USDA Working on Farm Bill Implementation Rules, Sign Up

September 4, 2008 07:00 PM
 

via a special arrangement with Informa Economics, Inc.

Key decisions ahead

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


I attended and participated earlier this week during a seminar at the Univ. of Missouri -- “Breimyer Seminar: Unpacking the 2008 Farm Bill.”

Timeline.While several presenters said it would take a while – into next year – before USDA will release rules and other provisions for some key programs, especially new payment limitation rules, and the Average Crop Revenue Election (ACRE), a USDA official told me that, “rules for payment limits and the ACRE program will be out this fall. We are trying to hit the Sept. 16 statutory date, but we may not make it. But it won't be long after that. Signup for ACRE, however, will likely be in early 2009.”

The following are some of the highlights presented on major topics of interest:

Payment Limitations and Direct Attribution

Joe Outlaw, professor and Extension economist, and co-director of the Agricultural and Food Policy Center at Texas A& M Univ., revealed that there is a draft proposed rule being analyzed by Farm Service Agency (FSA) lawyers and that there are four controversial provisions that are being considered.

“The reality is we're a long way from the details (farmers) would like to have,” Outlaw said.

Via the 2008 Farm Bill language, the 2009 crop will be under an interim rule, with a final rule in place for 2010-2012.

Some key provisions detailed by Outlaw:

* Continues $40,000 limit on direct payments (DP) and $65,000 limit on counter-cyclical payments and Average Crop Revenue Election (ACRE)

-- If ACRE is chosen then reduction in DP is added to ACRE limitation
-- Some discussion of whether this is before or after the limit is applied (a USDA official told me that usually, reductions are made after the pay limit)

* Loan deficiency payments and marketing loan gains are not limited

* Eliminates 3 entity rule and uses Direct Attribution to a living person

-- If one spouse is assumed to be actively engaged then both spouses are assumed to be eligible
-- Payments for children under 18 are attributed to parent(s) (but a USDA officials said “they can under limited circumstances have their own pay limit”)
-- Will trace through 4 levels of ownership in legal entities to attribute payments

* Prohibition on all payments if sum of base acres on farm is less than or equal to 10 acres

-- Unless socially disadvantaged
-- Unless limited resource

* Key: Congressional intent

Adjusted Gross Income Eligibility Test

* Replaces the $2.5 million adjusted gross income limitation to receive commodity, disaster, or conservation benefits with:

-- A person with more than $500,000 in average adjusted nonfarm income will be ineligible for direct payments, counter-cyclical payments, ACRE payments, marketing loan gains, loan deficiency payments, Milk Income Loss Contract (MILC) payments, and the noninsured assistance program

-- A person with more than $750,000 average adjusted gross farm income will be ineligible for direct payments

-- A person with more than $1,000,000 in adjusted gross nonfarm income will be ineligible for conservation program payments unless more than 66.6% of their income comes from farming or related activities

While farmers will be able to use self-certification forms to verify income, Outlaw noted that accountants may have to sign more affidavits to verify a producer's income.

(A USDA official told me that “If a county FSA committee wants or needs more information to verify the income, the producer would have to substantiate any claim that the gross income is below $500,000.)

While Outlaw said a key unknown is how USDA categorizes certain income, such as gains from land sales, a USDA official told me, “That is clearly income and this is not an issue that I am aware of.”

Dairy

* “The only really effective payment limitation,” according to Outlaw: Producers only receive MILC payments on 2.985 million pounds of milk; Returns to 2.4 million pounds in 2012

* A payment rate escalator that increases when feed costs increase

Cotton

* Economic Adjustment Assistance to Users of Upland Cotton

-- Beginning August 1, 2008 and ending July 31, 2012 domestic users of upland cotton will receive a payment of $0.04/lb used regardless of origin of the cotton (this should alleviate any WTO concerns about this program, some say)

-- Beginning August 1, 2012 the payment rate is $0.03/lb
USDA no longer prohibited from publishing cotton price forecasts

* Reduces storage payments for cotton by 10% in 2008, 2009, 2010, and 2011 and 20% in 2012

Pat Westhoff of the Food and Agricultural Policy Research Institute (FAPRI) provided details and a list of key unknowns for the ACRE and other program provisions, as noted below:

Timing of Payments
Item 2008/09-2010/11 2011/12 2012/13
Direct payment advance
(avail. Dec. of year before harvest)
22%
22%
0%
Final direct payment
(avail. Oct. of harvest year)
76%
78%
100%
Counter-cyclical payment advance
(avail. 180 days into market year)
40%
0%
0%
Final counter-cyclical payment
(avail. Oct. of harvest year)
60%
100%
100%

Average Crop Revenue Election (ACRE) program

* Short version: make payment if state per-acre revenues fall below a trigger level

* Trigger (“benchmark” revenue)
-- 2-year average national price, multiplied by
-- 5-year Olympic average (throw out high and low) of state yields per planted acre, multiplied by
-- 0.9
-- Cannot adjust more than 10%/year

* Payments made on 83.3% of planted acreage from 2009-2011 (85% in 2012)

* Farm must have a loss to get a payment (double hurdle — state and farm loss)
-- Farm level benchmark = Farm 5-year Olympic yield times 2-year average US price plus crop insurance premiums paid
-- In contrast, state benchmark multiplies by 0.9 and does not add crop insurance premiums
-- Higher farm benchmark makes the farm-level loss rule less likely to cut off payments
-- Payments don’t depend on size of farm level loss — but must have some loss to qualify for payments if state benefits triggered

* Farm level payment is adjusted for average yields
-- State level payment rate * ratio of farm to state Olympic yields

* Trade-off: to enter program, farmers must give up
-- 20% of direct payments
-- All counter-cyclical payments
-- And must accept 30% lower loan rate

* Farmers must choose whether or not to enroll
-- First available in 2009
-- Once enrolled, must stay in program through 2012
-- If enrolled, must enroll all crops on farm

Deciding whether to participate in ACRE

* Like insurance purchase decision:
-- Is expected ACRE payment worth the “premium” of payments foregone?

* If prices and yields are steady or increase
-- No ACRE payments,
-- But still give up 20% of direct payment

* But if US prices or state yields crop
-- Potential payments could be quite large
-- Likely to be larger than other payments the producer would forego

A big question about ACRE

* USDA still has to write rules (USDA told me the rules will be out sometime this fall; signup likely in early 2009)

* One critical question: which two years’ prices are used in calculating revenue guarantee?

* Farm-state lawmakers want USDA to use 2007/08 and 2008/09 prices to determine 2009/10 guarantee

* But some suggest USDA will use 2006/07 and 2007/08

* Who cares? Latter could result in MUCH lower revenue guarantee in 2009/10. For example, if 2007/2008 and 2008/2009 crop prices are used as the benchmark for 2009, FAPRI estimates suggest that total ACRE payments could be more than $1.5 billion, which would be substantially more than the potential 2006/2007 and 2007/2008 benchmark.

Westhoff said the ACRE rules will not likely be in place until sometime in the spring and advised those interested in the program to bide their time – but, again, USDA told me that while the rules should be out sometime this fall, signup could being early in 2009.

“There's a lot of time to figure this out,” Outlaw said. “You're not going to be signing up for this program tomorrow.”

Factors affecting ACRE participation, according to Westhoff:

More likely to participate
* 2009 benchmark uses 2007 and 2008 prices
* Expect prices to decline
* More planted acreage than base
* Program yields low relative to harvest yields
* Plant a lot of soybeans or corn
* State Olympic average yield unusually high

Less likely to participate
* 2009 benchmark uses 2006 and 2007 prices
* Expect prices to rise
* More base acreage than planted
* Program yields high relative to harvest yields
* Have a lot of cotton or peanut base
* State Olympic yield unusually low


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 

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