ML, DP, CCP, and ACRE 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 General Overview DP LDP CCP ACRE Payment Limits ML, DP, CCP, and ACRE

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: –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 General Overview } 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 – 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 , 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 ( ) Crops2002 Farm Bill2008 Farm Bill Corn ($/bu)0.28 Sorghum ($/bu)0.35 Wheat ($/bu)0.52 Upland Cotton ($/lb) Rice-Long & Med. Grain ($/cwt) 2.35 Barley ($/bu)0.24 Oats ($/bu)0.024 Soybeans ($/bu)0.44 Minor Oilseeds ($/cwt)0.80 Peanuts ($/ton)36 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 Month LDP uses an average of 25 reporting days per month 30 Day LDP uses the previous 30 reported prices LDP Rate is the rate reported by FSA

Example of New Grain PCP Calculations vs Actual LDP Rates for 05/06 Wheat, Moore County, TX Month LDP uses an average of 25 reporting days per month 30 Day LDP uses the previous 30 reported prices LDP Rate is the rate reported by FSA

Loan Rates Crops2002 Farm Bill2008 Farm Bill Corn ($/bu)1.95 Sorghum ($/bu) 1.95 Wheat ($/bu) Upland Cotton ($/lb) 0.52 Rice ($/cwt)6.50 Barley ($/bu) Oats ($/bu) Soybeans ($/bu) 5.00

Loan Rates (Cont.) Crops2002 Farm Bill 2008 Farm Bill Other Oilseeds ($/cwt) Dry Peas ($/cwt) Lentils ($/cwt) Small Chickpeas ($/cwt) 7.43 Large Chickpeas ($/cwt) n/a Peanuts ($/ton)355.0

Loan Rates (Cont.) Crops2002 Farm Bill 2008 Farm Bill Graded wool ($/lb) Nongraded wool ($/lb) 0.40 Mohair ($/lb)4.20 Honey ($/lb)

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 , 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 Crops2002 Farm Bill 2008 Farm Bill Corn ($/bu)2.63 Sorghum ($/bu) Wheat ($/bu) Upland Cotton ($/lb) Rice 1 ($/cwt)10.50 Barley ($/bu) Oats ($/bu) Soybeans ($/bu) Long and medium grain rice have the same rates.

Target Prices (Cont.) Crops2002 Farm Bill 2008 Farm Bill Other Oilseeds ($/cwt) Dry peas ($/cwt)n/a 8.32 Lentils ($/cwt)n/a Small Chickpeas ($/cwt) n/a Large Chickpeas ($/cwt) n/a Peanuts ($/ton)495.0

Average Crop Revenue Election (ACRE) Payment Beginning with the 2009 crop year –One-time irrevocable option to choose: 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 Don’t have to make choice the first year

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 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 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 > AND > THEN Farm Payment = (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%] Actual State Revenue = Actual State Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] Actual Farm Revenue = Actual Farm’s Planted Acre Yield * MAX[ Natl. Average Mkt. Yr. Price OR 70% Loan Rate] Farm ACRE Benchmark = Farm's 5-Year Olympic Avg. Yield * 2-year Natl. Average Mkt. Yr. Price + Ins Premium 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 non- irrigated 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

FAPRI February 2008 Baseline Prices

High Grain and Cotton Price Results

Low Grain and Cotton Price Results

Iowa 3400 Acre Representative Corn and Soybean Farm

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