CCP UPDATE

The continued strength in the soybean market has almost made it certain that the advance counter-cyclical payment (CCP) that producers received last fall on the 2004 soybean crop will be required to be repaid after October 1, 2005.

Soybean producers were eligible to receive an advance CCP of $0.091/bushel in October, 2004, and another $0.091/bushel in February, 2005, on soybeans produced in 2004. This was based on a projected national average soybean price of $5.10/bushel on the 2004 soybean crop at both times, and an estimated total CCP of $0.26/bushel. The maximum total CCP is $0.36/bushel. Based on the latest USDA report on May 12, 2005, the USDA estimated national average soybean price for the 2004-2005 crop marketing year has been adjusted to $5.65/bushel. This would mean that no CCP would be earned on the 2004 soybean crop, and any advance payments that were disbursed would need to be refunded. Soybean producers should remember to adjust their estimated 2005 cash flow projections and farm income projections to reflect the amount of the 2004 soybean CCP payment refunds. For most soybean producers, the CCP payment refund is probably between $6 and $8/soybean base acre that was enrolled in the 2004 DCP farm program.

Based on the May 12 USDA report, which include estimated national average prices for corn and soybeans in the current marketing year, it appears that USDA has increased the projected national average corn price for the 2004-2005 marketing year to $2.05/bushel. In October 2004, and again in February, 2005, USDA estimated at national average corn price of $1.95/bushel for the 2004 marketing year. This resulted in USDA projecting the maximum total CCP for the 2004 corn crop of $0.40/bushel. An advance payment of 35% of the estimated amount, or $0.14/bushel, was available to eligible corn producers in late October, 2004, and another $0.14/bushel in February 2005.

Some producers have chose to delay receiving the advance CCP payment until the end of the crop marketing year on August 31, 2005. Based on the current USDA projections, it appears likely that the entire $0.28/bushel advance CCP payment will be earned on the 2004 corn crop, and can either be retained by producers that received it as an advance payment, or will be paid as part of a final 2004 corn CCP payment in October, 2005. If corn prices are weak into the summer months, it is possible that additional CCP could be earned on the 2004 corn crop and paid in October, 2005. The maximum CCP payment for the 2004 corn crop is $0.40/bushel, so producers that already received the $0.28 advance payment could potentially earn another $0.12/bushel.

Counter-cyclical payments for corn and soybeans are based on the national average price for that commodity during the crop marketing year, which is from September 1 in the year of harvest through August 31 the following year. The crop marketing year for wheat and other small grains is June 1 in the year of harvest through May 31 the following year. The monthly average grain prices for each commodity are weighted for the volume sold each month to determine the final 12-month national average price for that commodity. For example 80% of the corn and 87% of the soybeans are typically marketed nationwide by the end of May, which makes it less likely for big changes in corn and soybean CCP’s to occur after June 1.

Editors 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.