Farm Security and Rural Investment Act of 2002 Title I, Subtitles A and B Commodity Programs for Covered Commodities: Sign-up Decisions 2002 Farm Bill Education Conference Kansas City, Missouri May 20-21, 2002 Jim NovakBrad Lubben Auburn UniversityKansas State University

Commodity Program Sign-up Decisions Overview –Producers must decide whether to sign up for farm program –If producers sign up, then they must decide whether to use their “old” or “new” acreage base –If producers use their “new” acreage base, then they must decide whether to use their “old” or “new” yields, and if “new”, which method to calculate “new” yields

Commodity Program Sign-up Decisions Overview –Existing or “old” program acreage base refers to contract acreage used to calculate the 2002 Production Flexibility Contract (PFC) payment under the 1996 Farm Bill –Existing or “old” payment yield refers to the payment yield established for the 1995 crop covered under the 1990 Farm Bill Same yield as was used for PFC payments under the 1996 Farm Bill Payment yields under previous farm programs were frozen since 1985 and should be reflective of the production period

Commodity Program Sign-up Decisions Overview –Average acreage or “new” acreage refers to acres planted and prevented from planting for each covered commodity for the years 1998 through 2001 –Average yield or “new” yield refers to the average yield per planted acre for the covered commodity for the years 1998 through 2001, not including years in which when the crop was not planted

Commodity Program Sign-up Decisions Overview –Regardless of acreage base and yield decisions, producers will need information and documentation for acreage and yield from At a minimum, oilseeds will be added to the “old” base Or, all crops will be updated to the “new” base

Commodity Program Sign-up Decisions 1.Decide whether to participate In 1996, this was the only decision As with the 1996 Farm Bill, participating producers maintain planting flexibility and no set-aside requirements Program participation requirements Conservation compliance Wetlands protection requirements Planting flexibility restrictions regarding production of fruits, vegetables, and wild rice on contract acres Farmland remains in agricultural use Neither the producer nor the land had to previously participate in the farm program to be eligible for sign-up

Commodity Program Sign-up Decisions 2.Decide which acreage base to use a)Average acreage for each covered commodity for (“new” base) Including acres planted and prevented planted Average of acreage for all four years, including years in which crop was not planted OR…

Commodity Program Sign-up Decisions 2.Decide which acreage base to use b)Existing program acreage base (“old” base) plus average acreage for each oilseed for Includes acres planted and prevented planted Average of acres for all four years, including years in which crop was not planted

Commodity Program Sign-up Decisions 2.Decide which acreage base to use b)Existing program acreage base (“old” base) plus average acreage for each oilseed for Total oilseed acres added under this option are limited to the total average acres of the covered commodities for minus the existing base acreage Additional oilseed acres may be added up to their average acreage with a one-for-one reduction in another crop’s base acreage On farms where a history of double-cropping is established, the total acreage limit is adjusted to account for the double-cropped acres

Commodity Program Sign-up: Example Base Acreage Decision (100 acre farm) Existing base –50 acres wheat –30 acres cotton –20 acres with no base Average acreage for –50 acres corn –50 acres soybeans Use “new” base –50 acres corn –50 acres soybeans Use “old” base plus oilseeds –50 acres wheat –30 acres cotton –20 acres soybeans –Additional soybean acres allowed up to 50 with a one-for-one reduction in wheat or cotton base acreage

Commodity Program Sign-up Decisions 3.Decide which payment yield to use If producer uses “old” base plus oilseeds, producer must use “old” yields Use existing (“old”) payment yields for all commodities except oilseeds Use “new” yields for oilseeds and adjust them back to “old” yields reflective of

Commodity Program Sign-up Decisions Adjusting “new” oilseed yields back to “old” oilseed yields –Determine average yield per planted acre for each oilseed for Exclude years in which no acres of the oilseed were planted In years in which the farm yield is less than 75 percent of the county average yield, substitute 75 percent of the county average yield –Adjust “new” yield to “old” yield based on ratio of national average yield to national average yield for each oilseed

Commodity Program Sign-up: Example Soybean Yield Calculation Farm yields (per planted acre) –1998 – 20 bu/ac –1999 – 50 bu/ac –2000 – no planted acres –2001 – 55 bu/ac County average yields (per planted acre) –1998 – 40 bu/ac –1999 – 41 bu/ac –2000 – 42 bu/ac –2001 – 43 bu/ac National average yields (per planted acre) – – bu/ac – – bu/ac Ratio of national average yield to national average yield / = 78.14%

Commodity Program Sign-up: Example Soybean Yield Calculation Calculate average farm yield 1998: higher of 20 bu/ac or 75% of 40 bu/ac = 30 bu/ac 1999: higher of 50 bu/ac or 75% of 41 bu/ac = 50 bu/ac 2000: no planted acres 2001: higher of 55 bu/ac or 75% of 43 bu/ac = 55 bu/ac Farm average for = ( )/3 = 45 bu/ac Multiply average farm yield by ratio of national average yield 45 bu/ac by 78.14% = bu/ac

Commodity Program Sign-up Decisions 3.Decide which payment yield to use If producer uses “new” base plus oilseeds, producer has 3 options a)Use existing payment yields and “old” oilseed yields OR b)Use partially updated yields based on 70 percent of the difference between “old” and “new” yields OR c)Use partially updated yields based on 93.5 percent of “new” yields

3.Decide which payment yield to use a)Use existing payment yields and “old” oilseed yields Payment yield = bu/ac Commodity Program Sign-up: Example Soybean Yield Calculation

3.Decide which payment yield to use b)Use partially updated yields based on 70 percent of the difference between “old” and “new” yields Payment yield = (new yield – old yield) x 70% + old yield Payment yield = (45 – 35.16) x 70% = = bu/ac

Commodity Program Sign-up: Example Soybean Yield Calculation 3.Decide which payment yield to use c)Use partially updated yields based on 93.5 percent of “new” yields Payment yield = new yield x 93.5% Payment yield = 45 x 93.5% = bu/ac

Commodity Program Sign-up Decisions 3.Decide which payment yield to use Additional considerations “New” yields are calculated for other commodities in the same manner as that for oilseeds For commodities other than oilseeds for which “old” payment yields are unavailable, the Secretary shall establish an appropriate payment yield relative to similar farms Whichever option is used to establish payment yields must be used for all commodities

Commodity Program Sign-up Decisions - Summary Sign-up Options 1.Use “old” acreage base plus “new” oilseed acreage and use “old” yields 2.Use “new” acreage base and use “old” yields 3.Use “new” acreage base and use partially updated yields based on 70 percent of difference between “old” and “new” yields 4.Use “new” acreage base and use partially updated yields based on 93.5 percent of “new” yields

Commodity Program Sign-up Decisions - Summary Making sign-up decisions under risk –Do you select the option that provides the largest guaranteed payments (direct payments)? –Do you select the option that provides the largest expected payments (direct payments plus counter-cyclical payments)? –Do you select the option that minimizes risk? –Do you select the option that optimizes the combination of risk and expected payments given the producer’s risk preferences?

Commodity Program Sign-up Decisions - Summary Parting shots and caveats –Remember the timing of payments when deciding preferences –Remember the impact of payment limits on expected payments –Remember that counter-cyclical payments could be reduced if “amber box” payments would exceed WTO limits –Finally, the calculations are based on the best current interpretation of the legislation – exact details and numbers are yet to come