Washington, D.C.— The 2002 farm bill which we passed in the House and the President signed into law this month covers a myriad of areas in agriculture policy, from conservation, to rural development, to trade, to forestry. There is so much important policy in this bill that I couldn’t address it all here, but I’d like to take an opportunity over the next four weeks to focus on  individual sections of the bill that affect Oklahomans the most, to answer some of the questions you’ve been asking in your phone calls, faxes, and e-mails. 

The largest and most complicated part of the bill deals with commodities. This is the part of the bill that addresses the programs for crops like wheat, peanuts, cotton, and soybeans. These crops constitute the bulk of the food and fiber produced in the U.S., and consequently it’s also the area of the farm bill that has the most resources directed to it.

The commodity section of the farm bill will continue to establish three types of farm payments - an Agricultural Market Transition Act payment, or AMTA payment, a counter-cyclical payment, and a loan deficiency payment. These three payments are calculated differently, and have different purposes.

The AMTA payment was included in prior farm bills, but the payments are increased in the new bill, compared to the 2002 AMTA rate.  This is a fixed payment amount producers will receive each year based on the amount of crop they produce. This allows producers the flexibility they said they wanted to plant any crop they wanted, instead of producing only what government programs mandated.  For wheat, the most predominant crop in Oklahoma, the AMTA payment will be 52 cents per bushel. 

The second type of payment is the counter-cyclical payment. These payments will be triggered only when national commodity prices are low, to ensure farmers receive a certain per-bushel target price for their commodities.  When commodity prices fall below a certain price level, the counter-cyclical payment will make up the difference. 

Figuring the counter-cyclical payment is a bit more complicated.  The payment formula for counter-cyclical payments includes three items - the cash price farmers receive for the crop, the AMTA payment, and the target price.  The counter-cyclical payment will only kick in when the cash price and the AMTA payment that farmers receive, added together, are below the target price.

Since the generally accepted measurement of crop prices is by weight, usually by the bushel, this target price is also measured on a per bushel basis.  The target price for wheat will be $3.86 per bushel for the next two years, then rise to $3.92 in 2004.  

The third payment, the loan deficiency payment, or LDP, is used when grain prices fall below the loan rate. For wheat, the loan rate in the new farm bill is $2.80 per bushel. So if the price of wheat is $2.75, then producers will receive a 5 cent LDP payment per bushel.  

Let’s illustrate how the AMTA payment and counter-cyclical payment will work with an example. Farmer Joe in western Oklahoma sows 500 acres of wheat this fall. Let’s assume all of those acres are base acres, which means it is land that meets certain requirements to be enrolled in commodity programs.  Let’s also assume that nothing goes wrong for Farmer Joe in terms of insect control, plant disease, temperature, precipitation, fertilizer application, machinery breakdowns, or his timing of land tillage, wheat planting, or cattle grazing. The next year he harvests a healthy wheat crop at 30 bushels per acre, for a total of 15,000 bushels. 

Farmer Joe’s AMTA payment is based on 85 percent of his base acres, which in this case is 425 acres. The formula for the AMTA payment is .85 x base acres x program yield x fixed payment rate. The program yield is basically an average yield of a particular commodity from past years. 

Let’s assume in Farmer Joe’s case the program yield is 25 bushels per acre. So in our example Farmer Joe’s AMTA payment would be 425 acres x 25 bushels per acre x 52 cents per bushel, which equals $5,525. 

Any counter-cyclical payment that Farmer Joe would receive would be based on the price he and other wheat farmers receive for their crop.  Remember, the counter-cyclical payment is only activated during periods of low prices. So to determine if a counter cyclical payment is made, add the average price received by farmers for wheat that year to the AMTA payment. If the sum of these two items is still below the target price of $3.86, Farmer Joe will receive a counter cyclical payment to make up the difference. 

Let’s assume the average national price next year is $2.85 per bushel. The $2.85 average price plus the 52 cent AMTA payment is $3.37, which falls below the target price of $3.86. Therefore, Farmer Joe will receive the difference of 49 cents per bushel. Since counter cyclical payments are also available for 85 percent of base acres, Joe’s 425 base acres x his yield of 30 bushels per acre x the difference of 49 cents per bushel equals $6,247.50.

These counter-cyclical payments ensure that our producers are able to stay on their farms, by making a baseline minimum income on the crop they’re able to produce. We all benefit from having a safe and affordable food supply from our farmers. We can’t afford to let a vast majority of family farms go out of business during an economic agriculture crisis, which would leave us as dependent on foreign food as we are for foreign oil. 

These counter-cyclical payments also ensure that the payments are triggered only when poor economic or climate conditions cause commodity prices to fall below certain levels.  Had the average national price been $4.00 instead of $2.70 in our example, Joe wouldn’t have received a counter-cyclical payment because the price would have been above the target price. He would have received that income from the open market instead of the government, which is what farmers would prefer to receive anyway. 

The language of the commodity title of the 2002 farm bill takes the certainty of payments in the old farm bill and adds the reliable safety net of target prices and counter-cyclical payments.  It is the most efficient way possible to keep commodity farmers in business while providing an economical food supply to America and the world.

For more information on the 2002 farm bill, go to my website at www.house.gov/lucas and click on the link “2002 Farm Bill.” 

Next week, I’ll address the conservation title of the farm bill, which underwent more significant changes than any other area of this landmark six-year legislation.