Farm Programs: New farm bill taking shape; few changes in basics

November 09, 2007 03:06 am

— On Oct. 25, the U.S. Senate ag committee, chaired by Sen. Tom Harkin, D-Iowa, approved the preliminary Senate version of a new farm bill.
That bill now goes on to the full Senate for approval, which is expected some time by mid-November. The U.S. House of Representatives passed a new farm bill in late July 2007, based on legislation passed by the U.S. House ag committee, chaired by Congressman Collin Peterson, D-Minn.
Once the Senate passes a final version of a new farm bill, a House and Senate conference committee will be required to work out differences in the two versions of the new farm bill. Then the compromise version of the new farm bill will again be voted on by the entire U.S. House and Senate, and the new farm bill would need to be signed by President Bush before it becomes law.
The Bush administration has been active in discussions related to a new farm bill, and has raised some concerns with certain provisions in the new farm bill, especially related to budgetary items. The new farm bill would be implemented for the 2008 crop year and would likely continue through the 2012 crop year.
Following are details of the commodity provisions of the new farm bill approved by the U.S. Senate ag committee, compared to the new farm bill passed in July by the U.S. House, and to current legislation.
Few changes
Few changes in the basic commodity provisions of the new farm bill are being proposed by either the U.S. Senate or the U.S. House. (See the table that accompanies this story for proposed payment rates and prices for 2008-12.)
• Direct payments would continue for 2008-12 crop years at the same direct payment rate as 2007 for all eligible crops.
• Advance direct payments would continue at 22 percent of the total direct payment for 2008-11 (same as 2007), but would be discontinued for 2012 and beyond.
• Target prices for some commodities would increase (soybeans and wheat), and other target prices would stay the same (corn), as compared to current target prices.
Note: The target price levels are important for determining counter-cyclical payment eligibility, and maximum CCP levels.
• Base acres and program yields for all crops, which are used to calculate direct payments and CCPs, would be maintained at 2007 levels for the next five years (2008-12). In the 2002 farm bill, there was a one-time opportunity to update crop base acres, and to increase payment yields for CCPs.
• The formula to calculate direct payments and CCPs would remain the same as the current formula for all commodities: Crop base acres x Payment yield x 0.85 x Payment rate = Payment amount
• Planting flexibility for crop acres would continue; however, current restrictions on fruit and vegetable planting on crop base acres would be maintained. There may be some attempt on the U.S. Senate floor, or through conference committee, to remove these restrictions.
Continued current payments
The new farm bill would continue the current crop marketing loan and loan deficiency payments for eligible commodities. Compared to 2007 Commodity Credit Corp. national loan rates, proposed commodity loan rates for 2008-12 would be increased for wheat, but would stay the same for corn and soybeans.
• CCC loans would continue to be nine-month loans, with loan repayment at any time at the “posted county price,” when it is advantageous to the producer, or at any time the producer chooses to repay the CCC loan plus accrued interest.
• Potential LDPs would be continued, as an alternative to utilizing the basic CCC loan program.
• Some would like to see LDPs available only when the producer loses “beneficial interest” in the grain (when the grain is actually sold and delivered). If enacted, this would be a major change for producers who have used LDP opportunities as a valuable grain marketing tool (such as with the 2005 corn crop). This change is supported by the Bush administration, and may re-surface during the conference committee for the new farm bill.
• Another potential change that still could end up in a final version of a new farm bill is the use of monthly posted county prices, rather than the current daily PCPs.
Average crop revenue program
The new farm bill proposal passed by the Senate ag committee would give producers the opportunity to opt for an average crop revenue program, in lieu of the current direct and CCPs. The producer 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 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.
Concerns about the proposed ACR program have been raised by the crop insurance industry, because of similarities to revenue-based crop insurance policies that are currently offered, and the fact that crop insurance indemnity payments earned by producers in a given year could lower potential ACR payments.
One-time choice
The proposed House farm bill offers producers a one-time opportunity to choose between the current method of calculating CCPs, and a newly proposed revenue CCP program, for the 2008-12 crop years. The proposed RCCP option is similar to the RCCP that was proposed earlier this year by the Bush administration to replace the current CCPs. The proposed RCCP would set national target revenue amounts and national target yields per acre for each commodity, as follows.
• Corn = $344.12/acre revenue; and 114.4 bu./acre
• Wheat = $149.92/acre revenue; and 36.1 bu./acre
• Soybeans = $231.87/acre revenue; and 34.1 bu./acre
Potential RCCPs would be based on the actual national average yield times the national average price for a given commodity in a specific crop year.
Note: The idea of giving producers a choice of a “revenue-based” CCP option in the new farm bill has a lot of support; however, working out the details of a potential ACR or RCCP program will be one of the many challenges in the farm bill conference committee.
Payment limits
The new farm bill (House and Senate) would establish revised payment limits for the various commodity payments. Following are highlights of the proposed payment limit changes for 2008-12.
• The U.S. House farm bill would forbid farm program commodity and conservation payments to anyone with an adjusted gross income above $1 million, with no exceptions. The current AGI limit is $2.5 million, with an exemption if at least 75 percent of the AGI is generated from agriculture production.
The farm bill proposed by the U.S. Senate ag committee 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 want the AGI payment limit dropped to $250,000. The Bush administration has proposed a $200,000 AGI limit. The proposed House payment limit also includes conservation payments, while the Senate and Bush proposals do not.
• In the House farm bill, producers with an AGI of $500,000 to $1 million would need to derive at least 67 percent of their income from agriculture sources, in order to be eligible for farm program payments. The proposed 67 percent income amount from agricultural sources would be true for AGI payment limits in the proposed Senate farm bill. Currently, that AGI limit from agricultural production is at 75 percent.
• The current payment cap per individual for direct payments is $40,000 for direct payments and $65,000 for CCPs. The U.S. House farm bill would increase the limit for direct payments to $60,000 per individual and continue the $65,000 CCP limit.
Currently, there is a $75,000 per individual limit for gains from CCC loans and LDPs; however, producers are able to use “generic commodity certificates” to avoid the limit. The use of generic commodity certificates would be eliminated in both the House and Senate farm bill; however, in the proposed House farm bill, there would be no payment limit on gains from CCC marketing loans and LDPs.
• The so-called “triple-entity rule,” which allowed producers to be involved in three separate farming entities, and to essentially double all of the established payment limits per individual that were in the 2002 farm bill, would be eliminated in a new farm bill.
• Would still allow spouses and other family members to be eligible for individual farm program payments, if the U.S. Department of Agriculture criteria for “actively engaged in farming” are met.
Bottom line
There are many other provisions in the new farm bills being proposed by the U.S. House and Senate, including a new “energy title,” with considerable support for renewable fuels, changes in conservation programs, added funding for nutrition programs, and a permanent disaster assistance program in the Senate farm bill.
There are likely to be several amendments offered on the Senate floor, before the final vote on the new farm bill. There are also many differences to be worked out in the conference committee before a final new farm bill is passed, and sent to President Bush to be signed into law.
However, it does look hopeful that a new farm bill can be passed by Congress, and signed into law either late in 2007, or in early 2008.
There does not appear to be any proposed changes in commodity provisions in the new farm bill that should have a significant impact on the planning process by producers for the 2008 crop year.

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