2002 Farm Bill Titles ICommodity Programs Subtitle ADirect Payments and Counter-Cyclical Payments BMarketing Assistance Loans and Loan Deficiency Payments CPeanuts (Major Changes) DSugar EDairy FAdministration IIConservation Subtitle AConservation Security (New) BConservation Reserve CWetlands Reserve Program DEnvironmental Quality Incentives Program EGrassland Reserve FOther

2002 Farm Bill Titles IIITrade Subtitle AAg. Trade Dev. And Assistance Act of 1954 and Related Statutes BAg. Trade Act of 1978 IVNutrition Programs Subtitle AFood Stamp Program BCommodity Distribution CChild Nutrition and Related Programs VCredit Subtitle AFarm Ownership Loans BOperating Loans CEmergency Loans VIRural Development VIIResearch and Related Matters VIIIForestry IXEnergy XMiscellaneous

General Overview Commodity provisions similar to previous 1996 farm bill – » – Major changes for Soybeans and Peanuts –

General Overview (Cont.) Required country-of-origin labeling for meat, fish, produce and peanuts by 2004 – – Have since pushed back implementation date

General Overview (Cont.) Added an Energy Title –Commits $405 million to the development of resources for the production of ethanol and biodiesel facilities Initiates a counter-cyclical dairy program Wool and Mohair provided marketing loan benefits Honey provided marketing loan benefits Added new Conservation Security Program EQIP funding increased 6 fold Includes authority for LDPs on grazed wheat, oats, barley and triticale

Definitions Covered crops: –wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, and other oilseeds (sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed) –Eligible for income support Loan Commodities: –Covered commodities plus extra long staple cotton, wool, mohair, honey, dry peas, lentils, and small chickpeas.

Crop Base Updating Producers of covered crops had five choices: 1.Retain current AMTA bases 2.Retain current AMTA bases and add max oilseeds (if applicable) 3.Retain current AMTA bases and add min oilseeds (if applicable) 4.Update bases by using planted and considered planted acreage for all crops 5.Retain current AMTA bases and add some combination of oilseeds (if applicable) Base updating was on a farm (FSA farm number) by farm basis What are the implications of period for Texas? Droughts 1998, 1999, and 2001) –Bad choice of years used to updated bases Most Used Choices

Farm Program Yield Updating Only applied to counter-cyclical payment Only allowed if update base acres using planted acreage Producers had three choices: 1.Retain current program yields 2.Update yields by adding 70% of the average yield (excluding any year planted acreage was zero) minus current program yields to the current program yield 3.Update yields by taking 93.5% of yields, excluding any year planted acreage was zero What are the implications for farmers/landowners who underplanted bases or did not plant anything at all? −Got screwed – would have lost money if updated bases so couldn’t update yields

Farm Program Yield Updating (Cont.) Could replace any of the yields with 75% of the county average for that year –Using 75% of county average yield per harvested acres to replace any yield Yield updating was on a crop by crop basis for each FSA farm # All crops on a farm were required to use the same method for determining yields

Direct Payments Farmers could choose to update base but were required to use AMTA (1996 farm bill) yield –Soybeans and peanuts a little different Same formula as AMTA payments Direct Payment = (payment rate x (base acres x.85) x farm program yield) Advance Payments –Producer Option –For up to 50% in any month between December 1 of the year before and October 1 (date payment is otherwise made)

Counter-Cyclical Payments Commodity specific based off of national price trigger Base owners and/or producers 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 Updated FPY Effective price equals the higher of market price or loan rate plus the direct payment rate The national market price is the 12 month weighted average marketing year price for the crop Decoupled from production decision

Counter-Cyclical Payments (Cont.) Won’t know for sure what total payment will be until end of marketing year –This is roughly a year after harvest If Secretary determines CCPs are required: –2002 – 2006 Payment Timing »Producer can elect to receive up to 35% of the projected counter-cyclical payment in October of the year the crop is harvested »An additional 35% beginning in February of the following year »The balance after the end of the 12 month marketing year for the crop –2007 Payment Timing »First payment (40%) after 6 months of marketing year »Final payment after the end of the 12 month marketing year for the crop

Direct Payments Crops1996 Farm Bill 2002 Rate 2002 Farm Bill 2002 – 07 Rate Corn ($/bu) Sorghum ($/bu) Wheat ($/bu) Upland Cotton ($/lb) Rice ($/cwt) Barley ($/bu) Oats ($/bu) Soybeans ($/bu)N/A0.44 Minor Oilseeds ($/lb)N/A Peanuts ($/ton)N/A36 New “covered” crops

Loan Rates Crops1996 Farm Bill 2001 Rate 2002 Farm Bill 2002 – 03 Rate 2002 Farm Bill 2004 – 07 Rate Corn ($/bu) Sorghum ($/bu) Wheat ($/bu) Upland Cotton ($/lb) Rice ($/cwt)6.50 Barley ($/bu) Oats ($/bu) Soybeans ($/bu) Minor Oilseeds ($/lb) Peanuts ($/ton)N/A355.0 Dry Peas ($/cwt)N/A Lentils ($/cwt)N/A Small Chickpeas ($/cwt)N/A Why?

Target Prices Crops – 2007 Corn ($/bu) Sorghum ($/bu) Wheat ($/bu) Upland Cotton ($/lb)0.724 Rice ($/cwt)10.50 Barley ($/bu) Oats ($/bu) Soybeans ($/bu)5.80 Minor Oilseeds ($/lb) Peanuts ($/ton)495.0 Why?

Market Receipts CCP MLG/LDP Distribution of Government Support Example: Cotton Revenue per Pound Target Price – $0.724 Loan Rate – $0.52 Fixed payment – $ } Decoupled (do not have to produce to receive payment) Coupled (do have to produce to receive benefits from marketing loans gains or LDPs) Market Price Reflects payments not on full production (payment acres =.85 x base acres)

Payment Timeline for Most (Depends on Marketing Year) Commodities Oct 04 Dec 02 Feb 05 Aug 05 Oct 05 Dec 05 1 st CCP Advance for ’05 crop 2 nd CCP Advance for ’05 crop CCP Final for ’05 crop 1 st CCP Advance for ’06 crop Opportunity for Direct Payment 50% Advance for ’05 crop Final Direct Payment for ’05 crop What a mess!

2002 Farm Bill During 2001 we debated the 2002 Bill Era: low prices for 6 years and no expectation of high prices, increased call for new safety net program. New Safety Net in 2002 Bill is return to Deficiency Payment with New Target Price Bill Policy Tools: New TP Direct Payment Continued Marketing Loan Program No ARP ***Farmers were permitted to update Base Acres (frozen in 1990) & Payment Yield (frozen in 1985). 7 options for update Base & Yield.

New Target Price: Decoupled Payment Def Payment is not tied to the crops you grow Def Payment is based on historical crops base acres & CCP yield Def Payment is called a Counter Cyclical Payment (CCP) CCP= TP - Direct Pay rate – [max of price or LR] * Base acre * CCP yield * 0.85 ? S NTP P eq qsqs D Pmt wheat Because CCP is not related to crop being grown, receive payment from cotton history not for wheat grown Farm Bill

The New Target Price does not directly affect quantity supplied because CCP is a decoupled payment Bill Direct Payment =>decoupled =>DP = DP rate * Base *.85 * Dp Yield DP yield < CCP yield – updated 5 yr average actual ylds. Continued marketing loan – LDP & MLG 2002 Farm Bill

Peq > NTP => No CCP for corn, wheat, sorghum, barley, oats, or soybeans s P eq NTP D 2002 Farm Bill