and soybean farm operations of 1,000 acres or less will exceed the proposed $500,000 proposed gross sales limit on an annual basis, and could be negatively impacted by this decision. The proposal will have an even larger impact on livestock producers, who also have gross sales from livestock production to include in the total. At this point, the proposal would only affect direct payments; however, it could have an even larger impact if it also includes future restrictions on CCPs, ACRE and SURE payments, CCC loan gains and LDPs, MILC payments or the crop insurance program.

It is important to remember, that the $500,000 gross sales limit for direct payment eligibility is just a proposal by the Obama Administration at this point. Several members of Congress have expressed concern over the proposal, and many farm organization leaders have questioned the proposal. Even if the $500,000 gross sales limit is modified or dropped, there seems to be growing support in Washington, D.C., to further tighten the payment limits, and to place further restrictions on farm program payment eligibility in the future. There will likely be modifications in farm program payment limits and eligibility in 2010 and beyond, and medium- to larger-sized farm operations should probably begin to plan accordingly in their future farm business plans.

Crop insurance clarification
There was a little misunderstanding in my column last week regarding enterprise units and group risk income protection (GRIP)crop insurance policies. Enterprise units combine all crop acres of a crop in a given county into one crop insurance unit. By comparison, optional units allow producers to insure crops separately in each township section. Both enterprise units and optional units utilize the farm-level actual production history (APH) to determine the yield guarantee for the various types of crop insurance policies. Enterprise units are available for most types of crop insurance policies (APH, CRC, RA, etc.) The GRIP type insurance policies are on all acres of a given crop that a producer has in a given county, and are based on both yield and price guarantees, similar to CRC and RA policies; however, yield guarantees are based on county average yields.

Enterprise units are quite popular in 2009, due to the reduced premium levels, compared to optional units. However, producers to need to be aware of the insurance coverage limitations with enterprise units compared to optional units. Producers are encouraged to contact their crop insurance agent to better understand the difference between enterprise units and optional units. The deadline to enroll in federal crop insurance for corn, soybeans and spring wheat for the 2009 crop year in the upper Midwest is March 15.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.