2008 Farm Bill Commodity Program Income Supports Prepared by Bruce L. Jones

1. 2008 Farm Bill Commodity Program Income Supports Prepared by Bruce L. Jones Professor an Extension Farm Management Specialist Dept of Ag Econ UW-Madison, UWEX-CES January 2009

3. Crop Income Support Direct Payments Counter-Cyclical Payments ACRE Payments Loan Deficiency Payments SURE: Supplemental Revenue Assistance Payments Dairy Income Support Price Support Milk Income Loss Contract

5. Direct payments Direct payments available for producers with eligible historic acreage of wheat, corn, barley, grain sorghum, oats, upland cotton, rice, soybeans, other oilseeds, and peanuts.

6. Direct payments To receive payments on covered commodities (wheat, corn, grain sorghum, barley, oats, rice, upland cotton, soybeans, and other oilseeds), a producer with eligible historic acreage enters into an annual agreement.

7. Direct payments An eligible farm's "payment amount" for a given commodity is product of: payment rate specified for the commodity payment acres (83.3% of the farm's base acreage for the covered commodity) and payment yield for that commodity Payment acres for direct payments were previously 85% of base acres.

8. Direct Payment rates specified in 2008 Farm Act: Wheat $0.52/bu Corn $0.28/bu Grain Sorghum $0.35/bu Barley $0.24/bu Oats $0.024/bu Soybeans $0.44/bu Other oilseeds $0.80/cwt

10. Counter-Cyclical Payments (CCPs) Available for producers with eligible historic acreage of covered commodities whenever effective price is less than the target price.

11. Counter-Cyclical Payments (CCPs) Effective price equal to the sum of: higher of national average farm price for the marketing year or national commodity program loan rate and direct payment rate for the commodity

12. Target prices for CCPs CY 2008CY 2009CYs 2010-12 Wheat $3.92/bu $3.92/bu $4.17/bu Corn $2.63/bu $2.63/bu $2.63/bu Grain sorghum $2.57/bu $2.57/bu $2.63/bu Barley $2.24/bu $2.24/bu $2.63/bu Oats $1.44/bu $1.44/bu $1.79/bu Soybeans $5.80/bu $5.80/bu $6.00/bu Other oilseeds $10.10/cwt $10.10/cwt $12.68/cwt

14. Average Crop Revenue Election (ACRE) Program An optional revenue-based counter-cyclical program, Average Crop Revenue Election (ACRE) program, is available beginning with 2009 crop year, as an alternative to receiving counter-cyclical payments.

15. Average Crop Revenue Election (ACRE) Program Producers on a farm with covered commodities and/or peanuts can elect to participate in the ACRE program for all covered commodities and peanut acreage on the farm. Once they elect to participate in ACRE, producers on the farm must remain in the program for the duration of the 2008 Act. For ACRE participants, direct payments are reduced by 20% and marketing assistance loan rates are reduced by 30% on enrolled farms

16. ACRE Program Guarantee Participants are eligible for State-based revenue coverage equaling 90% of product of: * 5-year ACRE benchmark State yield * 2-year ACRE program guarantee price

17. ACRE benchmark state yield Average yield per planted acre for commodity in the state in previous 5 years, dropping high and low yields. “Olympic Average” Secretary can assign yields if yields are not available or are unrepresentative of average state yields.

18. ACRE program guarantee price Commodity-specific 2-year national average market price received by producers.

19. ACRE national average market price Greater of: the national average commodity market price received by producers during the 12-month marketing year; or the reduced marketing assistance commodity loan rate.

20. ACRE actual state revenue: Actual state yield per planted acre x the 12-month ACRE national average market price. ACRE actual state yield per planted acre: Crop year commodity production (quantity) produced in the state per planted

21. ACRE actual farm revenue: Actual commodity farm yield per planted acre x the ACRE national average market price. ACRE benchmark farm revenue: (5-yr Olympic average farm crop yield per planted acre x ACRE program guarantee price) + crop insurance premiums per acre

22. Farm-specific productivity ratio: 5-year Olympic average farm crop yield per planted acre/ACRE benchmark state yield

23. Payment Acreage for ACRE ACRE revenue payments are made on 83.3% of acreage planted or considered planted to covered commodities or peanuts in CY 2009-11 and 85% in CY 2012. Total number of planted acres for which producers on a farm may receive ACRE payments may not exceed total base acreage for all covered commodities and peanuts on the farm.

24. ACRE Payments ACRE payments can be triggered by a decrease in state yields or the national average market price. Enrolled producers are eligible for ACRE payments if ACRE actual state revenue for the covered commodity in the state is less than ACRE program guarantee for crop year AND ACRE actual farm revenue is less than the ACRE benchmark farm revenue.

25. ACRE payments per commodity equal: 1) Lesser of: a) ACRE program guarantee – actual state revenue OR b) 25% of ACRE program guarantee x 2) Planted crop acres: 83.3% in CY 2009-11 and 85% in CY 2012 of farm planted, or considered planted, crop acres not to exceed total base acres x 3) Farm-specific productivity ratio

26. ACRE payments are made beginning October 1, or as soon as practicable after end of applicable marketing year.

35. Marketing Assistance Loans and Loan Deficiency Payments (LDPs) are available to minimize potential commodity-secured loan forfeitures and subsequent government accumulation of stocks

36. Nonrecourse commodity loans with marketing loan provisions are authorized for 2008-12 crops. Commodity loans are for up to 9 months. Producers have to comply with conservation and wetland requirements to be eligible for a loan. Continues to allow repayment of loans at less than full principal plus interest when prices were below loan rates.

37. Loan Deficiency Payments (LDPs) To reduce administrative costs, loan deficiency payments are available when market prices were lower than commodity loan rates.

39. SURE: Supplemental Revenue Assistance Payments • New comprehensive disaster program for crop farmers • Farms in declared disaster counties or adjacent counties, or suffer 50% crop loss due to weather to be eligible • Whole farm revenue guarantee to supplement crop insurance guarantees

40. SURE Program • Whole farm revenue guarantee: If actual revenue falls below guarantee—SURE pays up to 60% of the difference • Includes revenue from all crops: anything mechanically harvested or grazed, in all counties & states, small acreage exclusion • Actual revenue includes other USDA payments (e.g. ACRE) and crop insurance indemnities: not paid twice for a loss

41. SURE Guarantee • Guarantee equals sum of all crop insurance guarantees increased by 15% to decrease farmer deductible • 75% coverage becomes 75% x 1.15 = 86.25% • Guarantee capped at 90% insurance guarantee • If mostly a cash grain farm: Use SURE and not 80% or 85% CRC • Some adjustments for low yield history • Based on APH yields, but sometimes use CCP yields, replace yield “plugs” with higher yields

42. SURE Actual Revenue • Actual yields x USDA marketing year average price (Sept-Aug) • Crop insurance indemnities (including replant and prevented planting) • 15% of DP’s, CCP’s, LDP’s, and ACRE • Other disaster payments received

43. SURE Calculator • This overview glosses over details • FSA has SURE calculator on web for farmers to use • www.fsa.usda.gov/Internet/FSA_File/sure_calculator.xls • www.fsa.usda.gov/Internet/FSA_File/sure_calc_instructions_v1.pdf • Informational only—not binding, does not deal with all possible scenarios (yet) • FSA still finalizing SURE details—be patient

44. SURE Requirements • Risk Management Purchase Requirement • To eligible for SURE payments, you must have all crops insured, including pasture • SURE supplements crop insurance and SURE guarantee depends on insurance guarantees • APH, CRC, GRP, GRIP, AGR-Lite(?) • CAT coverage acceptable or NAP policy

46. Commodity Program Limits Eliminates payment limits on marketing loan benefits and loan deficiency payments. For direct payments, limit is $40,000/person. Direct payments limit is reduced for participants in ACRE program. For counter-cyclical payments, limit is $65,000/person. For ACRE participants, sum of counter-cyclical payments and ACRE payments is limited to $65,000 plus reduction in the direct payment limit.

47. To be to be eligible for payments: individual or entity must have been actively engaged in farming person must have made a significant contribution in the form of capital, equipment, land, personal labor or active personal management to the farming operation contributions of the person must have been at risk Plus As long as 1 spouse is determined to be actively engaged, other spouse is also considered to be actively engaged and is eligible for payments.

48. Adjusted Gross Income Limitation For direct payments, a person or legal entity with adjusted farm gross income of over $750,000, averaged over previous 3 years, is not eligible.

49. Adjusted Gross Income Limitation For direct payments, counter-cyclical payments, average crop revenue election, marketing loan gains or loan deficiency payments, noninsured crop assistance, milk income loss contract program payments, or disaster assistance payments or benefits, a person or entity with average adjusted gross nonfarm income in excess of $500,000 is not eligible.