Key changes Counter-cyclical income support
payments are a new program. This program was developed to
provide an improved counter-cyclical income safety net to
replace most ad hoc market
loss assistance payments that were provided to farmers
during 1998-2001. Payments are based on historical production
and are not tied to current production.
Summary of provisions Under this new program,
counter-cyclical payments (CCP) are available for covered
commodities whenever the effective price is less than the target
price. The payment amount is equal to the product of the
payment rate, the payment acres (85 percent of base acres),
and the payment yield.
For example the payment for an individual corn farmer is
determined as
Payment ratecorn = (target
price)corn – (direct payment rate)corn
– (higher of commodity price or loan
rate)corn
CCPcorn = ([Base acres]corn x 0.85)
x (payment yield)corn x (payment
rate)corn
To receive payments on crops covered by the program (wheat,
corn, grain sorghum, barley, oats, rice, upland cotton,
soybeans, other oilseeds, and peanuts), a producer enters into
annual agreements for crop years 2002-07. At enrollment,
producers must select between two options for determining base
acres and between three options for determining payment
yield.
Farmers must select an option for designating base acres:
- Choose base
acres equal to contract
acreage for the commodity that would otherwise have been
used for 2002 PFC payments plus average oilseed plantings in
1998-2001, so long as base acres do not exceed available
cropland, or
- Update base acres to reflect the 4-year average of acres
planted, plus those "prevented from planting" due to weather
conditions, during the 1998-2001 crop years.
Each producer must select an option to apply to all covered
commodities for both direct and counter-cyclical payments.
Base acres for peanuts can be determined separately, so long
as total base acres do not exceed available cropland. Payment
acres are equal to 85 percent of base acres for all covered
crops.
Owners of farms will have a one-time opportunity to select
a method for determining base acreage. An owner who fails to
make an election shall be considered to have selected 2002 PFC
contract acres and, for oilseed base, the 4-year average of
oilseed plantings.
Farmers are given almost complete flexibility in deciding
which crops to plant. Participating producers are permitted to
plant all cropland acreage on the farm to any crop, except for
some limitations on planting fruits and vegetables. The land
must be kept in agricultural
uses (which includes fallow), and farmers must comply with
certain conservation and wetland provisions.
Three options are available to farmers to determine program
payment yields for each individual crop that apply only for
counter-cyclical income support payments:
- Use current program yields,
- Update yield by adding 70 percent of the difference
between program yields and the farm’s average yields for the
period 1998-2001 to program yields, or
- Update yield to 93.5 percent of 1998-2001 average
yields.
Target prices |
Commodity |
Unit |
2002-03 |
2004-07 |
Wheat |
Bushel |
$3.86 |
$3.92 |
Corn |
Bushel |
$2.60 |
$2.63 |
Grain sorghum |
Bushel |
$2.54 |
$2.57 |
Barley |
Bushel |
$2.21 |
$2.24 |
Oats |
Bushel |
$1.40 |
$1.44 |
Upland cotton |
Pound |
$0.724 |
$0.724 |
Rice |
Hundredweight |
$10.50 |
$10.50 |
Soybeans |
Bushel |
$5.80 |
$5.80 |
Other oilseeds |
Pound |
$0.098 |
$0.101 |
Peanuts |
Ton |
$495.00 |
$495.00 |
Counter-cyclical payments for the crop shall be made as
soon as practicable after the end of crop year for the covered
commodity. A payment of up to 35 percent shall be made in
October of the year when the crop is harvested. A second
payment of up to 70 percent minus the first payment shall be
made after February 1. The final payment shall be made as soon
as practicable after the end of the crop year.
The payment
limit on counter-cyclical payments is $65,000 per person,
per crop year, and the three-entity rule is retained. Under
the three-entity rule, an individual can receive a full
payment directly and up to a half payment from each of two
additional entities. Producers with adjusted gross income over
$2.5 million, averaged over each of 3 years, are not eligible
for payments unless more than 75 percent of adjusted gross
income is from agriculture.
Economic implications CCPs support and stabilize
farm income when commodity prices are less than target prices.
The basis for the distribution of CCP benefits may affect
producers' expectations of how future benefits will be
disbursed. Payments that are linked to past production may
lead to expectations that benefits in the future will be
linked to then-past, but now-current, production. Such
expectations can thereby affect current production decisions.
For example, farmers may not fully use planting flexibility to
move from historically planted and supported crops if they
expect future farm programs to permit an updating of their
base acreage, which forms the foundation for payments.
Instead, farmers would have incentives to build a planting
history for program crops, thereby constraining their response
to market prices. Similarly, use of nonland inputs that affect
current yields may be influenced if farmers expect that future
farm legislation will permit an updating of payment yields. In
addition, since CCPs are based on current market prices,
producers may view the payments as a risk-reducing income
hedge.
For either case, updating acreage bases or updating payment
yields, economic efficiency in production is reduced because
producers would not be fully responding to signals from the
marketplace, but instead would be responding to market signals
augmented by expected benefits of future programs and future
program changes.
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