On May 8, the Senate voted 64-35 to pass the Farm Security and Rural Investment Act of 2002.
Before President Bush signed the 2002 Farm Bill on May 13, I received calls from clients in Minnesota and South Dakota hearing about rent increases of $15-20/acre.
Beware. First of all, there may not be any more money for farmers in this Farm Bill if they do not market their grain for greater than the 12-month cash average. And if there is, it looks like the landlords will be winners rather than producers.
Many farmers think they will receive $2.60/bu for their corn and $5.80 for soybeans. That will only be on your base acres multiplied by 85%. That sounds a lot more like $2.21 corn to me ($2.60 × .85 = $2.21).
The changes are not all finalized, but new information is becoming available daily. For example, the federally set loan rates have increased for most crops but dropped for beans. Information is available for your county at www.fsa.usda.gov/dafp/psd/loanrate.
The changes in the farm program will make marketing decisions even more important in the future. Why? Because the counter-cyclical payment is determined not by what you sell your crop for, but by an average price from September to September of each year. Therefore, if you market your grain for more than the 12-month cash average, you can “double dip” and get more than target prices for certain bushels (base × average yield × 85%). Conversely, if you sell your grain at or near the bottom of the market, you're at a disadvantage because you get less than average prices for cash grain and your counter-cyclical payments won't increase.
A positive aspect of the new farm program is projected increases in working land payments, with $2 billion allocated for the Conservation Security Program (CSP) and another $9 billion allocated for Environmental Quality Incentives Program (EQIP).
There will be three tiers of payments. The higher the tier, the greater the conservation efforts and payments. For Tier 1, producers must address at least one resource of concern for a five-year planning horizon. For Tier 2, producers must address a concern on the entire operation for five to 10 years. For Tier 3, producers must fully address all resources of concern on the entire operation for five to 10 years.
The CSP payment is a percentage of the national average land rental for that type of land and region. The payments are 5% of that average for Tier 1, with a limit of $20,000 annually per entity; 10% for Tier 2 with a $35,000 limit, and; 15% for Tier 3 with a $45,000 annual limit. A percentage of the payment will be paid initially.
These payments can be very helpful in implementing conservation and best management practices and additionally producers should benefit from the practice in reduced cost or increased yields. It should be a win-win relationship for producers and the environment.
The key to fully capitalizing on the program benefits will be to determine the greatest return on investment for the conservation or management practice, thereby increasing net profit and allowing you to prioritize projects.
For example, I recently did a feasibility analysis on installing a control structure to regulate the water table, using drain tile to drain the field during wet times and subirrigate in the dry periods. Research shows it also reduces nitrate loss as well as increases yield, returning 19% on invested equity. Then we compared it to other lower return investments.
It may take a little time and effort but the payoff can be significant from the 2002 program if managed correctly.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site (www.russellconsulting.net) or call toll-free 877-333-6135.