Transcript Provisions of the Federal Improvement and Reform Act of

ML, DP, CCP, and ACRE
Prepared by:
Joe L. Outlaw
Professor and Extension Economist
Co-Director, AFPC
Disclaimer
• This Information is Based on My Reading of the Bill
and Interaction With Congressional Staff regarding
Their Intent and Recent FSA Notices
– I fully expect that FSA will interpret some of the changes
in law differently than I did
– Happened a lot in the 2002 Farm Bill
– There is a process that FSA and the Congress go
through to work out the differences
Presentation Outline
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General Overview
DP
LDP
CCP
ACRE
Payment Limits
ML, DP, CCP, and ACRE
General Overview
• 5 year farm bill beginning in 2008 and ending in 2012
– A number of provisions do not take effect until the 2009 crop year
• Comprehensive bill covering:
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Commodity programs
Conservation
Trade
Nutrition Programs
Credit
Rural Development
Research and Related Matters
Forestry
Energy
Horticulture and Organic Agriculture
Livestock
Crop Insurance and Disaster Assistance Programs
Commodity Futures
Trade and Tax Provisions
Miscellaneous
}
New titles in
2008 FB
General Overview (Cont.)
• Four Major Changes Impacting Commodity
Programs
– ACRE
– Payment limits
– AGI eligibility criterion
– LDP posted county prices
• As a condition to receive benefits, bill
requires producers to submit annual
acreage reports and annual production
reports
General Overview (Cont.)
• Commodity provisions very close to previous
programs
– Continue direct payments
– Continue marketing loan gains/LDPs
– Maintain counter-cyclical payments (CCPs)
or
– Provides producer option for Average
Crop Revenue Election (ACRE) Payment
• Producer has to agree to direct payment and
loan rate reductions
Definitions
•
Covered commodities:
–
wheat, corn, grain sorghum, barley, oats, upland
cotton, long grain rice, medium grain rice, pulse
crops, soybeans, and other oilseeds (sunflower
seed, rapeseed, canola, safflower, flaxseed,
mustard seed, crambe, sesame seed, or any
oilseed designated by the Secretary)
•
•
DCP-187 indicates peanuts are treated as a covered
commodity
Loan Commodities:
–
Covered commodities plus extra long staple
cotton, graded wool, nongraded wool, mohair,
honey, dry peas, lentils, small chickpeas and
large chickpeas.
Direct Payments
• Same formula
Direct Payment = (payment rate x (base acres x payment fraction) x
Direct payment yield)
– Where the payment fraction is .85 for 2008 and 2012 and .833 for 2009,
2010, and 2011
• Timing
– 2009-2012 not before October 1 of the calendar year in
which the crop of the covered commodity is harvested
• Advance Payments (22%)
– Producer Option
• For 2008, advances began being issued July 7th
• For 2009-2011, Beginning December 1 of the year before crop
is harvested
• For 2012, advance direct payments are not available
– Remaining 78% paid after October 1st (the date
payment is otherwise made if advance is not chosen)
Direct Payment Rates (2008-12)
Crops
2002 Farm Bill
2008 Farm Bill
Corn ($/bu)
0.28
0.28
Sorghum ($/bu)
0.35
0.35
Wheat ($/bu)
0.52
0.52
0.0667
0.0667
Rice-Long & Med.
Grain ($/cwt)
2.35
2.35
Barley ($/bu)
0.24
0.24
0.024
0.024
Soybeans ($/bu)
0.44
0.44
Minor Oilseeds ($/cwt)
0.80
0.80
36
36
Upland Cotton ($/lb)
Oats ($/bu)
Peanuts ($/ton)
No Change
Loan Deficiency Payments
(LDPs)/Marketing Loan Gains (MLGs)
• Generally work as in the past except…
• Repayment of loans for loan commodities other
than (upland cotton, rice, els cotton, and
sunflower seed) will be at the lesser of:
– The loan rate established for the commodity plus
interest or
– A rate calculated based off of the average market prices
for the loan commodity during the preceding 30-day
period or
– An alternative developed by the Secretary
• Cotton and rice continue to use an adjusted world
market price formula
Example of New Grain PCP Calculations vs Actual
LDP Rates for 05/06 Corn, Webster County, IA
0.60
0.50
Month LDP uses an average of 25 reporting days per month
30 Day LDP uses the previous 30 reported prices
0.40
LDP Rate is the rate reported by FSA
0.30
0.20
0.10
0.00
9/1/2005
10/21/2005
12/10/2005
1/29/2006
LDP Rate
3/20/2006
Month LDP
5/9/2006
30 Day LDP
6/28/2006
8/17/2006
Example of New Grain PCP Calculations vs Actual
LDP Rates for 05/06 Wheat, Moore County, TX
0.50
0.45
0.40
Month LDP uses an average of 25 reporting days per month
30 Day LDP uses the previous 30 reported prices
0.35
LDP Rate is the rate reported by FSA
0.30
0.25
0.20
0.15
0.10
0.05
0.00
9/1/2005
10/21/2005
12/10/2005
1/29/2006
LDP Rate
3/20/2006
Month LDP
5/9/2006
30 Day LDP
6/28/2006
8/17/2006
Loan Rates
Crops
2002 Farm Bill
2007
2008 Farm Bill
Corn ($/bu)
Sorghum
($/bu)
1.95
1.95
2008
1.95
1.95
2009
2010-12
1.95
1.95
1.95
1.95
Wheat ($/bu)
Upland Cotton
($/lb)
2.75
0.52
2.75
0.52
2.75
0.52
2.94
0.52
Rice ($/cwt)
6.50
6.50
6.50
6.50
Barley ($/bu)
Oats ($/bu)
Soybeans
($/bu)
1.85
1.33
5.00
1.85
1.33
5.00
1.85
1.33
5.00
1.95
1.39
5.00
Loan Rates (Cont.)
Crops
2002 Farm
Bill
2007
2008 Farm Bill
9.30
2008
9.30
Dry Peas ($/cwt)
Lentils ($/cwt)
Small Chickpeas
($/cwt)
6.22
11.72
7.43
6.22
11.72
7.43
5.40
11.28
7.43
5.40
11.28
7.43
Large Chickpeas
($/cwt)
n/a
n/a
11.28
11.28
Peanuts ($/ton)
355.0
355.0
355.0
355.0
Other Oilseeds
($/cwt)
2009
2010-12
9.30
10.09
Loan Rates (Cont.)
Crops
2002 Farm
Bill
2007
Graded wool ($/lb)
Nongraded wool
($/lb)
Mohair ($/lb)
Honey ($/lb)
2008 Farm Bill
1.00
0.40
2008
1.00
0.40
4.20
0.60
4.20
0.60
2009
2010-12
1.00
1.15
0.40
0.40
4.20
0.60
4.20
0.69
Counter-Cyclical Payments
• Commodity specific based off of national price trigger
• Base owners and/or producers will receive a payment that
depends on the effective price for the commodity:
Target price
- Effective price
Counter-cyclical payment rate ($/unit)
CCP = CCP rate x (Base acres x .85) x CCP Payment Yield
• Effective price equals the higher of market price or loan
rate plus the direct payment rate
• The national market price is the 12 month marketing year
average for the crop
Commodity Marketing Years
• Wheat, barley, oats, canola, rapeseed, and
flaxseed
– June of year crop is harvested through next
May
• Corn, sorghum, soybeans, sunflower seed,
safflower, and mustard seed
– September of year crop is harvested through
next August
• Upland cotton, rice and peanuts
– August of year crop is harvested through next
July
Counter-Cyclical Payments (Cont.)
• Advance payments (up to 40%) of the
projected counter-cyclical payment
– Producer Option
• For 2008, after signup
• For 2009-2010, after the first 180 days of the
marketing year
• Beginning with the 2011 crop year, advance CCPs are
not available
– Remaining 60% paid after October 1st (date
payment is otherwise made if advance is not
chosen)
Target Prices
Crops
Corn ($/bu)
Sorghum ($/bu)
Wheat ($/bu)
Upland Cotton
($/lb)
Rice1 ($/cwt)
Barley ($/bu)
Oats ($/bu)
Soybeans ($/bu)
2002 Farm
Bill
2008 Farm Bill
2007
2.63
2008
2.63
2009
2010-12
2.63
2.63
2.57
3.92
0.724
2.57
3.92
0.7125
2.57
3.92
0.7125
2.63
4.17
0.7125
10.50
10.50
10.50
10.50
2.24
1.44
2.24
1.44
2.24
1.44
2.63
1.79
5.80
5.80
5.80
6.00
Long and medium grain rice have the same rates.
Target Prices (Cont.)
Crops
Other Oilseeds
($/cwt)
Dry peas ($/cwt)
Lentils ($/cwt)
Small Chickpeas
($/cwt)
Large Chickpeas
($/cwt)
Peanuts ($/ton)
2002 Farm
Bill
2008 Farm Bill
2007
10.10
2008
10.10
2009
2010-12
10.10
12.68
n/a
n/a
n/a
n/a
n/a
n/a
8.32
12.81
10.36
8.32
12.81
10.36
n/a
n/a
12.81
12.81
495.0
495.0
495.0
495.0
Average Crop Revenue Election
(ACRE) Payment
• Beginning with the 2009 crop year
– One-time irrevocable option to choose:
Don’t have to make choice
the first year
• CCP, DP (with full payment rates), and MLG/LDPs (with full loan
rates) or
• ACRE, DP (with a 20% reduction in payment rates) and
MLG/LDPs (with a 30% reduction in loan rates)
– Producers will have to determine whether the loss in
guaranteed support is more than made up by potential
gain from ACRE
– This election is for all the crops grown on each FSA farm
#
• A farmer could choose to select ACRE for certain farms (FSA
farm #s) and not others
• Failure of all producers on a farm to make the ACRE election by
the deadline will result in the CCP option for all participants
Average Crop Revenue Election
(ACRE) Payment (Cont.)
• ACRE defined:
– A state level gross revenue protection plan for
each covered commodity and peanuts
– The Secretary shall make an ACRE payment on
a farm for each crop year if:
• The actual State revenue for the crop is less than the
ACRE program guarantee for the crop, and
• The actual farm revenue for the crop is less than the
farm ACRE benchmark revenue
For the 2010-2012 crop years, the ACRE state revenue guarantee for
a crop shall not decrease or increase more than 10 percent from the
guarantee for the preceding crop year
Average Crop Revenue Election
(ACRE) Payment (Cont.)
• Where:
– The actual State revenue for a crop is the State yield per planted
acre from NASS multiplied times the national average market
price (the higher of the 12-month marketing year price or 70% of
marketing assistance loan rate)
– The ACRE program guarantee is equal to 90% of the benchmark
state yield (5 year Olympic NASS average) multiplied times the
ACRE program guarantee price (simple average of 2 previous
national average market price)
– The actual farm revenue is the actual yield for the crop on the farm
multiplied times the national average market price for the crop
– The farm ACRE benchmark revenue is [(the most recent 5 year
Olympic average crop yields for the farm multiplied times the ACRE
program guarantee price for the crop) plus the crop insurance
premium per acre]
Average Crop Revenue Election
(ACRE) Payment (Cont.)
• Where the ACRE payment amount is:
– The lesser of:
• The difference between the ACRE state program guarantee for
the crop and the actual State revenue from the crop or
• 25% of the ACRE state program guarantee for the crop
– Multiplied by:
• The payment fraction (.833 for 2009-11 and .85 for 2012)
multiplied by planted or considered planted acres of the crop
– Multiplied by:
• The quotient obtained by dividing the Olympic average yield per
planted acre for the crop on the producers farm for the most
recent 5 years by the benchmark State yield for the crop (the
Olympic average of the most recent 5 years of State yields)
Average Crop Revenue Election
State ACRE Guarantee = 90%
* 5-Year Olympic State Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price
>
Restricted to < 10% change/year
Actual State Revenue =
Actual State Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
AND
Farm ACRE Benchmark =
Farm's 5-Year Olympic Avg. Yield *
2-year Natl. Average Mkt. Yr.
Price + Ins Premium
>
Actual Farm Revenue =
Actual Farm’s Planted Acre Yield *
MAX[ Natl. Average Mkt. Yr. Price OR
70% Loan Rate]
THEN
Farm Payment = 0.833 (0.85 in 2012) * Actual Planted or Considered Planted Acres *
[ Farm's 5-Year Olympic Average Yield / State’s 5-year Olympic Average Yield ] *
MIN[ (State ACRE Guarantee – Actual State Revenue) OR State ACRE Guarantee * 25%]
Note: All Yields are Planted Acre Yields
Average Crop Revenue Election
(ACRE) Payment (Cont.)
• The total number of planted acres for which payments
are received cannot exceed base acres on the farm
– Producer has option to choose planted acres to enroll in ACRE
• The bill reads as if the reduction in LRs applies to entire
farm
• There are provisions for assigning yields, etc. by using
yields from a similar state
• There are provisions for determining whether a state will
have both irrigated and non-irrigated state guarantees
– If a state has at least 25% of the acres of a crop that are
irrigated and at least 25% of the acres of the crop that are nonirrigated then Secretary shall calculate separate irrigated and
non-irrigated ACRE program guarantees
Average Crop Revenue Election
(ACRE) Payment (Cont.)
• Developed risk-based decision aid to
evaluate expected benefits from current
programs (DP,LDP,CCP) vs (ACRE and
reduced DP, LDP)
• Preliminary results for our Representative
Farms indicate very few “rules of thumb”
– The decision has a lot of moving parts (farm
yields, state yields, marketing year prices and
expected future prices)
– Correlation of moving parts
Texas Hill County 2200 Acre
Representative Grain and Cotton Farm
Dry Cotton
Dry Wheat
Dry Sorghum
Dry Corn
Planted Acres
250
250
500
1,000
Base Acres
400
200
1,200
200
DP Yield
375
29
63
70
Dry Cotton
Dry Wheat
Dry Sorghum
Dry Corn
Yield 1998
212
36
46
10
Yield 1999
409
30
85
64
Yield 2000
269
30
88
66
CCP Yield Ins Prem/Acre
467
9
39
11
83
12
94
12
Yield 2001
359
32
74
35
Historical Yield Data
Yield 2002
Yield 2003
713
531
43
35
78
86
58
68
Yield 2004
729
35
88
69
Yield 2005
618
22
65
54
Yield 2006
436
18
42
14
Yield 2007
475
24
58
71
FAPRI February 2008 Baseline Prices
2008
2009
2010
2011
2012
Cotton
0.6479
0.6358
0.6369
0.6312
0.6263
Wheat
Sorghum
5.27
3.52
5.20
3.62
5.16
3.49
5.23
3.57
5.28
3.59
Corn
3.89
3.87
3.76
3.80
3.85
Barley
4.07
3.96
3.81
3.84
3.85
Oats
Soybeans Rice Long Peanuts
2.51
10.44
10.49
0.2357
2.53
9.84
11.10
0.2335
2.49
9.99
11.04
0.2267
2.49
9.88
11.44
0.2278
2.50
10.03
11.42
0.2269
Rankings for a Normal Risk Averse Decision Maker Using Certainty Equivalence of Average Annual Payments
ACRE
CCP
Preferred Program
Lost DPs with ACRE
Hill County Texas
43,213
43,945
CCP
7,196
Dry Cotton
9,523
16,160
CCP
1,667
Irr Cotton
(0)
(0)
Dry Wheat
2,601
2,525
ACRE
502
Irr Wheat
(0)
(0)
Dry Sorghum
19,709
21,978
CCP
4,373
Irr Sorghum
(0)
(0)
Dry Corn
11,401
3,282
ACRE
653
Irr Corn
(0)
(0)
Dry Soybeans
(0)
(0)
Irr Soybeans
(0)
(0)
Medium Rice
(0)
(0)
Long Rice
(0)
(0)
Dry Peanuts
(0)
(0)
Irr Peanuts
(0)
(0)
Sunflowers
(0)
(0)
-
P(StatePay)
P(Farm Pay)
P(State&Farm)
Dry Cotton
0.53
0.68
0.412
Dry Wheat Dry Sorghum
0.56
0.434
0.306
0.402
0.136
0.168
Dry Corn
0.386
0.572
0.298
Comparison of Average Annual Payments under ACRE and CCP in Hill
County Texas 2,200 Acre Farm ($s)
1
Prob
0.8
0.6
0.4
0.2
0
-
10,000
20,000
30,000
40,000
Sum ACRE
50,000
60,000
Sum CCP
70,000
80,000
90,000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Cotton ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
5000
10000
15000
20000
ACRE Dry Cotton
25000
30000
CCP Dry Cotton
35000
40000
45000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Wheat ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
1000
2000
3000
4000
ACRE Dry Wheat
5000
CCP Dry Wheat
6000
7000
8000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Sorghum ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
5000
10000
15000
ACRE Dry Sorghum
20000
25000
CCP Dry Sorghum
30000
35000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Corn ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
5000
10000
15000
20000
ACRE Dry Corn
25000
30000
CCP Dry Corn
35000
40000
45000
High Grain and Cotton Price Results
Rankings for a Normal Risk Averse Decision Maker Using Certainty Equivalence of Average Annual Payments
ACRE
CCP
Preferred Program
Lost DPs with ACRE
Hill County Texas 2,200 Acre Farm
45,725
38,515
ACRE
7,196
Dry Cotton
8,597
10,730
CCP
1,667
Irr Cotton
(0)
(0)
Dry Wheat
2,676
2,525
ACRE
502
Irr Wheat
(0)
(0)
Dry Sorghum
20,114
21,978
CCP
4,373
Irr Sorghum
(0)
(0)
Dry Corn
14,390
3,282
ACRE
653
Irr Corn
(0)
(0)
Dry Soybeans
(0)
(0)
Irr Soybeans
(0)
(0)
Medium Rice
(0)
(0)
Long Rice
(0)
(0)
Dry Peanuts
(0)
(0)
Irr Peanuts
(0)
(0)
Sunflowers
(0)
(0)
-
Low Grain and Cotton Price Results
Rankings for a Normal Risk Averse Decision Maker Using Certainty Equivalence of Average Annual Payments
ACRE
CCP
Preferred Program
Lost DPs with ACRE
Hill County Texas 2,200 Acre Farm
68,885
167,720
CCP
7,196
Dry Cotton
13,348
46,259
CCP
1,667
Irr Cotton
(0)
(0)
Dry Wheat
5,011
13,638
CCP
502
Irr Wheat
(0)
(0)
Dry Sorghum
27,944
68,482
CCP
4,373
Irr Sorghum
(0)
(0)
Dry Corn
22,592
39,529
CCP
653
Irr Corn
(0)
(0)
Dry Soybeans
(0)
(0)
Irr Soybeans
(0)
(0)
Medium Rice
(0)
(0)
Long Rice
(0)
(0)
Dry Peanuts
(0)
(0)
Irr Peanuts
(0)
(0)
Sunflowers
(0)
(0)
-
Iowa 3400 Acre Representative
Corn and Soybean Farm
Planted Acres
2,040
1,360
Base Acres
1,700
1,700
1998
1999
130
46
155
45
DP Yield
130
37
2000
158
46
CCP Yield
Ins Prem/Acre
151
4.55
44
2.92
2001
Historical Yield Data
2002
2003
152
179
172
43
50
35
2004
191
48
2005
189
51
2006
172
49
2007
178
50
Comparison of Average Annual Payments under ACRE and CCP in Iowa
3400 ($s)
1
Prob
0.8
0.6
0.4
0.2
0
-
50,000
100,000
150,000
200,000
Sum ACRE
250,000
Sum CCP
300,000
350,000
400,000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Corn ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
50000
100000
150000
ACRE Dry Corn
200000
CCP Dry Corn
250000
300000
Comparison of Average Annual Payments under ACRE and CCP for Dry
Soybeans ($s)
1
Prob
0.8
0.6
0.4
0.2
0
0
20000
40000
60000
80000
ACRE Dry Soybeans
100000
120000
CCP Dry Soybeans
140000
160000
Payment Limitations and
Direct Attribution
• Continues $40,000 limit on direct payments and $65,000
limit on counter-cyclical payments and ACRE
– If ACRE is chosen then reduction in DP is added to ACRE limitation
• Loan deficiency payments and marketing loan gains are
not limited
• Eliminates 3 entity rule and uses Direct attribution to a
living person
– IF one spouse is assumed to be actively engaged then both
spouses are assumed to be eligible
– Payments for children under 18 are attributed to parent(s)
– Will trace through 4 levels of ownership in legal entities to attribute
payments
• Prohibition on all payments if sum of base acres on farm is
less than or equal to 10 acres
– Unless socially disadvantaged
– Unless limited resource
Adjusted Gross Income Eligibility Test
• Replaces the $2.5 million adjusted gross
income limitation to receive commodity,
disaster, or conservation benefits with:
– A person with more than $500,000 in average
adjusted nonfarm income will be ineligible for
direct payments, counter-cyclical payments,
ACRE payments, marketing loan gains, loan
deficiency payments, MILC payments, and the
noninsured assistance program
– A person with more than $750,000 average
adjusted gross farm income will be ineligible for
direct payments
Cotton
• Economic Adjustment Assistance to Users of
Upland Cotton
– Beginning August 1, 2008 and ending July 31, 2012
domestic users of upland cotton will receive a payment
of $0.04/lb used regardless of origin of the cotton
– Beginning August 1, 2012 the payment rate is $0.03/lb
• USDA no longer prohibited from publishing cotton
price forecasts
• Reduces storage payments for cotton by 10% in
2008, 2009, 2010, and 2011 and 20% in 2012
Peanuts
• Peanuts continue to be covered by a
separate subtitle from other crops
– Continue to have separate payment limits
– Same basic programs and options as other
crops
– Beginning with the 2008 crop, the Secretary
shall pay handling and associated costs (other
than storage) when peanuts are placed under
loan
Planting Flexibility
• Maintains prohibition of planting fruits and
vegetables on base acres as in 2002 Farm
Bill
• Planting Transferability Pilot Project
– Permits cucumbers, green peas, lima beans,
pumpkins, snap beans, sweet corn, and
tomatoes for processing to be planted on base
acres
– Pilot basis in IL, IN, IA, MI, MN, OH, and WI
Summary
• As additional details are provided, there will
be continual updates to this power point
• Check at agecoext.tamu.edu