Notes

Outline

Farm Security and Rural Investment Act of 2002 Commodity Programs

Slide 2

3 Types of Payments Loan Deficiency Payment (LDP) or Marketing Assistance Loan Direct Payment: replaces FAIR, AMTA, Market Loss Assistance, PFC, Oilseed Payments Counter Cyclical Payment (CCP): similar to deficiency payment

Program Crops Corn, soybeans, oats, wheat, grain sorghum, barley, upland cotton, rice,sunflowers, rapeseed, canola, safflower, flax, mustard seed Does not include hay and forage

Decisions to Make 1. Keep old base acres Shift acres into soybean base or not 2. Update base acres Keep old program yields Update program yields (2 methods)

Base Acres for Program Crops Option 1: Keep old corn base (PFC ac.)          (as well as oats, wheat, etc.) Soybean base = total program crop acres – other base acres, in 1998-2001 Can shift acres from other bases to soybean base, up to actual soybean acres planted each year

Example 1: keep old bases 600 crop acres, 400 acre corn base

Example 2: keep old bases

Base Acres for Program Crops Option 2: Update all program crop bases to average of 1998-2001 acres, including soybeans Include prevented planting acres as well as planted acres No shifting of acres allowed

Example: Update Bases

Yields for Program Crops Option 1: keep old program yields If you do not update base acres, you must keep your old yields “Old” yield for soybeans is 78% of (1998-01 bushels / 1998-01 acres) Use 75% of county avg. for low years or years with missing information

Yields for Program Crops Option 2: update yields based on 1998-2001, total bushels / total acres If you have a low yield you can use 75% of the county average for that year instead Exclude years you did not grow the crop Only affects Counter Cyclical Payments Must update yields for all crops, if any

Two Methods for New Yields 1.Use 93.5% of 1998-2001 averages 2.Old yield + 70% of difference between 1998-01 yield and old yield If new yields are more than 28% higher than old, use the first method Must use the same method for all crops

Example: Update Yields

Example: Program Yields 1.Use old program yield, e.g.120 bu 2. 93.5% of 1998-2001 average:       129 x .935 = 121 bu. 3. 70% of increase:                             110 + .70 x (129 – 110) = 123 bu.

Loan Deficiency Payments Same procedures as before Can also use Marketing Loans County loan rates were changed Corn increased $.12 in most co. Soybeans decreased $.26 in all counties

National Average Loan Rates

Direct Payments Payment = payment rate x old program yield x 85% of base acres Payment Rates Corn $.28 Soybeans $.44 Oats       $.024 Wheat $.52

Direct Payments Comparison

Counter Cyclical Pmt. Rates CC payment rate = target price     minus (higher of loan rate or national average market price)                minus direct payment rate Payment = payment rate x program yield (old or new) x 85% x base acres

Counter Cyclical Payments

CC Payments Comparison

Update Acres and Yields or Not?

Conclusions If you have a high % corn base already, it probably pays to keep it. If you don’t update acres, shift oats base acres to soybeans, but keep wheat base acres. If new yields are significantly higher, it may pay to update acres and yields.

Timing of Payments 2002 Crop LDP: from harvest until May 30 Direct: after October 1, 2002              (will deduct advance AMTA payment) (2003: 50% in Dec. 02, 50% in Oct. 03) Counter Cyclical: 35% in Oct. 2002, 45% in Feb. 2003, rest in Sept. 2003

Payment Timeline

Payment Limitations LDPs and loans $75,000 Direct payments: $40,000 Counter Cyclical $65,000 Total $180,000 Multiple interests Double

Approximate Maximum Acres Single Entity LDPs and loans: no limit   (can use generic certificates) Direct payments: 1500-2000 a. Counter cyclical: 1600-2500 a.

FAIR Act: Minimum Revenue

FSRIA: Minimum Revenue

Corn: Revenue vs. Price

Soybeans: Revenue vs. Price

Min. Revenue per acre, 50% corn base, 150 bu. corn, 50 bu. soybeans

Revenue per acre,67% &100% corn base, 150 bu. corn, 50 bu. soybeans

Assumptions 50-50 corn, soybean rotation Selling price = PCP, $.10 under national average price 50% corn base, update yields Double AMTA payment in 1999-01 would continue with higher prices

FSRIA 2002 vs. FAIR 2001

Questions??

FSA Letters August 1 letter: confirms reported acres and old bases (2002 PFC acres).  No response unless there is an error. Sept. 1 letter: confirms current program yields, requests 1998-2001 production data

Production Information Report bushels of production first, supply documentation later Sales records, warehouse receipts, FSA bin measurements Sort bushels by year first,         then by farm

FSA Base “Options” 1.Keep old bases, no soybean base 2.Keep old bases + soybean base 3.Shift max. of old base acres to SB 4.New bases = 1998-2001 avg. acres 5.Shift some of old base acres to SB