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 Novak
Auburn University
Brad Lubben
Kansas 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 19811985 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 1998-2001
• 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
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•
•
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 1998-2001 (“new” base)
•
•
OR…
Including acres planted and prevented
planted
Average of acreage 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 1998-2001
•
•
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 1998-2001
•
Total oilseed acres added under this option are limited
to the total average acres of the covered commodities
for 1998-2001 minus the existing base acreage
•
•
Additional oilseed acres may be added up to their 19982001 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
1998-2001
– 50 acres corn
– 50 acres soybeans
• Use “new” base
– 50 acres corn
– 50 acres soybeans
• Use “old” base plus
oilseeds
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–
–
–
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 1981-1985
Commodity Program Sign-up
Decisions
•
Adjusting “new” oilseed yields back to “old”
oilseed yields
–
Determine average yield per planted acre for
each oilseed for 1998-2001
•
•
–
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 1981-1985 national average yield to 19982001 national average yield for each oilseed
Commodity Program Sign-up:
Example Soybean Yield Calculation
•
Farm yields (per
planted acre)
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•
1998 –
1999 –
2000 –
acres
2001 –
20 bu/ac
50 bu/ac
no planted
55 bu/ac
County average yields
(per planted acre)
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–
–
–
1998
1999
2000
2001
–
–
–
–
40
41
42
43
bu/ac
bu/ac
bu/ac
bu/ac
• National average yields
(per planted acre)
– 1981-1985 – 29.341
bu/ac
– 1998-2001 – 37.548
bu/ac
• Ratio of 1981-1985
national average yield
to 1998-2001 national
average yield
29.341/37.548 = 78.14%
Commodity Program Sign-up:
Example Soybean Yield Calculation
• Calculate average farm yield
1998:
1999:
2000:
2001:
higher of 20 bu/ac or 75% of 40 bu/ac = 30 bu/ac
higher of 50 bu/ac or 75% of 41 bu/ac = 50 bu/ac
no planted acres
higher of 55 bu/ac or 75% of 43 bu/ac = 55 bu/ac
Farm average for 1998-2001 = (30 + 50 + 55)/3 = 45 bu/ac
• Multiply average farm yield by ratio of national
average yield
45 bu/ac by 78.14% = 35.16 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
Commodity Program Sign-up:
Example Soybean Yield Calculation
3. Decide which payment yield to use
a) Use existing payment yields and “old” oilseed
yields
Payment yield = 35.16 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% + 35.16 =
6.89 + 35.16 = 42.05 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% = 42.08 bu/ac
Commodity Program Sign-up
Decisions
3. Decide which payment yield to use
•
Additional considerations
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•
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“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
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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
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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