Starting with September 27, 2002, what do we know?

On Sept. 27, USDA announced projected counter-cyclical program payment rates for 2002-crop wheat, feed grains, upland cotton, rice, oilseeds and peanuts. Counter-cyclical payments are made to eligible producers who participate in the 2002 direct and counter-cyclical programs.

Producers are eligible for counter-cyclical payments only if effective prices are less than the target prices set in the 2002 farm bill. After program participants elect their base and yield options, they may also request their first partial counter-cyclical payment, which is equal to 35 percent of the entire projected rate.

For each commodity, the counter-cyclical payment equals the counter-cyclical payment rate times 85 percent of the farm’s base acreage times the farm’s counter-cyclical payment yield for crops. The counter-cyclical payment rate is the amount by which the target price of each covered commodity exceeds its effective price. The effective price equals the direct payment rate plus the higher of: (1) the national average market price received by producers during the marketing year, or (2) the national loan rate for the commodity.

The first partial counter-cyclical payment rate for upland cotton is $0.0480 per pound; for rice, $0.57 per cwt; and for peanuts, $36.40 per short ton. Producers with wheat, corn, grain sorghum, barley, oats, soybean and other oilseeds base acreage will not receive a first partial counter-cyclical payment because the projected 2002 effective prices exceed the respective target prices.

Grain and oilseed rates are zero because reduced production of those crops around the world has led to declining inventory levels and sharply higher U.S. farm prices. Expected farm prices for the 2002 crops are now above the levels that would trigger counter-cyclical payments.

After counter-cyclical payment rates are re-estimated in January, a second counter-cyclical payment may be issued to producers. These payments will be up to 70 percent of the projected counter-cyclical payment, less any counter-cyclical payments already received. Final counter-cyclical payments will be determined at the end of the respective marketing year for each crop. Producers who receive total partial payments exceeding the actual counter-cyclical payment for each respective crop must repay any excess amounts.

On the issue of direct payments, producers can also request 2002 direct payments at their local USDA Service Center anytime during the sign-up period that runs from Oct. 1, 2002, through June 2, 2003. For each commodity, the direct payment equals the direct payment rate times 85 percent of the farm’s base acreage times the farm’s direct payment yield.

Direct payments are similar to production flexibility contract (PFC) payments under the 1996 Farm bill, but also now include oilseeds and peanuts as eligible commodities. Most producers have already received their 2002 PFC payments; after producers enroll in the new direct and counter-cyclical payment program any PFC payments already received will be deducted from the 2002 crop year direct payments and a check will be cut for amounts owed the producer.

Oct. 1, what do we know?

On Oct. 1, Agriculture Secretary Ann M. Veneman reminded farmers and ranchers that Oct. 1 was an important, initial sign-up date for several programs authorized under the 2002 farm bill, as well as a disaster assistance program established to help livestock producers suffering from this year’s severe drought.

A major feature of the new law allows producers the option of updating historical average bases and crop yields to determine program benefits. Sign-up began Oct. 1 for the direct and counter-cyclical program for crop years 2002 and 2003. Somewhere in some county in the U.S. sign-up began. It’s coming: sign-up IS very close so don’t lose heart.

Payment rates for direct payments are established by the 2002 farm bill and are issued regardless of market prices. Producers also are eligible for counter-cyclical payments, but payments are issued only if effective prices are less than the target prices set in the 2002 farm bill. Other programs of interest include:

Livestock Compensation Program – Sign-up for the Livestock Compensation Program, for cattle, sheep, goats and buffalo producers in counties that have received primary disaster designation due to drought in 2001 and/or 2002 also began Oct. 1. Approximately $752 million is being made available for this program which will assist livestock producers who have been impacted by severe drought conditions and have very limited risk management tools available.

2000 Apple Market Loss Assistance Program – Sign-up for the 2000 Apple Market Loss Assistance Program (AMLAP-III) began Oct. 1 and continues until Nov. 8. AMLAP-III will provide about $94 million to eligible growers for their 2000-crop apple production. These AMLAP-III payments will help offset economic losses due to low prices in the U.S. apple market. Growers can receive a payment per pound for their 2000-crop apple production, and they will be paid on a maximum of 5 million pounds per separate apple operation.

To receive cash payments, eligible apple producers must: (1) have produced and harvested apples during the 2000-crop year; and (2) apply for cash payments during the application period for each apple operation.

Sign-up for other farm bill programs, such as the Milk Income Loss Contract (MILC) program and the Peanut Quota Buyout Program (QBOP) began on Aug. 13 and on Sept. 3 respectively.

Oct. 2, what do we know?

On Oct. 2, 2002 the U.S. Department of Agriculture announced a revision on how it will establish oilseed bases under the new Direct and Counter-Cyclical Program contained in the 2002 farm bill.

The Department found that the previous calculation used to determine oilseed bases when oilseeds were added to an existing 2002 Production Flexibility Contract (PFC) resulted in unintended disparities in the amount of oilseed bases that could be credited to farms. This was particularly true for farms that planted oilseeds in a 100 percent year-to-year corn/soybean rotation when compared to farms that plant in a 50/50 corn/soybean rotation on the same farm.

Oct. 4, what do we know?

On Oct. 4, 2002, Agriculture Secretary Ann M. Veneman announced the availability of a web-based tool for producers to use in evaluating base and yield options for direct and counter-cyclical payments under the 2002 farm bill.

“This innovative, web-based software will provide landowners with options for estimating farm bill program payments and help them make informed decisions.” said Veneman. “The use of this type of advanced computer technology is another example of how USDA is aggressively implementing the new farm bill in an effective and efficient manner.”

USDA indicates that the new computer-based tool, called the Base and Yield Update Option Analyzer (BYA), helps producers analyze the economic consequences of selecting different base and yield options. It was developed to help farmers make informed decisions from five base options and four yield options offered by the 2002 farm bill. Texas A&M University’s Agricultural Food and Policy Center (AFPC) developed the BYA software in conjunction with USDA’s Farm Service Agency (FSA).

To use the tool, producers must first enter specific data about their farming operations, such as planted acres and yields for each type of crop grown. Producers can then enter projected crop prices. The tool will calculate a combination of seven base and yield options and six years of projected payments for each crop covered under the 2002 farm bill. The BYA tool is available online at: http://www.fsa.usda.gov/pas/farmbill/tools.asp

Now, What do we know?

First, the 2002 farm bill an extremely complex piece of farm legislation is close to being implemented.

Second, an increasing number of county FSA staffs are very close to having the information, data, and software that is needed for program participants to elect their base and yield options.

Third, covered commodities include wheat, corn, sorghum, barley, oats, upland cotton, rice, soybeans, sunflower seeds, canola, flaxseed, mustard, safflower and rapeseed.

Fourth, direct payments for covered commodities are made, regardless of market prices, to producers who have established crop bases and payment yields.

Fifth, counter-cyclical payments are issued only if effective prices are less than the target prices set in the 2002 farm bill.

Sixth, owners wanting to receive direct and counter-cyclical payments may sign up for the 2002 and 2003 crops beginning very soon for the vast majority.

Seventh, producers have until April 1, 2003, to select base and yield options and until June 2, 2003, to sign up for the direct and counter-cyclical program.

Eight, payments will be made to eligible producers after they make their base and yield selections and enter into a contract to participate.

Ninth, the more complex the base and yield update option the more patience and thought will be required by the producer in making the base and yield election decision.

Finally, in working through the base and yield update decision, I prefer what I call the TAMU Agricultural and Food Policy Center’s Full Grown Base and Yield Update Option Analyzer that includes a risk-based analysis of the base and yield update alternatives as well as the fixed annual price projections that are included in the above mentioned software. The full-grown version of the Texas A&M Base and Yield Update Analyzer is located at the following web site: http://www.afpc.tamu.edu/

Dr. Bobby Coats is an Extension agricultural economist and farm policy specialist with the University of Arkansas. E-mail him at rcoats@uaex.edu.