After a procession of natural disasters over the last few years, Louisiana agriculture is still trying to find its footing. How might the new farm bill play into the process?
“One of the challenges we have right now is the last farm bill expired in September 2007,” said Mike Salassi, LSU AgCenter economist, at the recent 2009 AgOutlook Conference in Baton Rouge. Because the new bill was passed so late last year, “growers are getting ready to plant and still don’t know what some of the regulations are for programs.”
The spending for the new farm bill (expected to be $289 billion over five years) is a small — “some might say insignificant” — part of the federal budget. Last year, the Congressional Budget Office said the 2008 farm bill is 1.7 percent of total federal spending. The commodity portion of that — “the payments to target price commodity growers” — was 0.25 percent.
“That’s pretty small. Unfortunately, there are a lot of (advocacy) groups out there that have government farm programs targeted for eliminations. That’s a constant challenge for growers.”
At 69 percent of the money allotted, food and nutrition is the biggest part of the latest farm bill. “If you compare that to farm bills in the 1990s, that’s a much larger percentage. In the 1990s, food and nutrition was in the range of 55 percent while commodity programs were a bit bigger at 19 to 25 percent. Now, commodity programs are about 12 to 14 percent of the current farm bill.”
In terms of eligibility for the target price commodity payments, the basic rules have remained the same. “Individuals engaged in farming — owners, operators, tenants, landlords, sharecroppers — are eligible for payments if they share in the risk of the production of the crop and share in the marketing.”
As in the previous farm bill, landowners that are leasing agricultural cropland on a cash lease aren’t eligible for support payments. Landowners that are leasing cropland on a share basis are eligible.
Direct payment rates are the same as in the last farm bill. These are “basically a holdover of the AMTA payments from Freedom to Farm. They’re fixed or direct and don’t vary with the level of price or yield.”
As a money-saving measure, 83.3 percent of base acreage will be paid in 2009, 2010 and 2011. That will be bumped up to 85 percent in 2012. One of the major reasons for that is “when Congress gets ready to write the next farm bill, they’ll take the last year of this farm bill (2012) as a basis. They wanted to get that payment rate back up to 85 percent.”
Farm program sign-ups for this year began in December and are running through June.
The counter-cyclical approach is similar to the deficiency payments of long ago, said Salassi. The payments vary with price. If market price goes up, these payments go down and vice versa. “They are calculated based on the difference between the target price (a maximum level of support) and some lower level of support (basically a combination of the direct payment and the higher market price or loan rate).”
Counter-cyclical payments would only be made at market prices below the following effective price limits:
• Corn: 2009, $2.63 per bushel; effective price limit, $2.35
• Soybeans: $5.80/$5.36
• Grain sorghum: $2.57/$2.22
• Wheat: $3.92/$3.40
• Cotton: $0.7125 per pound/$0.6458
• Medium-grain rice: $10.50 per hundredweight/$8.15
• Long-grain rice: $10.50 per hundredweight/$8.15
Rice base acres
One change in the new farm bill: medium-grain rice and long-grain rice are treated as two separate commodities. That’s because of the market price differences between them. The change will impact loan deficiency payments and counter-cyclical payments.
When rice growers sign up for farm programs, they’ll have to fill out another form to petition rice base acres. This is to “basically divide up the rice base acres on a farm between long-grain and medium-grain.
“The base acres, the payment acres and the payment yields that have been established and were in effect in September 2007 on rice farms will stay in effect. Those won’t change but will be divided between medium-grain and long-grain.”
There are two options a grower can choose to accomplish this. “He can use his own personal production history. Basically that’s the four-year average between 2003 and 2006. The percent of his rice base planted in long-grain rice or medium-grain rice.”
The second option is just to use the state average. For Louisiana, “that means 2.5 percent of the farmer’s rice base acreage would be applied to medium-grain while 97.5 percent would apply to long-grain. Arkansas would have about 8 or 9 percent in medium-grain. All of California’s rice acres would be in short-grain and medium-grain. The other rice states — primarily Texas and Mississippi — are 100 percent long-grain.”
In 2007, about 6 percent (some 22,000 acres) of Louisiana’s total rice acres were in medium-grain. Last year, medium-grain rice was on about 3 percent of the acreage (about 12,329 acres).
That means this provision won’t impact a lot of growers. However, in the six parishes producing the bulk of the medium-grain rice — Acadia, Jeff Davis, St. Landry, Cameron, Evangeline, and Vermilion — “this is something the producers want to pay attention to.”
Salassi said there has been much talk about the ACRE program (Average Crop Revenue Election), something “that Midwest states and farm groups have been trying to get for a long time. It bases price and income support on yield variation and not just price.”
ACRE is not mandatory, so growers can choose to stay with the traditional counter-cyclical program. A grower can make the decision to join ACRE any year. But if he enrolls, every crop on the farm must be in.
ACRE won’t be very attractive for many of the Mid-South’s major crops, predicted Salassi. That’s particularly true of corn and cotton due to an enrollment cost. “You must take a 20 percent reduction in direct payments, a guaranteed loss in income to participate in a program where you may not receive a payment. There’s also a 30 percent reduction in loan rates.”
For rice, the direct payment would be reduced by 47 cents per hundredweight to $1.88. The $6.50 loan rate would be reduced by $1.95.
For cotton, growers would take a 1.3 cent-per-pound reduction in direct payments. The loan rate would be down from 52 cents to 36 cents. So, “there is a cost (for choosing ACRE) and that’s a primary reason why a lot of farms won’t participate in the program.”
To qualify for payments, two things must happen. First, the state revenue guarantee must exceed actual state revenue. Second, farm benchmark revenue must exceed actual farm revenue. Both of those must be met for the program to pay.
For the state revenue guarantee, “you’d basically take the previous two-year average national price times a five-year Olympic average times 90 percent. That would be the state guarantee and you’d compare that to the 2009 market revenue per acre based on a state yield. That revenue guarantee would have to be greater than the state revenue to trigger.”
One of the problems with the program is a farm calculation trigger might be reached. However, if the state doesn’t reach the appropriate level, none of the farms would receive payments.
“We did some simulations on this program. If it had been in effect over the last 15 years in Louisiana for rice, the state trigger would have been met four times. So, there’s a lot of risk.”
As for the farm level calculation, the only thing different is in the farm benchmark they’ve added crop insurance premiums. “That was done for two reasons: to push the benchmark up and to encourage growers to buy crop insurance.”
ACRE payments are also factored by a farm’s yield history relative to the state’s average yield.
“If the triggers are pulled and payments made, it’ll be the difference between the state level calculations (not the farm levels) at 83.3 percent. It is adjusted for each farm based on yield history.
“Again, one of the problems in these days of high production costs, is it is very difficult for operations to cash flow if they must wait a long time for payments under ACRE.”
Besides aforementioned issues with ACRE, another Salassi concern is once a program gets into a farm bill, “it’s very difficult to get it out. Think about how many years groups have been arguing to get this type of program in. It isn’t inconceivable that when the next farm bill (debate begins), this could be the only option growers have for a price support. The payment is based on the current year income compared to the previous two or three years. The way it operates, we could get into a period of relatively flat prices and no payment would be made — even at low price levels. Again, there’s a lot of risk.”
Another issue that’s come up related to base acres and payments that is separate from the farm bill: the federal government, under existing law, wants to terminate base acres on federally-owned land. The federal government owns land in every state and much of that has been leased out to farmers. As a result, program base acres have been established on those lands and farm program payments have been made.
“The federal government wants to terminate crop basis on federally-owned lands. They won’t establish any new ones. Those already in effect under a written lease will remain until that lease is terminated. It doesn’t affect land owned by states.”
In Louisiana, the Farm Service Agency has calculated there’s about 15,000 acres of cropland with a farm program base that falls under this category.
On payment limit provisions, one of the major changes is limitations are on an individual basis. It doesn’t matter how many entities growers are involved with — any payments received are tied to the individual person. Those provisions will begin this year.
“There are a lot of commodity groups challenging the implementation of this. USDA Secretary (Vilsack) plans to extend the comment period of payment limitations and eligibility but won’t change the provisions for 2009. So, we’ll see how it works out.”
The direct payment limit is $40,000 per person. Counter-cyclical limits are $65,000.
One potentially heartburn-inducing thing added in the new farm bill is the “actively engaged in farming” provision. This rule is an attempt by the government to ensure those receiving payments document are actively engaged in the farming operation. That means the individual must make significant contributions to the operation is terms of capital, equipment or land as well as personal labor or active personal management.
“For husband and wife operations, the contribution of each must be separate and distinct. If the primary operator is actively engaged in farming, then the spouse has met the requirement for personal management. But they still must document that the spouse contributed land, capital or equipment to the operation.”
Another major challenge growers are looking at is the partnership and corporation provisions. Again, the government is trying to make partners receiving payments document their contribution to the farming operation.
In addition, “the contribution of active personal labor and management of each member or shareholder must be made to the farming operation on a regular basis, must be identifiable and documentable as separate and distinct from that of any other member.
“For example, if there’s a farming operation that’s four growers in a partnership, under this provision each of the growers must have documentation proving each is providing separate contributions to the operations. One person would have to be responsible for purchasing inputs and have signed purchase orders. Another would have to be responsible for marketing the crop and have signed sales contracts. So, there’s a lot more paperwork involved.”