Published: January 11, 2008 02:45 pm            

Farm Programs: Comparing the House and Senate farm bill versions

Originally published in the December 28, 2007, print edition.

The U.S. Senate finally passed their version of the farm bill Dec. 14 by a 79-14 margin.

The U.S. House of Representatives passed its version in late July. The farm bill now will go to a U.S. House and Senate conference committee, probably in late January, to work out differences in the two versions. The compromise version will again be voted on by the entire House and Senate, and the bill will need to be signed by President Bush, before it becomes law.

The Bush administration has been active in discussions related to a new bill, and has raised some concerns with certain provisions in the House and Senate versions, especially related to budgetary items. The new bill would be implemented for the 2008 crop year, and would continue through the 2012 crop year.

Major provisions in the new farm bill

Following are some of the key provisions in the new bill, highlighting where similarities and differences exist between the House and Senate versions, and some provisions where the Bush administration may have some issues.

Commodity provisions

• All direct payment rates for corn, soybeans and wheat would stay at the current rates: $0.28 per bushel for corn, $0.44/bu. for soybeans and $0.52/bu. for wheat.

• The Target Price for corn would remain at $2.63/bu. for corn, and would increase to $6/bu. for soybeans (currently at $5.80). The wheat target price would increase to $4.15/bu. in the House bill, or to $4.20/bu. in the Senate still (currently at $3.92/bu.).

• The Commodity Credit Corp. National Loan Rates would stay at the current loan rates of $1.95/bu. for corn and $5/bu. for soybeans. The wheat loan rate would increase to $2.94/bu. in both versions (currently at $2.75).

• All crop base aces and payment yields used to calculate direct and counter-cyclical payments would remain the same as the current levels under the new bill, and all direct payments and CCPs would continue to be factored by 85 percent before the final payment is calculated.

• Both versions of the farm bill would continue the current restrictions on planted fruit and vegetable acreage, in order to maintain farm program eligibility.

• The Senate bill would include $5.1 billion over five years to set up a “permanent disaster program” for producers, rather than having to wait for Congress to pass an ad-hoc disaster program a year or two after the actual crop loss took place. The permanent disaster language was not included in the House version, but is supported by Congressman Collin Peterson, D-Minn., who chaired the House agriculture committee.

• Both the House and Senate versions would re-authorize the Milk Income Loss Contract Program for dairy producers.

CCC marketing loans and LDPs

• Both versions continue the current CCC marketing loans and loan deficiency payments for eligible commodities. CCC loans would continue to be nine-month loans, with loan repayment possible at any time at the posted county price, or at any time the producer chooses to repay the CCC loan plus the accrued interest.

• Potential LDPs would be continued as an alternative to utilizing the CCC loan program, and LDPs could be claimed at any allowable time that the PCP is favorable.

• One big change being proposed in the Senate bill would be to switch all CCC commodity loans to “recourse loans,” which would require principal and interest repayment, for any producers that choose the Average Crop Revenue farm program option that would be offered.

This change would eliminate CCC loan repayment at the daily PCP, and would eliminate potential LDPs. This change could have a big impact on producers who have used LDPs to offset crop income in years with low commodity prices, such as in 2005.

The switch to “recourse loans” for CCC loans, and elimination of potential LDPs, was not included in the House farm bill.

• A couple of other CCC loan and LDP changes that are supported by the Bush administration, which still could be added into a final farm bill by the conference committee, are to have LDPs available only when the producer loses beneficial interest in the grain (when the grain is actually sold and delivered), and to use monthly posted county prices, rather than the current daily PCPs.

Again, if enacted, both changes could impact producers who regularly utilize CCC loans and LDPs in times of low grain prices.

Payment limits

• Both versions would revise some of the current payment limit rules for commodity farm programs. The so-called triple-entity rule, which allows producers to be involved in three separate farming entities, and to double all of the established payment limits per individual, would be eliminated in a new farm bill.

However, spouses and other family members could still be eligible for individual farm program payment eligibility, if the U.S. Department of Agriculture criteria for “actively engaged in farming” are met.

• The Senate bill would keep the current payment cap of $40,000 per individual for direct payments and lower the limit to $60,000 for CCPs, while the House version would increase the direct payment limit to $60,000 per individual, and continue the $65,000 CCP limit.

There are no payment limits proposed on gains from CCC marketing loans and LDPs in either version. Currently, there is a $75,000 per individual limit for gains from CCC loans and LDPs; however, producers are currently able to use “generic commodity certificates” to avoid the limit.

• The House version would forbid farm program commodity and conservation payments to anyone with an adjusted gross income above $1 million, with no exceptions. The Senate bill would keep the current $2.5 million limit for 2008, lower it to $1 million in 2009, and $750,000 in 2010 and beyond.

Some senators wanted the AGI payment limit dropped to $250,000, while the Bush administration has proposed a $200,000 AGI limit. The proposed House payment limit also includes conservation payments, while the Senate and administration proposals do not.

• The House farm bill would require producers with an AGI of $500,000 to $1 million to derive at least 67 percent of their income from agriculture sources, in order to be eligible for farm program payments, while the proposed 67 percent income threshold would be enacted at the payment limits listed earlier in the Senate farm bill. Currently, that AGI limit from agricultural production is at 75 percent, if above the $2.5 million AGI limit.

Revenue-Based CCPs

• Bothe House and Senate versions of the farm bill contain language to give producers the option to switch from the current CCP program (price only) to a new “revenue-based” (yield x price) CCP program. However, the two proposals are quite different, and these differences will need to be resolved by the conference committee.

• The Average Crop Revenue Program being proposed in the Senate version would be an annual option beginning in the 2010 crop year. Under the ACR program, producers would receive a fixed payment of $15 per acre on the average of all crop base acres (2002-07), which would replace the current direct payments calculated via specific crop base acres and payment yields.

The ACR program would the offer revenue-based CCPs, which are based on actual county-average yields and harvest prices for a given year, compared to three- to five-year average county yields and projected market prices before planting. This would replace the current price-only method of calculating CCPs, which is based on Target Prices and the 12-month national average price for a given commodity. The ACR program would make all CCC loans recourse loans, which would eliminate CCC marketing loans and potential LDPs.

• The House version would offer producers a one-time opportunity to choose between the current method of calculating CCPs, and a newly proposed Revenue Counter-Cyclical Program, for the 2008-12 crop years. Under the proposed RCCP option, potential RCCP payments would be based on the actual national average yield times the national average price for a given commodity in a specific crop year.

Other key farm bill provisions

• Both versions contain several enhancement provisions for the development of renewable energy resources, and would add over $5 billion to food and nutrition programs.

• Both versions contain many budget adjustment provisions to free-up extra funding for the added provisions in the new farm bill, and many of these budget adjustments are opposed by the Bush administration.

• The Senate version would change the name of the Conservation Security Program to the Conservation Stewardship Program, and would increase the allowable CSP acreage to 80 million acres by 2012 (currently at 15 million acres), and would increase the CSP funding by $1.25 billion from 2008-12.

The House bill calls for no increases in CSP acres or funding from 2008-12.

• The Senate farm bill would create a tax credit in lieu of Conservation Reserve Program payments for landowners who exceed the $2.5 million AGI limit for CRP payment eligibility. This provision is not in the House version.

• The Senate version would make all land acquired through a Section 1031 land exchange ineligible for farm program payments. This provision was not in House version.

• Under the Senate version, farmers who receive farm program payments could not exceed $200,000 in farming losses claimed on Schedule F of their federal tax returns.

This was not in the House farm bill.

Bottomline

We are a lot closer to a new farm bill than we were just a few weeks ago; however, there are still a lot of key issues to work out by the conference committee, and of course there is still the veto threat by President Bush. The key items to be resolved appear to be the budget issues, arriving at acceptable payment limit language, and working out the details of revenue-based CCPs.

        

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