Direct and Counter-Cyclical Payments

Q: What documentation will farm owner’s need if they choose to update their bases?

A: The majority of farm owners and operators filed acreage reports with the Farm Service Agency in each of the 1998 through 2001 crop years. If all acreage of covered commodities planted and prevented from being planted is a matter of record with FSA, no additional information is necessary. Base options for farms will be calculated using these records.

Owners or operators who did not timely file an acreage report may do so at this time without paying a late-filed fee. In these cases, owners or operators may submit records to document the existence and disposition of the crop. Such records include seed receipts or other sales evidence, crop insurance records for prevented plantings, appraisals, or other records that substantiate that the crop was planted or prevented from being planted.

Q: What is the Base and Yield Analyzer?

A: The Base and Yield Analyzer is a decision support tool to assist producers in analyzing the economic consequences of selecting various base and yield alternatives under the direct and counter-cyclical program (DCP) authorized by the 2002 Farm Bill.

Q: How do I access the Base and Yield Analyzer?

A: If you have access to the Internet, go to: http://www.fsa.usda.gov/pas/farmbill/tools.asp

If you do not have access to the Internet, your local FSA office can run the Base and Yield Analyzer for you.

Q: How do I use the Base and Yield Analyzer?

A: The Base and Yield Analyzer first asks the producer to indicate the state and county where the farm is located. A producer then enters the farm's current production flexibility contract acres and the farm's planted acre of each crop from 1998 through 2001. A producer must also enter the farm's production and projections of national farm prices for each crop for each year. For all oilseed crops, the farm's production will be used to establish direct and counter-cyclical payment yields; for other crops, the farm's production will be used to establish counter-cyclical payment yields if the producer elects to update all crop bases on the farm.

If the producer cannot furnish production evidence, then the model will use the county's average harvested yield and the county average production flexibility payment yield. Producers should check with their USDA Service Center to make sure these yields are representative of their farm's yields. After entering all necessary data, an output will be provided that shows up to a potential seven combinations of base and yields from which a producer must make a selection.

Q: Why should a producer use the Base and Yield Analyzer?

A: The Base and Yield Analyzer provides a comprehensive system for evaluating the economic consequences of selecting different base and yield alternatives. A producer's selection of bases and yields is complicated because of the large number of options producers have been given and the fact that the counter-cyclical payments are uncertain because they are based on future crop prices.

The analyzer will show up to five base options and up to four yield options for a producer's farm. The acceptable combination of these options results in a potential seven alternatives from which a producer must make a selection. To assist the producer in this task, the analyzer computes direct and counter-cyclical payments for each alternative under different price projections and for six years. Once a producer understands these options, the producer can spend less time in the USDA Service Center signing up for the direct and counter-cyclical program.

Q: Who developed the Base and Yield Analyzer?

A: It was developed by Texas A&M University (Joe Outlaw and James Richardson), in conjunction with FSA. It is for educational purposes only and is not intended to replace or duplicate the final FSA calculations done for individual farms.

Q: What if I have questions about how to use the Base and Yield Analyzer?

A: Help documents are available on the Internet at: http://www.fsa.usda.gov/pas/farmbill/tools.asp

Producers who have technical questions about the tool should contact Texas A&M by e-mail at: Bya@tamu.edu Producers who do not have access to the Web or have questions about the direct and counter-cyclical program should contact their local USDA Service Center or county FSA office. General farm bill information is available at http://www.usda.gov/farmbill

Q: Can I establish a rice base on a non-Agricultural Marketing Transition Act (AMTA) farm on which I've grown rice since 1998?

A: Yes. Subject to other provisions that may apply, you may establish a rice base on a non-AMTA farm by providing to your county FSA office acceptable records of acreage and production on the farm from 1998-2001. Since there is no previously established base, the base calculation is the four-year average of planted and prevented planted rice acreage.

Q: In determining 1998-2001 plantings, is sweet rice considered rice?

A: Yes. Long grain, medium grain, short grain, and sweet rice planted on the farm from 1998-2001 can be used to establish an updated rice base.

Q: Since I have a low county average rice yield for direct payments, can I update my payment yield since I have a much higher proven yield?

A: Producers who opt to update their base acres have a one-time opportunity to update their yields for counter-cyclical payments only. Payment yields for direct payments will be the program payment yield established for 2002. The updated base is used to calculate direct and counter-cyclical payments. The Farm Bill provides for assigning yields for a covered commodity (other than soybeans or other oilseeds) only in cases where a farm program payment yield is unavailable.

Q: In updating bases, can rice farmers count second crop acreage from 1998-2001 as double-cropped acreage?

A: A second rice crop grown and harvested from the roots of previously harvested plants (known as a ratoon crop) is not considered double-cropping. Therefore, the acreage for base consideration is counted only once. However, the ratoon rice production is added to the production from the first crop to determine updated yields for counter-cyclical payments.

Q: Since there are different marketing wheat and rice loan rates by class, are there similar differences for direct and counter-cyclical payments?

A: No. For direct payments, the 2002 farm bill specifies payment rates for covered commodities for the 2002 through 2007 crop years. For example, payment rates for all classes of wheat are $0.52 per bushel, and for all classes of rice, $2.35 per hundredweight. For counter-cyclical payments, the law specifies that the higher of the national average market price or the national average loan rate for a covered commodity will be used to compute the payment, as opposed to loan rates by class.

Q: If my farm had no cotton base under the previous production flexibility contract program, but can establish base acres and a yield history for cotton from 1998-2001, what yield would I use to determine the direct fixed payment?

A: Your FSA county committee will assign a yield based on the 2002 production flexibility contract yield for three similar farms.

Marketing Assistance Loans and Loan Deficiency Payments

Q: Why is the 2002 flaxseed national loan rate so much lower compared to the national loan rates for the rest of the other oilseeds?

A: Flaxseed loan rates have always been substantially higher, relative to market prices, than those for any of the remaining other oilseeds. This resulted from a previous requirement that all other oilseeds share a single loan based on sunflower seed prices--a price much higher than the flaxseed price. Because of this imbalance, flaxseed generated loan deficiency payments and marketing loan gains during all but 2 of the 11 years since the loan program was introduced, also suggesting that the loan rate was too high relative to market prices.

The 11-year (1991-2001) average flaxseed price is $8.12 per hundredweight ($4.55 per bushel). This is 85 percent of the $9.60 other oilseeds 2002 loan rate. The only other oilseed with an 11-year average price below $9.60 is oil-type sunflower seed, which at $9.37 per hundredweight is 98 percent of $9.60. The 2002 oil-type sunflower seed loan rate is also lower than the 2001 rate.

Q: How were the individual national loan rates determined for other oilseeds?

A: Other oilseed loan rates were set individually based on historic prices for each oilseed. Historic prices were adjusted by a fixed factor such that the loan rates weighted, based on production, to the $9.60 per hundredweight "other oilseeds" loan rate. For the announced individual other oilseeds loan rates, average prices for the 1991/92-1995/96 marketing years were used. These 5-year average prices were then multiplied by 0.9 to arrive at the announced loan rates which, when weighted by 1997-2001 production weight to $9.60 per hundredweight.

Q: Why is USDA weighting the 1991-1995 other oilseed average prices using the 1997-2001 production?

A: Using the more current production mix should ensure that 2002 other oilseed loan rates weight to $9.60 per hundredweight based on actual program activity for 2002. The higher-valued other oilseeds accounted for a higher share of 1991-1995 total other oilseed production, as compared to more recent years. So, using production from this period to weight loan rates would reduce loan rates for all of the other oilseeds. Current production better reflects the impact of yield increases, particularly for oil-type sunflower seed, which are influencing total other oilseed production and production shares among the other oilseeds.

Q: In setting individual national other oilseed loan rates, why were prices for the 1991-1995 crops used as a basis, rather than more recent crop years?

A: Loan rates based on 1991-1995 prices provide loan rate spreads among the oilseeds that are more reflective of the price relationships that existed prior to the large price swings that occurred during the last half of the 1990s. Prices during more recent years were heavily influenced by the very distortions that necessitated setting other oilseed loan rates individually. Incorporating distorted price relationships into future loan rates would only perpetuate the loan program incentives that have distorted production decisions. Other oilseed prices were generally higher during 1991-1995 than in the most recent five-year period (1997-2001), and price relationships among the oilseed types were much more stable.

Q: Why were individual national loan rates established for other oilseeds?

A: Other oilseeds (also called minor oilseeds) are sunflower seed, canola, rapeseed, safflower, mustard seed, and flaxseed. The national loan rates for these oilseeds were individually set to better reflect market price differences among them.

Prior to the 2002 farm bill, other oilseed loan rates were set at the same level. However, loan repayment rates were based on the market prices of each type of oilseed. This created incentives during low price periods to shift acreage from higher to lower-valued oilseeds to capture loan deficiency payments. This distorted producer planting decisions, oilseed supplies, and market prices. Establishing individual loan rates provides equitable price support for all of the included oilseeds, not just those with historically low prices.

Peanuts

Q: I grew peanuts from 1998 through 2001, but am not farming in 2002. Am I eligible for 2002 direct and counter-cyclical payments?

A: Because you planted peanuts in at least one of the years from 1998 through 2001, you are an historic peanut producer. Therefore, you are eligible for direct and counter-cyclical payments in 2002.

Q: Is a farmer who planted peanuts for the first time in 2002 eligible to receive direct and counter-cyclical payments for 2002?

A: No. Producers who plant peanuts for the first time in crop year 2002 are ineligible for 2002 peanut direct and counter-cyclical payments because they do not meet the definition of historic producers. Historic peanut producers must have planted (or were prevented from planting) peanuts from 1998 through 2001.

Sugar

Q: How is an individual company's allocation of the allotment determined?

A: The 2002 Farm Bill provides formulas for establishing individual company allocations. Sugar beet processor allocations are based on their sugar production history. Sugarcane processor allocations are based on past marketings, ability to market, and past processings.

Q: How are allotments determined?

A: USDA determines the overall allotment quantity (OAQ) for the crop year as follows:

  • estimated sugar consumption, plus

  • reasonable carryover stocks (at the crop year end), minus

  • 1,532,000 short tons, raw value, minus

  • carry-in stocks of sugar, including sugar in USDA Commodity Credit Corporation (CCC) inventory.

  • USDA then adjusts the overall allotment quantity to avoid the forfeiture of sugar to CCC. In adjusting the overall allotment quantity early in the year, USDA accounts for potential forfeiture risks such as a reduction in sugar consumption

Q: Are sugar marketing allotments established for fiscal year 2003?

A: Yes. Marketing allotments go into effect automatically at the beginning of each crop year for 2002 (FY 2003) through 2007 (FY 2008), unless:

  • USDA estimates that imports of sugars, syrups, or molasses used for human consumption or used to extract sugar for human consumption (whether under a tariff-rate quota or in excess or outside of a tariff-rate quota) will exceed 1,532,000 short tons (raw value equivalent); and

  • The imports would lead to a reduction of the overall allotment quantity (OAQ).

Q: What happens when sugar beet or sugarcane processors are unable to market their allocations?

A: By May 1 of each year, USDA will determine whether sugar beet or sugarcane processors will be able to market their respective allocations. By April 15 of each year, sugar beet and sugarcane processors will report to USDA current inventories, estimated production, expected marketings, and any other pertinent factors USDA deems appropriate to determine a processor's ability to market its allocation. Reassignment would then occur. Reassignment may occur earlier if USDA believes it is warranted.

Q: How does USDA determine the allotment for beet and cane sugar?

A: The allotment for sugar derived from sugar beets is established by multiplying the overall allotment quantity for the crop year by 54.35 percent. The allotment of sugar derived from sugarcane is established by multiplying the overall allotment quantity by 45.65 percent.

Q: Why is USDA charging a sugar loan interest rate that is 1 percentage point above USDA's cost of borrowing when the 2002 farm bill removed this requirement?

A: The 2002 Farm Bill did not specify an interest rate for sugar. It just eliminated the 1996 Farm Bill requirement that USDA add an extra 1 percentage point above the cost of borrowing. USDA still has to determine an interest rate for sugar loans.

In sugar program regulations published in the Federal Register on Aug. 12, USDA set the sugar loan interest rate as the rate charged on all USDA commodity loans. USDA did this to maintain consistency, simplicity, and fairness in the delivery of loan programs for all commodities.

Q: Will establishing sugar marketing allotments affect the date that title of forfeited sugar loan collateral transfers to USDA?

A: No. The sugar loan regulations require that title to forfeited sugar loan collateral be transferred to USDA's Commodity Credit Corporation (CCC) the day after loan maturity. For example, a September forfeiture would be considered marketed for allotment purposes on Oct. 1, which is in the following fiscal year. Forfeited loan collateral under all commodity loans transfers to CCC after loan maturity because the borrower has the ability to repay the loan until close of business on the maturity date.

Q: What happens if USDA reduces the overall allotment quantity, but the quantity of sugar and sugar products an individual processor marketed by the time of the reduction exceeds the processor's reduced allocation?

A: Sugar or sugar products marketed will be deducted from the processor's allocation under an allotment next established.

Q: May a processor market in excess of their assigned marketing allotment?

A: No. Sugar beet and sugarcane processors may not market a quantity of sugar in excess of the allocation established for them, except under the following circumstances:

  • to enable another processor to fulfill their established allocation,

  • to facilitate the exportation of such sugar, or

  • to sell the sugar for nonhuman consumption

Processors who knowingly exceed assigned individual allotments will be liable to USDA for a civil penalty in an amount equal to three times the U.S. market value (at the time the violation was committed) of the quantity of sugar involved in the violation.

Q: If sugar marketing allotments are suspended, how long would the suspension last?

A: Allotments would be suspended until the imports have been reduced to or below the level of 1,532,000 short tons.

Bobby Coats is an Extension agricultural economist and farm policy specialist with the University of Arkansas. The preceding was developed by the U.S. Department of Agriculture and not by the University of Arkansas or deltafarmpress.com. e-mail: rcoats@uaex.edu.