USDA Proposals For The Next Farm Bill

Following is a brief overview of the USDA proposals for the 2007 Farm Bill that were outlined recently by U.S. Ag Secretary Mike Johanns and his staff:

1) Payment Limits and Eligibility
A $200,000 adjusted gross income (AGI) limit for a farm operator to be eligible for farm program payments. The AGI would include net farm income, after farm expenses and depreciation are subtracted, wages and salaries, investment income and other income. The current AGI limit is $2.5 million, so this would represent a major change in USDA policy for farm program eligibility.

A total farm program payment limit of $360,000 per eligible individual. This would include a $110,000 limit each for both direct payments and the proposed new counter-cyclical payments (CCPs), and a limit of $140,000 for loan deficiency payments (LDPs) and gains from marketing loans. Those same payment limits in the current 2002 Farm Bill are $40,000/year for direct payments, $65,000/year for CCPs and $75,000/year for LDPs and marketing loan gains, for a total payment limit of $180,000. However, this payment limit could be increased up to $360,000 under the provisions of the so-called triple-entity rule, which would be eliminated under the 2007 Farm Bill proposal.

2) CCC Marketing Loan Program
USDA would continue the CCC Marketing Loan Program and loan deficiency payments (LDPs) very similarly to the current farm bill.The CCC marketing loans would continue to be 9-month non-recourse, that could be paid back at principle plus interest or released at the posted county price (PCP) at anytime during the 9-month loan period, or the grain could be forfeited at the end of nine months.

Proposed CCC national loan rates for the new farm bill (2008-2012) are: $1.89/bu. for corn; $2.58/bu. for wheat; and $4.92/bu. for soybeans. Current loan rates are $1.95/bu. for corn; $2.75/bu. for wheat; and $5/bu. for soybeans.

The PCP would replace the current daily-adjusted PCP with a monthly PCP. The monthly PCP would in effect for an entire month, and would be the average price of a commodity from five pre-set days in the previous month.

3) Direct Payment Rates Proposed by USDA
USDA is proposing to increase most direct payment rates from current rates (2007) over the next five years (2008-2012). Generally, the direct payments are viewed to be more WTO-friendly than CCPs or marketing loan gains and LDPs.

Corn would stay at the current direct payment rate of $.28/bu. in 2008 and 2009, and would increase to $.30/bu. for 2010-12. Wheat would remain at $.52/bu. in 2008 and 2009, and would increase to $.56 for 2010-12. Soybeans would increase from the current payment rate of $.44/bu. to $.47/bu. in 2008 and 2009, and to $.50/bu. in 2010-12.

4) Counter-Cyclical Payments (CCPs)
USDA is proposing to replace the current price-based CCPs for a given commodity with revenue-based (price x yield) CCPs for specific commodities. Currently, there is a target price for every eligible commodity, and when the 12-month national average price for a specific commodity drops below the target price minus the direct payment rate, a CCP is earned on that commodity. Under the USDA proposal, There would be a national target revenue per acre, and a CCP would be paid if the actual per acre crop revenue on a national basis for a given commodity fell below the established target revenue per acre.

The commodity price that would be used to calculate target revenue would be the current target price minus the current direct payment rate in the 2002 Farm Bill, which is $2.35/bu. for corn; $5.36/bu. for soybeans; and $3.40/bu. for wheat.The actual price in a given year would be the higher of the seasonal average price, or the national loan for a given commodity.

The national yield for a commodity that would be used to calculate “target revenue” would be the 5-year national average yield for that commodity from 2002-06, excluding the high year and low year. The actual yield in a given year for a commodity would be the final national average yield reported by USDA.

Bottom Line
The USDA proposals for the 2007 Farm Bill are a starting point for the discussions and proposals for the 2007 Farm Bill that will be coming before Congress in the coming months; however, there are still a lot of provisions to be negotiated for a new farm bill. The leadership in both the U.S. Senate and the U.S. House are in agreement that they would like to have a new farm bill in place by the time the current one expires on Sept. 30, 2007. The odds of extending the current Farm Bill for one or more years looks very remote at this time.

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.