With corn and soybean prices at double or even triple their government loan rates, you wouldn't think government support programs would be in play in the new farm bill. But direct payments (DP) are still active in the game, and growers must decide whether using a new alternate program is worth trading for a portion of DP for 2009 and beyond.
Finally passed this summer, the Food, Conservation and Energy Act of 2008 was in the works over two years before meeting congressional approval in June. The bipartisan bill withstood two vetoes by President Bush.
Of most interest to corn and soybean growers, particularly in areas of high yields and price variability, is the new Average Crop Revenue Election (ACRE) program, which provides an alternative to traditional support programs.
The new bill includes changes in payment limitations and has emphasis on conservation, alternative energy and, of course, sees social programs taking a chunk of the legislation.
“It builds on the successes of the 2002 bill and creates a better future for agriculture, all of rural America and the nation by strengthening farm income protection and investing in critical conservation, energy and nutrition initiatives,” says Sen. Tom Harkin (D-IA), chairman, Senate Committee on Agriculture, Nutrition and Forestry. “This farm bill covers a broad swath of America, from farming to hunger to conservation to measures involving good tax policy,” adds Sen. Saxby Chambliss (R-GA), ranking minority leader on the committee.
Rep. Collin Peterson (D-MN), chairman, House Agriculture Committee, says the bill “continues and improves programs that work and enacts reasonable reform in other areas to take us into the future for American agriculture.”
Rep. Bob Goodlatte (R-VA), ranking minority on the committee, says Congress “made great strides in reforming farm programs to reduce benefits from going to the wealthiest farmers and non-farmers.”
PAYMENT LIMITATIONS
Key aspects of the new bill see changes in eligibility that could impact larger growers.
Those with non-farm adjusted gross income greater than $500,000 aren't eligible for any farm program payments. Those with farm income greater than $750,000 won't receive any fixed direct payments.
The income amounts are a moving three-year-average, so program eligibility could change from one period to the next.
Eliminated by the bill is the three-entity rule. The legislation requires direct attribution of farm program payments to improve program transparency. In many cases, a spouse involved in a farm can be designated a producer.
DIRECT PAYMENT, LOAN AND TARGET PRICE RATES
Although the new ACRE program will give many growers a welcome alternative to traditional programs beginning in 2009, some growers will likely opt for the old-line loan and target price plans. Key payment figures in the current suite of programs include (see chart):
· Direct payments (DP) — corn, 28¢/bu.; soybeans, 44¢/bu.; wheat, 52¢/bu.; and cotton, 6.67¢/lb.
· Loan rate — corn, $1.95; soybeans, $5; wheat, $2.75, increasing to $2.94 in 2010; and cotton, 52¢.
· Target price — corn, $2.63; soybeans, $5.80, increasing to $6 in 2010; wheat, $3.92, increasing to $4.17 in 2010; and cotton, 72.4¢, decreasing to 71.25¢.
“The American Soybean Association (ASA) is pleased that the new legislation increases the soybean target price to $6/bu.,” says John Hoffman, ASA president.
GREEN ACRES
Base yields are unchanged, as are base acres, except that base acres can be reduced for land subdivided and developed for non-farming uses and unlikely to return to its previous crop use.
DPs, while unchanged in price, will see a payment based on 85% of base acres reduced to 83.3% in 2009-2011.
The biggest changes in the support program give growers the option of choosing the current suite of programs or ACRE, which is similar to revenue-based program sought by the National Corn Growers Association (NCGA).
Carl Zulauf, OhioStateUniversity agricultural economist who helped write the ACRE program with input from the NCGA and American Farmland Trust, reminds growers that once you choose ACRE over traditional programs, it covers all program crops on the farm. A producer can defer to enter the ACRE program until a year later. Once ACRE participation is selected, you're locked in through 2012.
“If a producer elects to go with ACRE beginning in 2009, he's in ACRE for the duration of the farm bill,” says Zulauf. “He will still receive a DP, but it will be reduced by 20% and marketing loans are reduced by 30%.”
ACRE has a revenue target that equals 90% of a crop's two-year moving average of the U.S. crop price and a five-year average state yield. “Basically, ACRE is a state revenue-guaranteed program, not a price-support program,” says Zulauf. “In addition, you must experience a loss in order to receive an ACRE payment.”
One of the key features of ACRE is a 10% cup or cap, he adds. Beginning in 2010, a state's revenue guarantee cannot change by more than 10% from the prior year. Limit on increases is called a cap; limit on decreases is called a cup.
He compares ACRE to having a put option that places a floor under state revenue. It leans more toward risk management than previous programs.
Harkin says ACRE “is more responsive to actual farm economic conditions. Farmers have more at risk as they work to produce a crop. The prices for fertilizer, fuel, equipment and land have all been increasing substantially. By using recent market prices and average state yields, ACRE better reflects the new realities farmers face.”
NCGA says that although implementation of ACRE may benefit from expedited rule-making procedures, Farm Service Agency (FSA) has advised farm groups that their county offices may not have final regulations and new systems in place to enroll growers until fall.
NCGA and ASA encourage growers to discuss pros and cons of ACRE with their local FSA. An Iowa State University Web site (www.card.iastate.edu/ag_risk_tools/) features a farm program calculator to help growers determine which program works best for them. Look for similar sites to be launched by other universities soon.
“The ACRE program goes a long way in helping to reform commodity programs,” says Ron Litterer, NCGA president. “The optional market-based, state-level revenue program provides an alternative safety net for more targeted protection against weather-related crop losses, today's volatile markets and rising input costs.”
BIOFUELS
ASA's Hoffman says ACRE is an “alternative to the traditional ‘three-legged stool’ of farm programs and will compensate producers when both state and farm?income fall below revenue targets based on recent average?national prices and state yields.”
Peterson says that by giving growers “the option to try this new approach, we are exploring a new direction that may be the future for farm programs.”
The bill includes the new Biomass Crop Assistance Program, designed to encourage production of feedstocks for cellulosic ethanol and other biofuels. “It provides for multi-year contracts for crop and forest producers to grow dedicated energy crops,” says Peterson. “It also includes incentives for producers to harvest, store and transport biomass — including corn stover — to bioenergy facilities.”
Harkin says the new bill will provide grants and loan guarantees to promote research, development and production of advanced biofuels, including biodiesel and cellulose-based ethanol and “to build on the success of this generation of biofuels.”
DISASTER RELIEF — BUY-IN BY SEPT. 16
ASA's Hoffman says the Commodity Credit Corporation (CCC) Bioenergy Program, an ASA priority, will help make domestically produced biodiesel competitive with petroleum-based diesel and foreign biodiesel imports.
The bill also extends the tariff on imported ethanol and continues to encourage domestic ethanol production. To review all specific titles in the new farm bill, go to http://server1.irock.tv/~usscanf/.
The farm bill's Supplemental Revenue Assistance (SURE) provisions enable growers suffering from this year's floods and other adverse weather to receive additional help — even if they hadn't been covered by federal crop insurance before the disaster.
Growers not fully covered by the Non-insured Crop Assistance Program (NAP) and/or catastrophic insurance (CAT) may take advantage of a one-time buy-in opportunity, according to the Farm Service Agency (FSA).
Buy-in fee is due no later than Sept. 16, 90 days after the date of enactment.
FSA says payment of the buy-in fee doesn't afford the producer crop insurance or NAP coverage, only eligibility for the 2008 disaster programs. The buy-in fee is $100/covered crop, but not more than $300/producer/administrative county, or $900 total/producer for all counties less any previously paid fees for CAT and/or NAP.
SURE coverage includes payments that equal 60% of the difference between a farm's SURE program guarantee, minus the farm's total crop revenue.
FSA says payments will not occur until the calculation at the end of the marketing year. It also will be available to any farm where, during the calendar year, total loss of production on the farm because of weather is greater than 50% of the farm's normal production.
Discuss which crop insurance programs are best for your farm with a local insurance agent or FSA officials.