AgDM newsletter article, August 2003

Direct and Counter Cyclical Farm Program Payments

William EdwardBob Wisnerby William Edwards, extension economist, 515-294-6161, wedwards@iastate.edu and Bob Wisner, extension economist, Department of Economics, 515-294-6310, rwwisner@iastate.edu

As farmers plan their credit line activities for the rest of the year and beyond, they need to factor in the direct and counter cyclical program payments that they can expect to receive from the USDA.

Direct Payments

Direct payments are fixed, regardless of year-to-year variations in acres, yields and prices. Producers who elected to receive the maximum first-half payment for the 2003 crop received a check a few weeks after they completed sign-up for the Farm Security and Rural Investment Act of 2002. An identical amount is scheduled to be paid in October, as the second half of the 2003 crop direct payment. Furthermore, the first installment of the 2004 crop direct payment will be received in December, again for the same dollars as the 2003 payments.

Counter Cyclical Payments

Counter cyclical payments (CCP) are less predictable. They depend on the national season average price for each crop. For corn and soybeans this price is the weighted average cash price paid from September through August. Soybean prices for the 2002 crop have been high enough that there will be no counter cyclical payment made. It is possible but not likely that there will be a small payment for corn.

Table 1. Estimated National Average Corn and Soybean Prices

Monthly corn and soybean prices, along with estimates of the percentage of the crop that is marketed each month, is presented in Table. 1. Estimates of the simple average and monthly average prices so far this year are shown at the bottom.

For the 2002 corn and soybean crops, USDA price projections through July 2003 indicate that marketing year average prices will be above the level that will generate CCPs as shown in Table 2.

Table 2.  Possible CCPs for 2002 Crop Corn and Soybean

If the USDA projects a season average market price below $2.32 for corn or below $5.36 for soybeans for next year’s (2003) crop, an advance counter-cyclical payment may be made. Up to 35 percent of the expected counter-cyclical payments will be paid in October and again in February, with the balance payable next September.

Loan Deficiency Payments

Loan deficiency payments were not available for the 2002 crop. It remains to be seen if they will be available for the 2003 crop. Any time that the posted county price in a county is below the county loan rate, a loan deficiency payment or marketing loan can be requested on bushels that have been harvested but not sold.

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