Kent Thiesse

The March 15 deadline has come and gone without the passage of a new farm bill, beginning with the 2008 crop year. Late in 2007, Congress passed a resolution extending funding for the 2002 farm bill through March 15. Congress still has not been able to finalize an agreement on a new farm bill, and has passed another extension of the 2002 farm bill through April 18.

The U.S. House and Senate conference committee has yet to meet to develop a compromise version of the farm bill, based on the new farm bill legislation that was passed by the House in July 2007, and by the Senate in December 2007. In fact, as of this writing, the House has yet to name the members of the farm bill conference committee, while the Senate conference committee members were named a few weeks ago.

The Bush administration continues to threaten a veto of the new farm bill, if it does not meet their provisions and criteria. Congress appears somewhat closer to reaching a final version of a farm bill now than they were a few weeks ago; however, there are still some difficult issues to be resolved before a new farm bill is finalized.

Funding challenges

Since the beginning of discussions on the new farm bill, the main obstacle in reaching resolution on the new legislation has been where to find additional funding for needed new programs and initiatives, without seriously impacting the Commodity Title programs, and other popular farm bill programs.

The “pay-as-you-go” legislation adopted by Congress to address the federal budget deficit requires Congress to offset any potential spending increases on federal programs with either budget reductions in other programs, or enhanced revenues through tax increases and other sources. The key aspects of funding for a new farm bill that must be agreed upon by the House, the Senate and the Bush administration are:

The level of funding for the new farm bill

The House and administration officials have discussed a potential agreement at approximately $10 billion over the current farm bill baseline funding, while the Senate has been proposing closer to $12 billion over baseline funding. A few months ago, it was estimated that the House was about $14 billion over baseline funding, and the Senate was more than $20 billion over baseline funding. The baseline funding for the new farm bill is approximately $280 billion over five years, and $597 billion over 10 years.

Where will the “budget offsets” come from to allow for the additional $10 to $12 billion in funding for the new farm bill? This may be the biggest “hang-up” in finalizing a new farm bill, because there has been no uniform agreement by leaders in either the House or Senate on how to resolve this issue.

The Bush administration has been firm with a veto threat, if the budget offsets include any tax increases, adjustments in tax compliance, or budget shifting maneuvers. This means that there will have to be some cuts or adjustments in funding for some current programs to reach the budget targets for enhanced funding in the new farm bill. It has been difficult for Congress to reach a compromise on where this extra funding should come from.

Allocation of new farm bill funding by title

Both the House and Senate versions of the new farm bill contain 10 titles, compared to nine titles in the 2002 farm bill. The added title in the proposed new farm bill is for energy, which would include new funding for many new initiatives and incentives for renewable energy, including ethanol, biodiesel and wind energy.

Much of the added funding in the new farm bill is for food and nutrition programs, including food stamps. There are also small increases in funding proposed for conservation and rural development programs, as well as the potential addition of a “permanent disaster program.”

Funding for most programs under the Commodity Title of the farm bill would either be maintained or reduced under most funding proposals for the new farm bill. There has not been agreement at this point among the congressional leadership on a final funding allocation proposal among the various titles of a new farm bill.

Likely farm bill provisions

If and when an agreement is reached among the various leaders in Congress, as well as the Bush administration, it appears likely that certain provisions will be included in the Commodity Title of the farm bill that affect farmers and landowners. Following are new farm provisions that were approved in the versions of the new farm bill that were passed by the House and Senate.

Commodity provisions

• Both the House and Senate farm bill proposed that all direct payment rates for corn, soybeans and wheat would stay the same as current rates, which are $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 bill (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; however, the wheat loan rate would increase to $2.94/bu. in both the House and Senate farm bills (currently at $2.75/bu.).

• Both the House and Senate farm bills would keep crop base acres and payment yields used to calculate direct and counter-cyclical payments the same as the current levels for the next five years, and all direct payments and CCPs would continue to be factored by 85 percent before the final payment is calculated.

• Both the House and Senate farm bills would re-authorize the Milk Income Loss Contract program for dairy producers.

• The Bush administration opposes any increases to current crop target prices or CCC loan rates. It is possible that Congress could back away from proposed increases for some crops, and even reduce direct payment rates in order to create some budget savings in the proposed new farm bill.

CCC marketing loans and loan deficiency payments

• Both the House and Senate bills continue the current CCC marketing loans and LDPs for eligible commodities. The 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.

Payment limits

• The so-called triple-entity rule will most likely be eliminated in the new farm bill. This provision has allowed producers to be involved in three separate farming entities, and to double all of the established payment limits per individual. 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 farm bill would keep the current payment cap of $40,000 per individual for direct payments and $65,000 for CCPs, while the House farm bill 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 the House or Senate farm bills. 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.

• There seems to be some agreement on an adjusted gross income limit of $500,000 to be eligible for farm program payments in the new farm bill. 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 version 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. Yet to be resolved is whether or not the lower AGI limits will be phased-in, and if there will be exemptions to the AGI limit based on the percentage of income derived from farming, such as currently exist.

Other farm bill provisions

• There is some agreement on establishing 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. However, how to pay for the proposal is at issue. The Senate allocated new funding of over $5 billion to implement the program, while others have suggested a voluntary program, which would be partially funded through fees paid by producers.

• “Average Crop Revenue” program would offer a revenue-based CCP option included in the new farm bill, as an alternative to the current price-based CCPs. Most observers feel that the final provision in the new farm bill will probably resemble the ACR proposal in the Senate version. It will likely not be implemented until the 2009 or 2010 crop year, and will likely be a voluntary program alternative for producers.

Possible new farm bill provisions

Elimination of LDPs and CCC marketing loans

• Under the Senate version, all CCC commodity loans would be switched to “recourse loans,” which would require principal and interest repayment, for any producers who choose the new ACR farm program option. This would eliminate CCC loan repayment at the daily PCP, and would eliminate potential LDPs.

Changes in LDP requirements and calculations

• One proposed change would be that a producer could only claim an LDP when the producer loses “beneficial interest” in the grain (when the grain is actually sold and delivered), rather than on any date an LDP is available. The other proposed change would be to base LDPs and CCC loan repayments on “monthly posted county prices”, rather than the current daily PCPs. If enacted, these changes could negatively impact producers in years of low grain prices, such as the 2005 crop year.

Removal of planting restrictions on fruit and vegetable acres

• This proposal is supported by the Bush administration, many members of Congress, as well as Midwest canning crop producers and processors. Removing this restriction would make the farm bill more World Trade Organization friendly, and would likely assure that the WTO would count direct payments as non-restricted “green-box” payments.

Final agreements on programs in the Conservation Title of the new farm bill

• The Conservation Reserve Program will be continued, but at what level (current maximum is 39.2 million acres), and what changes might be added as far as usage of future CRP acres to produce cellulosic ethanol? Will the new farm bill increase funding to expand the Conservation Security Program? Consolidation of the Environmental Quality Incentives Program and other cost-share programs is possible, as well as efforts to make those programs more “user-friendly.”

• Will conservation payments to land owners be included in any new AGI payment limits. The House version included conservation payments in proposed AGI limits, while the Senate version did not. Many of the so-called “non-farming” individuals with high AGI levels that receive government farm program payments receive a significant amount of conservation payments.

Implementation of the Country of Origin Labeling requirements

• The final language in the new farm bill related to COOL implementation and timelines will have an impact on livestock producers, and anyone involved in the importing or exporting of food-related products.

Potential changes in Section 1031 land exchange

• The Senate farm bill would make all land acquired through a Section 1031 land exchange ineligible for future farm program payments. This provision was not in House version, but is still being considered. This provision could affect farmers’ ability to purchase farmland, or the ability of land owners purchasing land to rent out the farm land at competitive rental rates, if crops grown on the land are not eligible for future commodity program benefits.

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Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com.

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