A recent University of Illinois (U of I) Extension report examines changes in the new farm bill and offers producers a method for selecting between four alternatives in updating acres and yields. "Updating Acres and Yields under the Farm Security and Rural Investment Act of 2002" was prepared by Gary Schnitkey and Dale Lattz, U of I Extension farm management specialists.
"The new law includes provisions authorizing direct and counter-cyclical payments for 2002 through 2007 crops," says Schnitkey. "These payments will be determined using base acres and program yields. Farmers and landowners have one-time decisions to make concerning these acres and yields. They either can 'update' acres to reflect acres from 1998 through 2001 or they can 'not update' and have acres based on those used to calculate Agricultural Marketing Transition Act (AMTA) payments.
"If base acres are updated, farmers also can update yields used to determine counter-cyclical payments."
Under the new law, three types of payments are available for program
Crops – direct payments, counter-cyclical payments and loan deficiency/marketing loan payments.
Direct payments are available for corn, soybeans, wheat, oats, grain sorghum, barley, upland cotton and rice. Payments will be made for 2002 through 2007 crops and the payment will be the same in each year. Payments for a crop on a farm will equal: Per bushel payment rate times program yield times (base acres times .85).
"The 2002 program implemented a counter-cyclical program for all program crops," says Schnitkey. "Those payments equal the trigger price, which is the higher of loan rate or season-average price, times yield times base acres times .85."
The trigger price, he explained, equals a target price minus the direct payment rate. The season-average price is calculated by the USDA for 12 months, with the first month occurring near the beginning of harvest.
"The yield is an important variable that farmers have to make a decision about," he notes.
Schnitkey summarized the options available to producers.
"When base acres are not updated, programs yields are also used to determine counter-cyclical payments," he says. "Farmers can choose to update acres and use program yields in determining counter-cyclical payments. Another option is to update acres and use the 70% difference method to update yields. Finally, farmers can update acres and use the 93.5% method to update yields."
Schnitkey and Lattz note that in some cases farmers will have to trade off the corn base acre for the ability to update yields. For example, some farms have a relatively high corn base compared to the current corn plantings. Updating acres will result in the loss of corn base acres, suggesting that the farm maintain its current base acres. However, maintaining current base acres will not allow a farmer to update yields, meaning that the counter-cyclical payments will be lower than when base acres are updated.
The report examines a number of options available to producers in making these choices.
The report can be accessed on the web at: http://web.aces.uiuc.edu/farm.doc/manage/newsletters/fefo02_11.html