Summary and Evolution of U. S. Farm Bill Commodity Titles — Expanded Discussions
Brandon Willis
National AgLaw Center Graduate Assistant
and
Doug O’Brien
Research Assistant Professor of Law
Deficiency Payments
1985 – Similar to the 1981 Farm Bill, the 1985 Farm Bill requires deficiency payments if the national weighted average market price received by farmers during the first 5 months of the marketing year is lower than the established target price.
Deficiency payments are determined by multiplying the “payment rate” by the “individual farm program acreage” and the “farm program payment yield”.
Deficiency payment = payment rate x individual farm program acreage x farm program payment yield
Payment rate = established target price minus the higher of [national weighted average market price for the first five months of the crop marketing year or loan level]
“Farm program payment acreage” is determined by multiplying the allocation factor by the acreage of the crop planted for harvest on the farm. The individual farm program acreage will not be reduced if the producer reduces the acreage planted for harvest from the crop acreage base by at least the percentage recommended by the Secretary in the proclamation of the national program acreage.
“Farm program payment yields” for 1986 and 1987 are the average of the farm program payment yields for the farm from 1981 through 1985, excluding the highest and lowest yields. For 1988 and subsequent years the Secretary is given discretion to update yields.
Deficiency payments are not made for any quantity on which a disaster payment was made. No more than five percent of deficiency payments may be made as payments-in-kind (PIK).
Advance deficiency payments are required for 1986, and allowed for 1987 through 1990 if the Secretary establishes acreage limitation or set-aside programs. Payments are made in cash or commodities or a combination of the two, but not more than 50 percent of the payments may be in the form of commodities.
1990 – The 1990 Farm Bill authorizes deficiency payments for the same crops as the 1985 Farm Bill. The “farm program payment yield” for each farm stays at the 1990 level. “Payment acres” for the crop is the lesser of: (1) the number of acres planted to a crop for harvest within the permitted acreage, or (2) 10 percent of crop acreage base for the crop minus the quantity of reduced acreage (when an acreage reduction program is in effect).
Similar to the 1985 Farm Bill, advance deficiency payments are required if the Secretary establishes an acreage limitation program and determines that deficiency payments will likely be available for the crop. The 1990 Budget Act changed the formula for determining payment acres. Under the 1990 Budget Act payment acres equals the lesser of planted permitted acreage or 85 percent of crop acreage base less any cropland reduced by a acreage reduction program.
National Program Acreage
1985 –The NPA is set at the number of acres that will produce the quantity, minus imports, that the Secretary determines will be utilized domestically and for export during the marketing year. NPA adjustments can be made depending upon the desired amount of carryover. The Secretary is required to announce the NPA before the crop is planted; the announcement times vary depending upon the crop.
Acreage Limitation Program and Acreage Set-Aside Program
1985 – The Secretary is authorized to implement an acreage limitation program (ALP) and paid land diversion program (PLD) for wheat, feed grains, cotton, and rice when their supply will be excessive. In addition, the Secretary is authorized to implement a set-aside program for wheat and feed grains when the total supply will be excessive. The Secretary is required to announce either the ALP or the set aside programs at specified dates prior to planting.
An ALP reduces acreage by applying a uniform percentage reduction to the crop acreage base. If a grower knowingly produces a crop covered by an ALP in excess of the permitted acreage, they shall be ineligible for loans, purchases, and payments for that farm.
Set-aside programs are authorized for wheat and feed grains when an ALP is not in effect. Similar to ALPs, set-aside programs are authorized when the total supply will be excessive. “If announced, producers must set aside and devote to conserving uses acreage equal to specified percentage of the current year’s acreage planted for harvest to that crop. The Secretary may adjust individual set-asides to correct for crop rotation practices and abnormal factors affecting production. If a set-aside program is established, the Secretary may also limit the acreage planted to wheat or feed grains or both.” Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 12, (Agric. Info. Bulletin Number 498, U.S. Dep’t. of Agric., 1986).
The reduced acreage due to either an ALP or an acreage set-aside must be devoted to conservation uses that insure protection from weeds and wind or water erosion. However, the Secretary may permit conservation acreage to be devoted to certain non-program crops if the Secretary determines that such production is needed to provide an adequate supply of such commodities and will not increase the cost of the price support program.
“The Secretary may also offer a PLD to producers [of wheat, feed grains, cotton and rice] if such payments will assist in obtaining the necessary adjustments in total acreage. A diversion program may be offered whether or not an ARP is in effect. Diverted cropland (in addition to any reduced acreage under an ARP) must be devoted to approved conservation practices. Payments to producers under this program may be determined by the submission of bids or other such means as the Secretary deems appropriate. The Secretary must limit the total acreage to be diverted in any county so as not to adversely affect the local economy. Reduced or diverted acreage may be used for wildlife food plots or habitats, and the Secretary may authorize USDA to pay for a part of the cost for such efforts.” Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 24, (Agric. Info. Bulletin Number 498, U.S. Dep’t. of Agric., 1986).
1990 – The 1990 Bill employs both ALP and PLD to keep crop surpluses low. Both programs are operated similarly to the 1985 Farm Bill. The 1990 Bill lists each feed grain separately, which allows the Secretary to establish acreage limitation programs separately for each feed grain. The acreage set-aside program that was used under the 1985 Farm Bill was not used in the 1990 Farm Bill. The 1996 Farm Bill discontinues these programs.
Commodity Loan Program
1985 – The 1985 Farm Bill supports prices through loans and purchases for wheat, feed grains, cotton, rice and soybeans. The loans are nonrecourse, meaning that if the producer chooses to forfeit a crop instead of paying for the loan, and the crop is valued at less than the loan amount, the government will not have any recourse to obtain the difference. There are two basic loan types. Price support loans allow for forfeiture when the market price falls below the loan level. The forfeitures result in a lower supply on the market, thus supporting a higher market prices. Market (assistance) loans, however, do not encourage forfeitures and rather make payments to producers when the market price falls below the loan rate. With no forfeitures, market loans have less of an effect on supply and price.
Wheat and feed grain loan rates must be set at levels to encourage wheat and feed grain exports and discourage excessive stocks after considering the cost of production, supply and demand conditions, and world prices. The basic loan rate for 1985 and 1986 is $3 per bushel for wheat and $2.40 per bushel for corn. The loan rates for grain sorghum, barley, oats, and rye are based upon the loan rate for corn. For 1987 through 1990, the basic rates for wheat, corn and feed grains will be 75 to 85 percent of the average season price received by producers during the five preceding years, dropping the highest and lowest years. The Secretary may offer wheat and feed grain producers marketing loans that allow producers to repay the lesser of: (1) the loan level, or (2) the higher of either (a) 70 percent of the loan level, or (b) the prevailing world market price.
The Secretary is authorized to make loan deficiency payments (LDP) in lieu of a marketing loan. An LDP is determined by multiplying the loan payment rate by the amount of commodity eligible for the loan. The payment rate equals the announced loan level (nonrecourse loan rate) minus the marketing loan repayment level (the higher of 70 percent of the loan rate or the prevailing world price). The amount of commodity eligible for a marketing loan or an LDP is found by multiplying (1) the individual farm program acreage for the crop by (2) the farm program payment yield.
The Secretary is required to offer marketing loans to rice producers and may offer LDPs. If producers receive LDPs, one-half of the payment must be in the form of marketable certificates. For more information on specific loan provisions for rice see below, Rice, 1985 Farm Bill.
Upland cotton producers are eligible for nonrecourse loans. Loan repayment rates vary depending upon market conditions. Special repayment plans are available to help cotton become more competitive in the world market. See below, Upland Cotton, 1985 Farm Bill.
Soybean producers are eligible for nonrecourse price supporting loans. The support rate is set at $5.02 per bushel for 1986 and 1987; 1988 through 1990 loan rates are based on 75 percent of the average price for the five preceding years, excluding the highest and lowest years. The Secretary may offer marketing loans but no LDPs to soybean producers.
1990 – The basic price support rate for wheat and feed grains equals 85 percent of the preceding five year average market price, dropping the highest and lowest years. The bill provides the Secretary discretion to lower the loan rate up to 20 percent depending upon stocks-to-use ratio and whether the commodities will be competitive in international markets. However, the basic price support rate cannot be reduced by more that five percent from the preceding year. In addition, the 1985 Farm Bill sets the quantity of each commodity that can be placed under a loan by using program payment yields, while the 1990 Farm Bill bases eligible quantities on actual yields.
Minimum cotton loan levels are set at the lesser of: (1) 85 percent of the average United States price; or (2) 90 percent of the five lowest-priced growths for a 15-week period in Northern Europe, c.i.f. In addition repayment provisions for cotton vary substantially from feed grains and wheat. See below, Upland Cotton, 1990 Farm Bill.
Rice loan levels are the higher of: (1) 85 percent of the average price received during the five preceding years, excluding the highest and lowest prices, or (2) $6.50 per hundredweight. For details on the rice loan program see below, Rice, 1990 Farm Bill.
The price support loan level for sugar cane is not less than $0.18 per pound for raw cane sugar; sugar beets are supported at a level where the weighted average of the price of sugar beets is the same in relation to the weighted average of sugar cane. The loan levels can be increased based upon factors such as the cost of production and cost of sugar products. No provisions exist for marketing loans or loan deficiency payments for sugar.
Price supporting loans are available for soybeans, sunflower seeds, canola, rapeseed, safflower, flaxseed, and mustard seed, whereas under the 1985 Farm Bill only soybeans were covered. The loan rate for soybeans is set at $5.02, which is the same level as 1986 and 1987. The loan rate for any other oilseeds is set at $0.089 per pound. Oilseeds are eligible for LDPs.
1996 – Commodities eligible for marketing loans include feed grains (corn, barley, grain sorghum, and oats), wheat, upland cotton, rice, and oilseeds (soybeans, sunflower seeds, canola, rapeseed, safflower, mustard seed, and flaxseed).
The formulas for establishing loan rates for wheat, feed grains, upland cotton and rice remain essentially the same as the 1990 Farm Bill. Loan rates for wheat and feed grains are set at 85 percent of the five year average of farm prices, dropping highest and lowest years, subject to a maximum of $2.58 per bushel for wheat and $1.89 per bushel for corn, unchanged from 1995 levels. The loan rate for rice is set at $6.50 per hundredweight, whereas under the 1990 Farm Bill the loan rate fluctuated based upon the five year average price formula.
Similar to the 1990 Farm Bill the Secretary is given authority to decrease wheat and feed grain loan rates depending upon the projected stocks-to-use ratio. Loan rates for grain sorghum, barley, and oats are set at a level considered fair and equitable relative to the feed value of corn. Rye, which was considered a feed grain under both the 1985 and 1990 Farm Bills, is no longer a covered commodity.
The loan rate for soybeans is set at not less than 85 percent of the average price received by producers during the five preceding years, excluding the highest and lowest years. In any case, the loan rate shall not be less than $4.92 or more than $5.92 per bushel.
The loan rate for oilseeds is set at not less than 85 percent of the average price received by producers during the five preceding years, excluding the highest and lowest years. In any case, the loan rate cannot be less than $0.087 nor exceed $0.093 per pound.
Sugar is eligible for recourse loans or nonrecourse loans depending upon the tariff rate quota. Loan rates are set at $0.18 per pound for sugar derived from sugar cane and $0.229 per pound for sugar derived from sugar beets. For more information see below, Sugar, 1996 Farm Bill.
The Secretary may make loan deficiency payments available for the same crops as marketing loans, except for extra long staple cotton.
2002 – The bill sets loan rates for all covered commodities. Rates are set for 2002 through 2003 and then reduced slightly for 2004 through 2007 for most commodities. Unlike earlier Farm Bills, the Secretary does not have discretion to adjust loan levels.
All farm production of covered commodities is eligible for a marketing loan. In addition to prior covered commodities, producers of extra long staple cotton, wool, mohair, honey, dry peas, lentils, peanuts, and small chickpeas can obtain marketing loans.
Loans are available for processors of domestically grown sugarcane at a rate equal to $0.18 per pound, and $0.229 per pound for refined sugar beet. These rates are the same as the 1996 Farm Bill.
Producers are not required to apply for the direct payments to obtain marketing loans, unlike the 1996 Farm Bill which required participation in production flexibility contracts to obtain a marketing loan.
Farmer-Owned Reserve
1985 – “The farmer-owned reserve was maintained in the 1985 Act, though in a somewhat different version. The loan period was reduced from five to three years, although it can be extended as warranted by market conditions. The release price is set at the higher of 140 percent of the stated loan rate or the corresponding target price, instead of being set by the Secretary as in the 1981 Act.” Stephanie Mercier, Background for 1990 Farm Legislation: Corn at 35 (USDA Economic Research Service, Staff Report No. 89-47).
“The upper limit on the amount of grain placed in reserve is now specified as a percentage of the estimated total domestic and export use during the marketing year – 30 percent for wheat and 15 percent for feed grains. The limits may be increased by ten percent if the Secretary determines higher levels are necessary. … The 1985 Act sets levels at 17 percent for wheat and seven percent for feed grains of the estimated total domestic and export use. If the amount of stocks in the FOR is below these levels or if the market price is below the release price, the Secretary must encourage producer participation by offering increased storage payments, interest waivers, or other incentives.” Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 36 (USDA Econ. Research Serv., Agric. Info. Bulletin No. 498) (Jan. 1982).
1990 – This provision requires the Secretary to extend price support loans for up to another 27 months beyond the original nine-month loan period. The provision provides the Secretary the discretion to extend the loan period another six months. The loan level must be no lower than the original loan. When wheat or feed grain prices reach at least 105 percent of the loan level, the Secretary may charge interest. The Secretary may make storage payments when the price of wheat of feed grains is below 95 percent of the current target price.
“The Secretary may permit wheat and corn crops to enter the FOR under two conditions: (1) if for 90 days before December 15 of the year in which the wheat crop is harvested and 90 days before March 15 in the year following the harvest of the corn crop, the average market price is 80 percent of their respective loan rate, or (2) if the projected stocks-to-use ratio is more than 37.5 percent for wheat or 22.5 percent for corn. If both of these conditions are met, then the Secretary must permit entery into the FOR. No direct entry is permitted; producers must first take out an original nine-month loan. A producer may exit at any time by repaying the loan.” Susan L. Pollack and Lori Lynch, Provisions of the Food, Agriculture, and Trade Act of 1990 at 39 (USDA Econ. Research Serv., Agric. Info. Bulletin No. 624 (June 1991).
Direct Payments
1996 – The Secretary is required to offer production flexibility contracts (PFC) covering the 1996 through 2002 crops of wheat, corn, grain sorghum, barley, oats, upland cotton, and rice to eligible landowners or producers with eligible cropland. Producers are paid annual contract payments based upon a predetermined total dollar amount for each year. In exchange for the payments the owner or producer must: (1) meet certain conservation requirements, (2) agree not to plant fruits and vegetables on contract acres, and (3) use contract acreage for agricultural purposes.
The 1996 bill allocates annual PFC payment amounts beginning with $5,570,000,000 in 1996 and declining to $4,008,000,000 by 2002. Each commodity receives a percentage of the total allocation. The percentage for each commodity is set at: 46.22 percent for corn, 26.26 percent for wheat, 11.63 percent for upland cotton, 8.47 percent for rice, 5.11 percent for grain sorghum, 2.16 percent for barley, and 0.15 percent for oats. Rice is allocated an additional 8,500,000 dollars annually, in addition to the amount received based upon its percentage.
To determine each individual farm’s PFC payment it is necessary to make two calculations: (1) the annual payment rate for each commodity, and (2) the individual farm’s PFC payment.
Individual farm’s PFC payment = farm program payment yield x [contract acreage x 85 percent]
Contract acreage = crop acreage base in effect for 1996 crop
Farm program payment yield = payment yield established on the farm for the 1995 crop
Annual payment rate = total annual allocation / annual payment quantity
Total annual allocation = specified in Farm Bill
Annual payment quantity = sum of all PFC payments for all farms that year
Annual PFC payments are not contingent upon participation in any acreage reduction program. Previous acreage reduction programs used in prior farm bills are discontinued.
Payments must be made not later than September 30th each year. Producers can request advance PFC payments and receive 50 percent of the PFC payment either December 15th or January 15th prior to the harvest. The total amount of PFC payments made to a person during any fiscal year may not exceed $40,000. Neither current market prices nor current crop production effect the PFC payment.
2002 – The 2002 Farm Bill sets the payment rate for each commodity. The payment rate does not change and neither current production nor market price effect the direct payment. All of the commodities covered under the 1996 Farm Bill’s production flexibility contracts (PFC) are covered under the 2002 Farm Bill. In addition to the commodities covered by the PFCs, the 2002 bill also covers soybeans, peanuts, and other oilseeds.
The direct payment equals the product of: (1) the payment rate, which is set in the Farm Bill, (2) 85 percent of the farm’s base acreage, and (3) the farm’s direct payment yield.
Direct payment = payment rate x payment yield x [base acres x 0.85]
The direct payment rates are as follows: wheat $0.52 per bushel, corn $0.28 per bushel, grain sorghum $0.35 per bushel, barley $0.24 per bushel, oats $0.024 per bushel per bushel, upland cotton $0.0667 per pound, rice $2.35 per hundredweight, soybeans $0.44 per bushel and other oilseeds $0.0080 per pound.
“Direct payments differ from PFC payments in that the 2002 Farm Act sets fixed payment rates on a per unit basis for the entire act. In contrast, the 1996 Farm Act fixed total expenditure levels for each fiscal year. Payment levels were allocated among contract commodities according to percentages specified in the 1996 Act. PFC payment rates for individual commodities were then derived, based on the commodity-specific budget allocations, the contract acreage enrolled, and the program yields for that commodity. Although direct payment rates are higher than PFC payment rates for 2001 and 2002, direct payment rates are lower than the average PFC rates under the 1996 Farm Act.” Paul C. Westcott ET AL., The 2002 Farm Act Provision and Implications for Commodity Markets at 4 (Agri. Info. Bulletin No. 778, U.S. Dep’t Agric. 2002).
In general, direct payments are not made before October 1st of the calendar year in which the covered crop is harvested. Similar to the 1996 Farm Bill, producers may request payment anytime after December 1st of the calendar year prior to harvest. In comparison, advance PFC payments were required on either December 15th or January 15th prior to harvest.
Producers can designate base acres in one of two ways: (1) add base acres equal to their previous PFC acreage to average oilseed plantings from 1998 through 2001, as long as the sum does not exceed total cropland; or (2) update base acres to the four-year average of acres planted, plus acres that were prevented from planting from 1998 through 2001. Payment acres are equal to 85 percent of the base acres for the covered commodity.
The total amount of direct payment made to a person during any crop year may not exceed $40,000. This is the same payment limit that was imposed upon PFC payments under the 1996 Farm Bill.
Counter-Cyclical Payments
1996 – “From 1998 until passage of the [2002 Farm Bill], Congress passed annual emergency farm legislation that allocated marketing loss assistance payments for program crops. The payments were paid using the same payment formula that was used for regular Agricultural Market Transition Act (AMTA) payments. Payments were first provided in the Omnibus Consolidated and Emergency Supplemental Appropriations Act, FY1999, and made to producers for marketing losses experienced in 1998. Producers eligible for 1998 production flexibility contract payments were issued the marketing loss assistance payments in proportion to the amount of production flexibility contracts received in FY1998. A separate person could not receive more than $19,888. Similar additional payments were made to holders of 1999 production flexibility contracts, under provisions of the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2000. Also, passage of the Agricultural Risk Protection Act of 2000 provided additional payments to holders of 2000 production flexibility contracts, at the same rate as was paid for the 2000 AMTA payments.” Chuck Culver, GLOSSARY, National Agricultural Law Center, http://www.nationalaglawcenter.org/.
2002 – “This program was developed to replace most ad hoc market loss assistance payments that were provided to producers during 1998-2001. Payments are based on historical area and yields and are not tied to current production of the covered commodity.” Paul C. Westcott, et al., The 2002 Farm Act Provision and Implications for Commodity Markets at 5, (Economic Research Service, Agric. Info. Bulletin No. 778, U.S. Dep’t of Agric., 2002).
The program established “a target price for each covered crop. When the higher of the loan rate or the season average price plus the direct payment rate is below the target price, a counter-cyclical payment (CCP) is made, at a rate equal to that difference. Equivocally, CCPs are made when the higher of the loan rate or the season average price is below the target price minus the direct payment rate.” Id.
Counter cyclical payment = CCP payment rate x CCP payment yield x [base acre x 0.85]
CCP payment rate = target price* – [direct payment rate* + higher of commodity price or loan rate*] *set by 2002 Farm Bill
Example: The target price for corn in 2006 is $2.63 a bushel; the direct payment rate is $0.28 a bushel; and the loan rate is $1.98 per bushel. If the season average corn price is $1.80 a bushel, the $2.60 target price minus $2.26 ($1.98 loan rate plus $.28 direct payment rate) results in a CCP of $0.34 per bushel.
The total amount of CCPs made to any person during a year may not exceed $65,000.
Wheat
1985 – The 1985 Farm Bill authorizes price support through loans and purchases. The loan rate for wheat is dependant upon whether or not a marketing quota is in effect. When a marketing quota is in effect the minimum rate is the higher of: (1) 75 percent of the national cost of production per bushel of wheat, or (2) $3.55 per bushel. When marketing quotas are not in effect the rate is: (1) for the 1986 crop of wheat, not less than $3.00 and (2) for 1987 through 1990, not less than 75 percent, nor more than 85 percent of the price received by producers during the previous five years, excluding the highest and lowest years.
When a marketing quota is not in effect, loan levels can be further reduced if the average market price for the previous year was 10 percent or less of the loan rate, or if the Secretary determines a reduction is necessary to maintain a competitive market position for wheat. The loan level, however, may not be reduced by more than 20 percent. In addition, any reduction in the loan rate is not considered when determining the loan and purchase rate for subsequent years. If the Secretary reduces the loan rate, emergency compensation through increased deficiency payments must be provided to give producers the same return they would have received had the rate not been reduced.
The Secretary may authorize marketing loans that are repaid at the lesser of: (1) the loan level, or (2) the higher of: (a) 70 percent of the loan level, or (b) 70 percent of the loan level prior to loan rate reductions, or (c) the prevailing world price. The Secretary is also authorized to make loan deficiency payments.
Deficiency payments are paid to wheat producers if the national average market price falls below the established target price. The established target price when a marketing quota is in effect is not less than the national average cost of production, or $4.65 per bushel. When a marketing quota is not in effect the established target price for wheat is not less than; $4.38 per bushel for 1986 and 1987 crops, $4.29 per bushel for 1988 crop, $4.16 per bushel for 1989 crop, and $4.00 per bushel for 1990 crop.
The Secretary is required to conduct a poll of wheat producers to determine whether they support mandatory production limits. To vote, producers must have produced at least one crop of wheat between 1981 through 1985 and have a wheat crop acreage base of at least 40 acres.
The Secretary’s authority to implement an acreage reduction program and paid land diversion program is continued. For information, see Acreage Limitation Program or Acreage Set aside Program.
1990 – The 1990 Farm Bill authorizes price support loans and purchases. The minimum loan or purchase rate is 85 percent of the average price received by producers during the five preceding crops, excluding the highest and lowest years. In comparison, the loan rate under the previous bill was based upon whether a marketing quota was in effect.
The Secretary may adjust the loan rate based upon the ratio of ending stocks. If the ratio of ending stocks will be equal to or greater than 30 percent the rate may be reduced by no more than ten percent. If the ratio is less than 30 percent, but not less than 15 percent, the rate may be reduced by no more than five percent. When the ratio is not less than five percent the rate may not be reduced. In addition to the prior reductions, the rate may be reduced an additional ten percent to keep wheat competitive in world markets. However, neither of the reductions may be considered when determining the loan and purchase rate for future years. Similar to the prior bill when the Secretary reduces the loan and purchase level, payments must be made in the form of increased deficiency payments that provide the same total return as if the rate reductions had not occurred.
Similar to the 1985 Farm Bill the Secretary may authorize marketing loans which will be repaid at the lesser of: (1) the loan level, or (2) the higher of (a) 70 percent of the loan level, or (b) 70 percent of the loan level prior to loan rate reductions, or (c) the prevailing world price. The Secretary is authorized to make loan deficiency payments.
Unlike the 1985 Farm Bill that based the amount of feed grains eligible for loans upon the program payment yields, the 1990 Farm Bill bases eligible quantities on actual yields.
“The eligible payment acreage is different for 1991 to 1995, due to the amendments made to the 1949 Act by the 1990 Budget Act which mandate a triple base program. Deficiency payments are to be made on the smaller of either planted permitted acreage or on 85 percent of the crop acreage base less any acreage reduction program acreage.” See Susan L. Pollack, Provisions of the Food, Agriculture, Conservation, and Trade Act of 1990 at 6 (Agric. Info. Bulletin No. 624 U.S. Dep’t. of Agric., 1991) The deficiency payment formula remains unchanged from the prior Farm Bill. However, the prior bill based the established price on whether or not a marketing allotment was in effect; the minimum rate during an allotment was $4.65, without an allotment it declined annually from $4.38 to $4.00. This Farm Bill sets the minimum established price at $4.00.
1996 – The 1996 Farm Bill authorizes production flexibility contracts (PFC) for wheat producers. For general information on PFCs, see Direct Payments, 1996 Farm Bill.
Wheat is allocated 26.26 percent of the total PFC payment.
Marketing loans are available to wheat producers for all production on a farm containing eligible cropland. The loan rate for wheat is set at not less than 85 percent of the average price during the preceding five years, excluding the highest and lowest years, but not more than $2.58 per bushel. Similar to prior farm bills the Secretary is authorized to adjust the loan rate based upon the stocks-to-use ratios. If the stocks-to-use ratio is higher than 30 percent the Secretary may lower the rate up to ten percent; if the ratio is less than 30 percent but not less than 15 percent, the Secretary may reduce the loan rate by no more than five percent; if the ratio is less than 15 percent the Secretary may not reduce the loan rate.
Similar to previous farm bills the Secretary may authorize loan deficiency payments.
Acreage reduction programs were eliminated in the 1996 Farm Bill.
2002 – The 2002 Farm Bill replaces production flexibility contracts with direct payments. Direct payments are based upon a payment rate set in the Farm Bill, individual farm yields and crop acreage base. Wheat’s direct payment rate is $0.52 per bushel. For information on direct payments, see Direct Payments, 2002 Farm Bill.
Producers are also eligible for counter-cyclical payments (CCP) when wheat prices fall. For more information on CCPs, see Counter-Cyclical Payments, 2002 Farm Bill.
Producers are eligible for marketing loans. The loan rate is fixed at $2.80 per bushel for 2002 and 2003, decreasing to $2.75 per bushel for 2004 through 2007. The two prior farm bills calculated the loan rate based upon 85 percent of the five previous years’ average market price for wheat, with adjustments based upon the stocks to use ratio.
Similar to past farm bills the Secretary is authorized to make loan deficiency payments (LDP) to those producers who, although eligible, do not obtain a marketing loan. Both marketing loans and LDPs are based upon actual production.
Feed Grains
1985 – The 1985 Farm Bill authorizes price support through loans and purchases for certain feed grains. Feed grains eligible for support include corn, grain sorghum, barley, oats, and rye. Support and loan rates are based upon the price of corn; rates for other feed grains is set at a level that is fair and reasonable in relation to corn.
The minimum loan and purchase rate for corn is $2.40 per bushel for 1986. The rate for 1987 through 1990 is not less than 75 percent, nor more than 85 percent, of the price received the five preceding years excluding the highest and lowest years.
The Secretary is required to reduce the loan and purchase rate if the average price received for corn in the previous marketing year was not more than 10 percent of the loan and purchase rate. In this case the Secretary is required to make the following rate adjustments: (1) for the 1986 crop the rate must be lowered by at least ten percent but not more than 20 percent; (2) for the 1987 through 1990 crops the rate may be lowered to a level the Secretary determines necessary but not more than 20 percent. Any loan and purchase rate reduction cannot be considered in determining the subsequent years’ loan rate. If the Secretary reduces the loan rate, emergency compensation must be provided to producers to give them the same return as they would have received had the rate not been reduced.
The Secretary may authorize marketing loans that will be repaid at the lesser of: (1) the loan level, or (2) the higher of (a) 70 percent of the loan level, (b) 70 percent of the loan level prior to loan rate reductions, or (c) the prevailing world price.
The Secretary is authorized to make loan deficiency payments. The minimum established target price is $3.03 per bushel 1986 and 1987 crops, $2.97 per bushel for 1988 crop, $2.88 per bushel for 1989 crop and $2.75 per bushel for 1990 crop. For more information, see Deficiency Payments.
The bill continues authority for the Secretary to implement an acreage reduction program and paid land diversion program. For information, see Acreage Limitation Program or Acreage Set aside Program.
1990 – The 1990 Farm Bill authorizes price support loans and purchases. Feed grains eligible for support include corn, grain sorghum, barley, oats, and rye. The minimum loan and purchase rate is 85 percent of the average price received by producers during the five preceding crops, excluding the highest and lowest years. In comparison, the 1985 Farm Bill set the price between 75 percent and 85 percent of the five previous years’ average price, excluding the highest and lowest years.
Similar to the prior bill the Secretary may adjust the loan rate based upon the ratio of ending stocks. If the ratio of ending stocks will be equal to or greater than 25 percent, the rate may be reduced by no more than ten percent. If the ratio is less than 25 percent but not less than 12.5 percent, the rate may be reduced by no more than five percent. When the ratio is less than 12.5 percent the rate may not be reduced. In addition to the prior reductions, the rate may be reduced an additional ten percent to keep feed grains competitive in world markets. Neither reduction, however, may be considered when determining subsequent years’ loan rate. Similar to the prior bill, when the Secretary reduces the loan and purchase level, payments must be made in the form of increased deficiency payments that provide the same total return as if the rate reductions had not occurred.
Similar to the 1985 Farm Bill, the Secretary may authorize marketing loans that will be repaid at the lesser of: (1) the loan level, or (2) the higher of (a) 70 percent of the loan level, (b) 70 percent of the loan level prior to loan rate reductions, or (c) the prevailing world price. The Secretary is authorized to make loan deficiency payments.
Unlike the 1985 Farm Bill that based the amount of feed grains eligible for loans upon the program payment yields, the current Farm Bill bases eligible quantities on actual yields.
“The eligible payment acreage is different for 1991 to 1995, due to the amendments made to the 1949 Act by the 1990 Budget Act which mandate a triple base program. Deficiency payments are to be made on the smaller of either planted permitted acreage or on 85 percent of the crop acreage base less any acreage reduction program acreage.” See Susan L. Pollack, Provisions of the Food, Agriculture, Conservation, and Trade Act of 1990at 6 (Agric. Info. Bulletin No. 624 U.S. Dep’t. of Agric., 1991) The deficiency payment formula remains unchanged from the prior Farm Bill. The prior Farm Bill based all feed grains prices upon corn’s established price; however this Bill sets minimum prices for each feed grain. The minimum established price for corn is $2.75 per bushel, oats $1.45 per bushel, grain sorghum $2.61 per bushel, and barley is not less than 85.8 percent of the established price for corn.
1996 – The 1996 Farm Bill authorizes production flexibility contracts (PFC) for feed grain producers covering 1996 through 2002 crops. For general information on PFC’s, see Direct Payments, 1996 Farm Bill.
Corn is allocated 46.22 percent of the total PFC payment. This percentage equals:$2,574,454,000 in 1996; $2,488,947,000 in 1997; $2,680,760,000 in 1998; $2,589,706,600 in 1999; $2,371,086,000 in 2000; $1,908,886,000 in 2001; $1,852,497,600 in 2002
Grain sorghum is allocated 5.11 percent of the total PFC payment.
Barley is allocated 2.16 percent of the total PFC payment.
Oats are allocated 0.15 percent of the total PFC payment.
Marketing loans are available to feed grain producers for all production. The loan rate for corn is set at: (1) not less than 85 percent of the average price during the five preceding years excluding the highest and lowest years, but (2) not more than $1.89 per bushel. The loan rate for the other feed grains will be set at a rate that is fair and reasonable, taking into consideration the feeding value of the commodity in relation to corn.
Similar to prior farm bills the Secretary is authorized to adjust the loan rate based upon the stocks-to-use ratio. If the stocks-to-use ratio is equal to or higher than 25 percent the Secretary may lower the rate up to ten percent; if the ratio is less than 25 percent but not less than 12.5 percent, the Secretary may reduce the loan rate by no more than five percent; if the ratio is less than 12.5 percent, the Secretary may not reduce the loan rate.
Similar to previous Farm Bills the Secretary may authorize loan deficiency payments. Payments are be based upon actual production.
2002 – The 2002 Farm Bill replaces production flexibility contracts with direct payments. Direct payments are based upon a payment rate set in the Farm Bill, individual farm yields and crop acreage base. The direct payment rate for corn is set at $0.28 per bushel, grain sorghum $0.35 per bushel, barley $0.24, and oats $0.024. For information on direct payments, see Direct Payments, 2002 Farm Bill.
Producers are also eligible for counter-cyclical payments (CCP) when feed grain prices fall. For more information on CCPs, see Counter-cyclical Payments, 2002 Farm Bill.
Producers are eligible for marketing loans. The loan rates are set in the Farm Bill, as opposed to the three prior Farm Bills that based rates upon a historical five-year average. For 2002 and 2003 crop years the loan rates per bushel are: $1.98 corn, $1.98 grain sorghum, $1.88 barley, $1.35 oats. For 2004 through 2007 crop years the rates per bushel are: $1.95 corn, $1.95 grain sorghum, $1.85 barley, $1.33 for oats. Marketing loans are based upon actual production.
Similar to past farm bills the Secretary is authorized to make loan deficiency payments (LDP) to those producers who although eligible, do not obtain a marketing loan. LDPs are based upon total production.
Upland Cotton
1985 – The 1985 Farm Bill authorizes price supporting loans and purchases. Deficiency payments are provided to support income when prices drop. An acreage limitation program is used to limit excessive supplies of cotton.
The bill adds provisions providing a loan repayment rate when the basic loan rates are not competitive on world markets. The loan rate for 1986 is set at not less than $0.55 per pound for Strict Low Middling one and one-sixteenth inch upland cotton. For 1987 through 1990 it is the lesser of: (1) 85 percent of the average United States spot market during the past five years, excluding the highest and lowest years or (2) 90 percent of the average adjusted price of the five lowest priced growths quoted for middling 1 3/32 inch cotton, c.i.f., Northern Europe for the 15 week period beginning July 15 in the year in which the loan level is announced. However, if the Northern Europe formula is used, the loan level may not be reduced by more than five percent from the preceding crop or below $0.50 per pound.
The program requires the Secretary to calculate the prevailing world market price (PWP). The adjusted world price (AWP) is the prevailing world market price of cotton adjusted to U.S. quality and location.
If the AWP is below the loan rate, the Secretary has two options for adjusting the loan repayment rate. Under Plan A, the Secretary can lower the loan repayment rate by up to 20 percent, thus allowing farmers to redeem their crops and sell them. See Harold Stults et al., Cotton Background for 1990 Farm Legislation at 33, (Economic Research Service, Staff Report No. AGES 89-42 U.S. Dep’t. of Agric., 1989).
Under Plan B, the Secretary must allow producers to repay their loan at the lesser of: (1) the AWP of cotton, or (2) the loan rate. For 1987 through 1990 crops, if the AWP is less than 80 percent of the loan level, the Secretary may allow producers to repay their loan at a rate lower than 80 percent of the loan level if the Secretary estimates the lower rate will minimize loan forfeitures, accumulation of stocks, government storage costs and still allow free marketing of cotton domestically and internationally. The Secretary may offer producers loan deficiency payments.
If the marketing loan provisions fail to make upland cotton fully competitive in world markets and the PWP is less than the current loan repayment rate, the Secretary must provide negotiable marketing certificates to first handlers of cotton (cotton buyers). The value of the certificates is the difference between the loan repayment rate under Plan A or Plan B, whichever plan the Secretary uses, and the PWP. Certificates may be redeemed for cash, cotton, or other agriculture commodities.
Deficiency payments must be paid to producers for each of the 1986 through 1990 crops. The payment is computed as follows:
Deficiency payment = payment rate x individual farm program acreage x farm program payment yield
Payment rate = amount that the established target price exceeds the higher of: (1) the national average market price for the first 5 months of the marketing year, or (2) the loan level. The target price is $0.81 per pound 1986, $0.794 per pound 1987, $0.77 per pound 1988, $0.745 per pound 1989, and $0.729 per pound 1990.
“If an acreage limitation program is in effect, and if producers plant more than 93 percent of the permitted acreage (base acres less required reduction), and if the remaining permitted acreage is placed in conservation uses or certain approved nonprogram crops, then deficiency payments will be made on 92 percent of the permitted acreage. This requirement is commonly known as the “50/90″ provision. If producers plant less than 50 percent of their permitted acreage, or plant 92 percent or of their permitted acres, then deficiency payments are made on the acreage planted for harvest. If no acreage limitation program is in effect, payments may be subject to an allocation factor which allocates acres on which deficiency payments are made based on national program acres.” Id. at 34.
The 1985 Farm Bill authorizes the Secretary to use an acreage limitation program if the supply of cotton will be excessive taking into account carryover stocks. If the Secretary decides an acreage limitation program is necessary the Secretary must announce the program no later than November 1 of the calendar year preceding the year in which the crop is harvested. An acreage limitation program shall uniformly reduce, but not by more than 25 percent, the cotton acreage base for each cotton producing farm. Growers who knowingly produce in excess of their permitted cotton acreage will be ineligible for loans and payments.
1990 – Marketing loan provisions from the 1985 Farm Bill are continued with some changes. The loan rate formula and minimum loan rates stay the same, but the Secretary is given discretion to change the base quality of cotton. Plan A and Plan B, which set the loan repayment rate in the 1985 Farm Bill when the prevailing world price (PWP) was below the loan level, are discontinued. Under the 1990 Farm Bill when the adjusted world price (AWP) is less than the loan rate, the producer can either repay the loan rate or the higher of: (1) 70 percent of the loan level, (2) AWP or, (3) another level that is not less than 70 percent of the loan level.
Similar to the 1985 Farm Bill, if the marketing loan provisions fail to make upland cotton fully competitive in world markets and the PWP is less than the current loan repayment rate, the Secretary must provide negotiable marketing certificates to first handlers of cotton (cotton buyers). The value of the certificates is the difference between the loan repayment rate and the PWP. Certificates may be redeemed for cash or other agriculture commodities.
Deficiency payments must be paid to upland cotton producers if the national average market price received by farmers is below the established target price. The deficiency payment is computed the same as in the 1985 Farm Bill, however, the established target price is different. The 1985 Farm Bill set the target prices at $0.81 in 1986 and declined to $.0729 per pound in 1990, while the 1990 Farm Bill target price is set at not less than $0.729 per pound for the length of the Farm Bill.
A new 3-step procedure was included in the 1990 Farm Bill to help keep United States cotton competitive. Step 1 incorporated into law the discretionary adjusted world price (AWP) adjustment. Step 2 requires payments, in either cash or marketing certificates, to be made to domestic users and exporters for documented purchases in a week following a consecutive 4-week period in which the weekly U.S. Northern European price exceeds the Northern Europe price by more than 1.25 cents per pound. A second condition for these payments is that the AWP does not exceed 130 percent of the current crop year loan rate. However, no payments will be issued if, for the preceding consecutive ten week period, the weekly U.S. Northern Europe price, adjusted for the value of any payments issued, exceeds the Northern Europe price by more than 1.25 cents per pound…Step 3 requires that a special import quota be opened if, for a consecutive ten week period, the U.S. Northern Europe price, adjusted for the value of any payments issued under step 2, exceeds the Northern Europe price by more than 1.25 cents per pound. The amount of the quota is equal to 1 week’s domestic mill consumption. Importers have 90 days to purchase and 180 days to enter the cotton into the United States after the quota proclamations. Harold Stults et al., Cotton Background for 1996 Farm Legislationat 16, (Economic Research Service, Staff Report No. AGES 89-42 U.S. Dep’t. of Agric., 1995).
1996 – Marketing loans are available with provisions similar to other commodities. Similar to earlier farm bills, the loan rate is the lesser of: (1) 85 percent of the average United States spot market during the past five years, excluding the highest and lowest years, or (2) 90 percent of the average adjusted price of the five lowest priced growths quoted for middling 1 3/32 inch cotton, c.i.f., Northern Europe during the period April 15 through October 15 of the year preceding the year in which the crop is planted. In no case may the loan rate be less than $0.50 per pound or more than $0.5192 per pound. Similar to the 1990 Farm Bill, the term of the loan is ten months, beginning on the first day of the month in which the loan is made; repayment for most other commodities is 9 months. Unlike previous farm bills this bill prohibits extensions of loans.
Repayment of marketing assistance loans is the lesser of: (1) the loan rate, plus interest, or (2) the prevailing world price. The Secretary may make loan deficiency payments (LDP) available to producers who, although eligible to obtain a marketing assistance loan, agree to forgo obtaining the loan in return for an LDP.
Upland cotton producers are eligible for production flexibility contracts (PFC). The requirements for PFCs are similar to all other commodity crops. Total PFC payments to upland cotton producers total $647,791,000 in 1996 but decline to $466,130,400 in 2002.
The 1996 Farm Bill continues the three-step procedure that was included in the 1990 Farm Bill. “Step 1 incorporated into law the discretionary adjusted world price (AWP) adjustment. Step 2 requires payments, in either cash or marketing certificates, to be made to domestic users and exporters for documented purchases in a week following a consecutive 4-week period in which the weekly U.S. Northern European price exceeds the Northern Europe price by more than 1.25 cents per pound. A second condition for these payments is that the AWP does not exceed 130 percent of the current crop year loan rate. However, no payments will be issued if, for the preceding consecutive ten week period, the weekly U.S. Northern Europe price, adjusted for the value of any payments issued, exceeds the Northern Europe price by more than 1.25 cents per pound.” Harold Stults et al., Cotton Background for 1996 Farm Legislation at 16, (Economic Research Service, Staff Report No. AGES 89-42 U.S. Dep’t. of Agric., 1995). The 1996 Farm Bill limits total expenditures under step 2 to $701,000,000.
2002 – The 2002 Farm Bill replaces production flexibility contracts with direct payments. Direct payments are based upon a payment rate set in the Farm Bill, individual farm yields and crop acreage base. The direct payment rate is set at $0.0667 per pound for upland cotton. For the direct payment formula, see above, Direct Payments, 2002 Farm Bill.
Producers are also eligible for counter-cyclical payments (CCP) when cotton prices fall. For CCP formula, see above, Counter-Cyclical Payments, 2002 Farm Bill.
Producers are eligible for marketing loans. The loan rate is fixed at $0.52 per pound through 2007. This approach differs from the three prior farm bills, which calculated the loan rate based upon the lesser of: (1) 85 percent of the average U.S. price for base quality cotton, or (2) 90 percent of the average of designated Northern European spot market prices.
Special provisions exist for the repayment of marketing loans for cotton. Producers are given the option of repaying the lesser of (1) the loan rate, plus interest, or (2) the prevailing world price. Loan deficiency payments are available for cotton producers.
Similar to previous farm bills, if cotton is not fully competitive on world markets, provisions exist that allow the Secretary to issue marketing certificates. If the average price of cotton in the United States exceeds the Northern Europe price by more than $0.0125 per pound, and the adjusted world price does not exceed 134 percent of the loan rate for upland cotton, the Secretary must provide negotiable marketing certificates to first handlers of cotton (cotton buyers). The value of the certificates is the difference between the loan repayment rate and the adjusted world price. Certificates may be redeemed for cash or other agriculture commodities.
Rice
1985 – The 1985 Farm Bill provides price support through loans and purchases. The minimum loan rate is $7.20 per hundredweight for the 1986 crop. For 1987 through 1990 the price is set at the higher of: (1) 85 percent of the average price received by producers during the five previous years, excluding the highest and lowest years, or (2) $6.50 per hundredweight. In any case, the loan rate may not be reduced by more than five percent from the previous years’ rate.
Rice has unique repayment provisions that allow loans to be repaid at the lesser of: (1) the loan level, or (2) the higher of (a) the loan level multiplied by 50 percent in either 1986 and 1987, 60 percent for the 1988 crop, and 70 percent for each of the 1989 and 1990 crops, or (b) the prevailing world price.
As a condition of repayment the Secretary may require a producer to purchase marketing certificates equal in value to an amount that does not exceed one-half of the difference between the amount of the of the loan obtained by the producer and the amount of the loan repayment. The certificates are redeemable for Commodity Credit Corporation rice at the prevailing market price.
The Secretary is authorized to make loan deficiency payments (LDP) available from 1986 through 1990. The amount of rice that is eligible for an LDP is based upon individual farm’s program acreage and farm program payment yield.
Deficiency payments must be paid if the national average market price is below the target price. The minimum established price is $11.90 per hundredweight for the 1986 crop, $11.66 per hundredweight for the 1987 crop, $11.30 per hundredweight for the 1988 crop, $10.95 per hundredweight for the 1989 crop, and $10.71 per hundredweight for the 1990 crop. For more information see, Deficiency Payments, 1985 Farm Bill. A marketing certificate program is used to promote exports when the world price of rice is less than the loan repayment rate. Payments are made in the form of certificates to people who enter into agreements with Commodity Credit Corporation. The value of the certificate is the difference between the repayment rate and the prevailing world price.
The bill continues authority for Secretary to implement an acreage reduction program and paid land diversion program. For more information, see Acreage Limitation Program or Acreage Set aside Program.
1990 – The 1990 Farm Bill makes few changes to the 1985 Farm Bill. The loan rate is set at the higher of: (1) 85 percent of the average price received by producers during the five previous years, excluding the highest and lowest years, or (2) $6.50 per hundredweight. The prior bill used this formula from 1987 through 1990. In terms of marketing loans, the Secretary shall allow producers to repay loans at the lesser of: (1) the loan level, or (2) the higher of (a) 70 percent of the loan level, or (b) the prevailing world price.
Similar to the 1985 Farm Bill, the Secretary may require a producer to purchase marketing certificates equal in value to an amount that does not exceed one-half of the difference between the amount of the of the loan obtained by the producer and the amount of the loan repayment. The certificates are redeemable for Commodity Credit Corporation rice at the prevailing market price.
The Secretary is required to make loan deficiency payments (LDP) available from 1991 through 1995; under the prior bill LDPs were optional. The amount of rice that eligible for an LDP is based upon the individual farm’s program acreage and farm program payment yield.
Deficiency payments must be paid to producers if the national average market price received by farmers is below the target price. The minimum established price is $10.71 per hundredweight. For more information, see Deficiency Payments, 1985 Farm Bill.
The marketing certificate program designed to promote exports when domestic prices are higher than world prices remains unchanged, except the certificates are redeemable for all commodities, not just rice.
The bill continues authority for Secretary to implement an acreage limitation program and paid land diversion program. For more information, see Acreage Limitation Program or Acreage Set aside Program.
1996 – The 1996 Farm Bill altered the rice program significantly. Previous acreage reduction programs are eliminated. The Secretary is required to offer production flexibility contracts (PFC) to eligible landowners or producers with eligible cropland covering 1996 through 2002 crops. Producers are paid annual contract payments. In exchange for the payments, the owner or producer must: (1) meet certain conservation requirements, (2) comply with planting flexibility requirements, and (3) use contract acreage for agricultural purposes.
Rice is allocated 8.47 percent of the total amount available for PFC payments. Unlike any other commodity, rice is allocated an additional $8,500,000 annually for the fiscal years 1997 through 2002.
Marketing loans are available to producers on any rice grown on a farm that is covered by a PFC contract. The minimum loan rate is $6.50 per hundredweight. In comparison the 1990 Farm Bill set the loan rate with both a percentage of past prices and a minimum of $6.50.
Loan repayment rates are set at the lesser of: (1) the loan rate plus interest, or (2) the prevailing world market price.
Loan deficiency payments are authorized. Similar to the marketing loan provisions, all rice grown on a farm covered by a PFC contract is eligible for an LDP, unlike previous farm bills that based the amount eligible upon individual farm’s program yields and acres.
2002 – Production flexibility contract payments (PFC) are replaced by direct payments. Rice’s direct payment rate is $2.35 per hundredweight. The direct payment equals the payment rate multiplied by 85 percent of the farm’s base acreage multiplied by the farm’s direct payment yield. Producers can designate base acres in two ways, either (1) use base acres equal to their previous contract acreage under PFC, plus their average oilseed plantings from 1998 through 2001, as long as the base acres do not exceed total cropland, or (2) update base acres to the four-year average of acres planted, plus acres that were prevented from planting from 1998 through 2001.
Payment acres equals 85 percent of the base acres for the covered commodity.
The total amount of counter-cyclical payments made to a person during any year may not exceed $65,000. For more information, see Counter-Cyclical Payments, 2002 Farm Bill.
Soybeans and Oilseeds
1985 – Soybeans are supported through loans and purchases. The support price for 1986 and 1987 crops is set at $5.02 per bushel. The support price for 1988 through 1990 crops is set at 75 percent of the average price received by producers in the five preceding years, excluding the highest and lowest years; however the price cannot be reduced by more than five percent or lower than $4.50 per bushel.
The Secretary is given discretion to reduce the price support rate five percent a year but not lower than $4.50 per bushel if it is necessary to encourage exports or increase competitiveness.
The Secretary is authorized to reduce the loan repayment rate to the loan level or the prevailing world price.
Unlike other commodities, soybean producers are not required to participate in any production adjustment program for any commodity.
1990 – The 1990 Farm Bill provides support to soybeans, sunflower seed, canola, rapeseed, safflower, flaxseed, mustard seed, along with any other oilseeds the Secretary may determine. The 1985 Farm Bill only covered soybeans.
Support is provided through loans and purchases. The minimum loan rate for soybeans is $5.02 per bushel; sunflower seed, canola and rapeseed, safflower, mustard seed and flaxseed are $0.089 per pound. If the Secretary includes other oilseeds their price shall be fair and reasonable in relation to soybeans’. Marketing loans and loan deficiency payments are required. The repayment rate is the lesser of: (1) the loan level, (2) the prevailing world price, or (3) another level the Secretary determines is appropriate.
Similar to prior farm bills oilseed producers are not required to participate in any production adjustment program for any commodity.
1996 – The 1996 Farm Bill provides marketing loans and loan deficiency payments. Soybeans’ minimum loan rate is 85 percent of the average price received by producers during the five preceding years, excluding the highest and lowest years; but not less than $4.92 per bushel or higher than $5.26 per bushel.
Other oilseeds minimum loan rate is 85 percent of the average price received by producers during the five preceding years, excluding the highest and lowest years; but not less than $0.087 per pound or higher than $0.093 per pound.
The loan repayment rate will be the lesser of: (1) the loan rate, plus interest, or (2) a rate that the Secretary determines will (a) minimize potential loan forfeitures, minimize accumulation of stocks, minimize storage costs, allow the commodity to be marketed freely both domestically and internationally.
2002 – The 2002 Farm Bill provides marketing loans and loan deficiency payments. Payment rates for the length of the Farm Bill are set at $5.00 per bushel for soybeans and other oilseeds’ price is $0.0960 for 2002 and 2003 crop years, decreasing to $0.0930 for 2004 through 2007 crop years. Repayment provisions are similar to the prior Farm Bill.
Producers are eligible for both direct and counter-cyclical payments. The direct payment rate for soybeans is $.44 per bushel; the direct payment rate for other oilseeds is .0080 per pound. Target prices for soybeans are $5.80 per bushel for the entire 2002 Farm Bill. Target prices for other oilseeds are $.980 per pound for 2002 and 2003 crop years, and $.1010 for the 2004 thru 2007 crop years. For information, see Direct Payments, Counter-cyclical Payments, 2002 Farm Bill.
Peanuts
1985 – Past farm bills used “quotas” as a method to control peanut production. The federal government supported the farm price of peanuts primarily by limiting the amount of peanuts allowed to be sold for domestic use (referred to as quota peanuts) at a specified “high” price support level. Farmers have the opportunity to sell peanuts produced in excess of their “quota” (“additionals”) for export or crushing into peanut oil and meal, but at a much lower price. The 1985 Farm Bill continues this method of support.
The price a grower receives for peanuts depends on whether the peanuts are “quota” or “additional” peanuts. Quota peanuts receive a much higher price than additional peanuts. Quota peanuts are those peanuts that are (1) available for domestic use (use for milling to produce domestic food peanuts, seed, and use on the farm), (2) marketed or considered marketed on the farm and (3) do not exceed the individual farms’ poundage quota. Additional peanuts are any peanuts not covered by the poundage quota, regardless of whether the peanuts are grown by a farm that possesses a poundage quota.
The Secretary must establish a national poundage quota from 1986 through 1990 for domestic edible, seed, and related uses. In any case, the Secretary cannot reduce the national poundage quota for any year to less than 1,100,000 tons.
The 1985 Farm Bill contains provisions that govern how quotas are allocated among individual states and farms. The national poundage quota must be apportioned among states based upon their 1985 allocation. Each state allotment is subsequently apportioned among individual farms in that state. A farm poundage quota is then established based upon each farm’s poundage quota in 1985. “If the national quota is increased in subsequent years, a farm poundage quota will be established for each farm which produced and marketed peanuts in at least 2 of the 3 preceding crop years.” Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 27, (Agric. Info. Bulletin Number 498, U.S. Dep’t. of Agric., 1986). “Any increases in a State’s quota must be allocated equally among farms that had a poundage quota in the preceding marketing year and farms without a poundage quota that produced and marketed peanuts in at least 2 of the 3 preceding crop years. Any decreases in a State’s quota must be allocated among farms that had a quota in the preceding marketing year.” Id.
The national average price support level for the 1986 crop of quota peanuts is set at the 1985 rate, adjusted for increases in production costs. The support rate for quota peanuts grown between 1987 and 1990 will be at the rate of the previous crop, adjusted for increases in the cost of production, excluding changes in the price of land.
The support rate for additional peanuts is at levels the Secretary determines appropriate, taking into consideration the demand for peanut oil and meal, prices of other vegetable oils and protein meals, and the demand for peanuts in foreign markets. The level of support for additional peanuts must insure that there are no losses to the Commodity Credit Corporation on the sale of such peanuts.
The national poundage quota for peanuts in 1985 was 1,100,000 short tons increasing to 1,355,500 short tons in 1986. The national average support level for 1985 quota peanuts was $559.47 per short ton increasing to $607.47 per short ton in 1986. Additional peanuts were supported $148.00 per short ton in 1985 and $149.75 in 1986. Id. at 29.
1990 – The 1990 Farm Bill continues peanut quotas. The national poundage quota will be set annually by the Secretary at a level equal to the quantity of peanuts that will be used for domestic edible consumption, seed, and related uses. The quota cannot fall below 1,350,000 short tons. In comparison the national poundage quota for peanuts in 1985 was 1,100,000 short tons, increasing to 1,355,500 short tons in 1986.
The national average price support for quota peanuts for 1991 through 1995 crops is the rate for the previous years’ crop, adjusted to reflect any increase in the cost of production, not considering the cost of land during the previous calendar year.
The 1990 Farm Bill changes how states allocate increased poundage quotas. “If a state’s poundage quota is increased in subsequent years, a poundage quota will also be established for those farms currently without quotas that produced and marketed peanuts in at least two of the three preceding crop years. An increase in a state’s poundage quota must be allocated proportionately-instead of equally, as in the 1985 Farm Bill, to farms that had a quota in the preceding year and to other farms that produced peanuts in at least two of the three preceding years.” Susan L. Pollack, Provisions of the Food, Agriculture, Conservation, and Trade Act of 1990 at 29 (Agric. Info. Bulletin No. 624 U.S. Dep’t. of Agric., 1991).
If a state’s poundage quota is reduced, the decrease is allocated between all the farms that had poundage quotas during the previous year.
The Secretary is required annually to conduct a referendum of producers engaged in the production of quota peanuts to determine whether producers support continuation of the peanut program for the next five years. If, however, over two-thirds of the growers support the poundage quotas no further vote is necessary for the next five years.
Support for additional peanuts remains unchanged under the 1985 Farm Bill. However, changes are made in the marketing and disposition of additional peanuts. Some of these changes include adding new provisions governing the purchase contracts, regulation of handlers, marketing penalties, and CCC resale price for additional peanuts. See id. at 28.
1996 – The national average loan rate for 1996 through 2002 crops of quota peanuts is set at $610 per ton, available through nonrecourse loans. Additional peanuts are supported through nonrecourse loans at levels the Secretary determines appropriate, taking into consideration the demand for peanut oil and meal, expected prices of other vegetable oils and protein meals, and the demand for peanuts in foreign markets. However, the support rate for additional peanuts must be set at a level to ensure there are no losses to the Commodity Credit Corporation.
Similar to the 1985 and 1990 Farm Bills, the Secretary must establish a national poundage quota for each marketing year through 2002 at a level equal to estimated domestic edible peanuts; seed use is no longer a component used in this determination. The Farm Bill eliminates a minimum national poundage quota, which had been set at 1,100,000 tons and 1,350,000 tons for the 1985 and 1990 Farm Bills, respectively. The one percent marketing assessment that originated in the 1990 Budget Act increased to 1.15 percent for the 1996 crop and then to 1.2 percent for the 1997 through 2002 crops. This assessment is taken from a percentage of the loan on peanuts.
2002 – The two-tier peanut price support program based upon “quota” and “additional” peanuts is eliminated and replaced with a system of direct payments, counter-cyclical payments, and nonrecourse loans with marketing loan provisions.
Both poundage quota holders and non quota holders are eligible for direct payments, counter-cyclical payments, marketing loans and loan deficiency payments.
Peanut producers are eligible for marketing loans and the Secretary may offer loan deficiency payments; the loan rate is set at $355 per ton for the duration of the 2002 Farm Bill.
Producers must have peanut production history from 1998 through 2001 to be eligible for direct and counter-cyclical payments. The direct payment rate is set at $36 per ton. Counter-cyclical payments are made when market prices fall below $495 per ton. Payments for direct and counter-cyclical payments are based upon the producer’s historic payment yields and payment acres. Payment yields are determined as the average yield on the farm between 1998 and 2001. Payment acres are 85 percent of average acreage planted between 1998 and 2001. For more information, see Direct Payments, Counter-Cyclical Payments, 2002 Farm Bill.
Marketing quotas for peanuts are repealed. Quota holders receive compensation for the lost value of their quota in five annual installments; provisions also exist for one lump sum payment. An annual payment of $0.11 per pound is made to eligible quota holders based upon the quota held at the time the 2002 Farm Bill was signed.
Sugar
1985 – The 1985 Farm Bill provides price support through import restrictions and nonrecourse loans for domestically grown sugarcane and sugar beets. “Unlike other commodity programs, loans are made to processors and not directly to producers.” Robert D. Barry, et al., Sugar: Background for 1990 Farm Legislation at 43 (Staff Report No. AGE90006 U.S. Dep’t of Agric. Feb 1990). Raw cane sugar and refined beet sugar are used as collateral.
The Farm Bill sets the minimal national loan rate for sugarcane at $0.18 per pound for raw cane sugar, and sugar beets must be supported at a level that is “fair and reasonable” in relation to the loan rate for sugarcane. Loans must be repaid within one fiscal year. The sugar program is run “at no cost” to the government. In order to prevent loan forfeitures a market stabilization price (MSP) is announced by the USDA each September for the next fiscal year. The MSP is set at a level higher than the loan rate to discourage processors from forfeiting their loan collateral, which could result in program costs. “The MSP is comprised of the national average loan rate for raw sugar, loan interest for 6 months, transportation and handling costs, and a market incentive of 0.2 cent a pound.” Id. at 44.
To keep U.S. prices from falling below the MSP, USDA estimates the domestic demand for sugar and then limits supply. No limit is placed on domestic production, but imports are restrained by a quota. See id. at 45.
“The President is authorized to proclaim duties and quotas under Headnote 2 of the Tariff Schedules of the United States.” Id. The minimum rate of duty is $.00625 per pound, the rate of duty will automatically return to the statutory rate of $0.01875 per pound whenever sugar quota legislation is not in effect, unless the President acts to impost specific rates of duty and quotas. See id.
1990 – The 1990 Farm Bill continues price support through nonrecourse loans to processors. The minimum loan rate for raw cane sugar remains at $0.18 per pound; sugar beets are supported at a rate that bears the same relation to the amount of support for sugarcane. The Secretary may increase the support rate from the previous years’ rate based on factors the Secretary determines appropriate, including changes to the cost of sugar products and the cost of domestic sugar production during the two previous years.
Import quotas are used to restrict the supply of sugar, keeping prices above loan rates. However, if the Secretary determines that the amount of sugar imported is less than 1,250,000 short tons for any fiscal year, the Secretary must establish marketing allotments on domestically produced sugarcane and sugar beets at a level that will raise sugar imports to the specified level. If marketing allotments are imposed upon domestic sugar they also must be established for crystalline fructose made from corn, imposing a ceiling of 200,000 short tons, raw value. Any processor or manufacturer who violates their marketing allotments will be subject to a civil penalty equal to three times the market value of the quantity involved, at the time of the violation.
When marketing allotments are required, the overall allotment amount must be allocated between sugar derived from sugarcane and sugar beets in a fair and equitable manner. The Secretary must adjust, or suspend, marketing allotments based on changes in the quarterly reestimates of consumption, availability, and imports. For any increase or decrease in allotments the amount allocated to processors must be increased or decreased by the same percentage.
1996 – Sugar loans will be issued as recourse loans instead of nonrecourse loans unless the sugar import tariff-rate quota (TRQ) is set at or above 1,500,000 short tons raw value. If the TRQ is equal to or higher than 1,500,000 short tons during the year, then sugar loans shall be converted into nonrecourse loans.
Sugar loan rates are set at $0.18 per a pound, raw value, for raw cane sugar, and $0.229 per pound for sugar beets, unchanged from the previous Farm Bill.
Reductions in the loan rate are required if other major producing and exporting countries (EU countries plus the ten top producers of sugar) reduce their sugar export and domestic subsidies on sugar beyond that already agreed upon in the GATT Uruguay Round Agreement.
A penalty of $0.01 per pound for raw cane sugar and $0.0107 per pound for refined beet sugar is assessed upon sugar processors and refiners who forfeit sugar pledged as collateral for nonrecourse loans.
Beginning with fiscal year 1997 sellers of domestic raw cane sugar must pay an assessment 1.375 percent of the raw sugar loan rate for sugarcane processors and 1.47425 percent of the raw sugar loan rate for beet sugar refiners.
Marketing allotments that were part of the 1990 Farm Bill are not continued in the 1996 Farm Bill.
2002 – Nonrecourse loans are continued under the 2002 Farm Bill. The loan rate for raw cane sugar is $0.18 per pound and $0.229 per pound for refined beet sugar, identical to the 1996 Farm Bill. Similar to the 1996 bill the Secretary may reduce loan rates if other major producing and exporting countries reduce their export and domestic subsidies on sugar below current World Trade Organization commitments.
Also similar to prior farm bills the 2002 Farm Bill uses import quotas to restrict the supply of sugar that enters the United States to insure that USDA does not acquire forfeited sugar. Tariff-rate quotas are also used as a tool to restrict imports.
The Farm Bill uses marketing allotments to keep domestic production at specified levels; allotments were also used in the 1990 Farm Bill, but not the 1996 Farm Bill. Marketing allotments are required when imports are projected below 1,531,000 short tons. The overall allotment is split between sugar derived from sugarcane and sugar derived from sugar beets. Sugar derived from sugarcane fulfills 45.65 percent whereas sugar derived from sugar beets fulfills 54.35 percent of the allotment. The Farm Bill provides further guidelines that allocate sugar between states and processors. It provides rules for allocating allotments to new processors that may begin production, or processors that cease operations.
A sugar payment-in-kind is authorized that allows processors acting in concert with producers of sugarcane and sugar beets to submit bids to obtain sugar in USDA’s inventory in exchange for reducing production.
The Farm Bill terminated both marketing assessments and forfeiture penalties.
Honey
1985 – The 1985 Farm Bill sets the honey price support rates for 1986 through 1987 at $0.64 and $0.63 per pound, respectively. The loan and purchase levels for 1988 through 1990 are the rate from the previous year reduced by five percent, but the level cannot fall below 75 percent of the average price received by producers in the preceding five crop years, excluding the highest and lowest years.
Due to high forfeitures of honey in previous years the Secretary is given discretion to offer marketing loans. A marketing loan gives the Secretary discretion for beekeepers to repay their loans at a rate that is lower than the announced loan rates. See Frederic L. Hoff, Honey Background for 1995 Farm Legislation at 11 and 13 (Agric. Econ. Report No. 708, U.S. Dep’t. of Agric., 1995).
If the Secretary determines a person has knowingly pledged adulterated or imported honey as collateral to secure a loan, that person is ineligible for any payments based upon honey production for the next three crop years.
1990 – The 1990 Farm Bill authorizes price support through loans, purchases and other means for honey from 1991 through 1995 at not less than $0.538 per pound and reauthorized a marketing loan option for 1991 through 1995.
A subsequent budget amendment to the 1990 Farm Bill provided for a budget reduction assessment on honey production equal to one percent of the loan rate. See Frederic L. Hoff, Honey Background for 1995 Farm Legislation at 14 (Agric. Econ. Report No. 708, U.S. Dep’t. of Agric., 1995).
Loan deficiency payments are available to producers who choose to forgo obtaining a loan. The Secretary is given discretion to make payments available in the form of certificates redeemable for any agricultural commodity owned by the Commodity Credit Corporation.
Similar to the 1985 Farm Bill, if the Secretary determines that a person has knowingly pledged adulterated or imported honey as collateral to secure a loan, that person shall be ineligible for any payments based upon honey production for the next three crop years.
A payment limit is set at $200,000 per person for 1991 which decreases to $125,000 per person by 1994. The Omnibus Budget Reconciliation Act of 1993 reduced the minimum honey loan rate from $0.538 per pound for the 1991 through 1995 crops to $0.50 per pound for 1994 and 1995. In addition, it reduced the payment limit from $125,000 to $100,000 for 1995.
2002 – The loan rate for the duration of the 2002 Farm Bill is $.60 per pound. For more information on the loan programs, see Commodity Loan Programs.
Wool and Mohair
1985 – Wool and mohair prices are supported through direct payments based upon the percentage of the national average price needed to bring the average return for all producers up to the statutory formula-based support price. See Susan L. Pollack, Provisions of the Food, Agriculture, Conservation, and Trade Act of 1990 at 5 (Agric. Info. Bulletin No. 624 U.S. Dep’t. of Agric., 1991).
The 1965 Farm Bill set the formula that determines the support rate for shorn wool. The support rate rounded to the nearest full cent remains at 77.5 percent of:
$0.62 (average parity index for three previous calendar years/average parity index for 1958, 1959, and 1960)
“A parity index is the index of prices paid by farmers for commodities and services, including interest, taxes, and farm wages.” Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 6, (Agric. Info. Bulletin Number 498, U.S. Dep’t. of Agric., 1986).
The support prices for pulled wool must maintain normal marketing relationships between pulled and shorn wool and maintain approximately the same percentage of parity for mohair as for shorn wool.
The total amount of payments for wool and mohair must not exceed an amount equal to 70 percent of the totals, as of the same date, of the gross receipts from duties collected under schedule 11 of the Tariff Act of 1930, as amended.
The Secretary is given discretion to make adjustments in support prices based upon the quality, grade, location, and type of wool and mohair.
1990 – Wool and mohair prices are supported through direct payments based upon the percentage of the national average price needed to bring the average return for all producers up to the statutory formula-based support price. The formula that determines the support rate for shorn wool was set in the 1965 Farm Bill and remains unchanged from the 1985 Farm Bill.
Declining payment limits are imposed: $200,000 for 1991, $175,000 for 1992, $150,000 for 1993, $125,000 for 1994 and subsequent years.
In 1993, Congress decided to terminate the program in 1996. P.L. 103-130, 107 Stat. 1368 § 1 (Nov. 1, 1993).
2002 – The 2002 Farm Bill authorized marketing assistance loans and loan deficiency payments. The loan rates are $1.00 per pound for graded wool, $0.40 per pound for non-graded wool, $0.40 per pound for unshorn pelts, and $4.20 per pound for mohair.
Dairy
1985 – The 1985 Farm Bill sets the price support for milk from January 1, 1986 through December 31, 1990. This price is supported through the government’s purchase of dairy products. The support level for 1986 remains at $11.60 per hundredweight and then drops to $11.35 for January 1 through September 30, 1987, falling to $11.10 for October 1, 1987 through December 31, 1990. The Secretary can adjust the support level in 1988, 1989, and 1990, based upon the amount of dairy products purchased by the government.
From April 1, 1986 through September 30, 1987, the Secretary must operate a milk production termination program. Under this program, popularly known as the Dairy Buyout, producers receive payments from USDA based on bids submitted to the Secretary for the purpose of decreasing milk production. See Lewrene K. Glaser, Provisions of the Food Security Act of 1985 at 3, (Agric. Info. Bulletin Number 498, U.S. Dep’t. of Agric., 1986). “All dairy cattle which the producers own must be sold for slaughter or export.” Id. “For 3, 4, or 5 years (as determined by the Secretary) after such sale, producers may not acquire interest in dairy cattle or milk production, nor acquire or make available to others facilities not used because of this program.” Id. The total number of dairy cattle marketed for slaughter under this program is limited to seven percent of the national dairy herd in addition to the normal culling rate per calendar year. See id.
The Secretary is required to establish and operate an export incentive program for dairy products. This program must provide payments to exporters of dairy products on a bid basis. Payments can only be made on quantities of dairy products sold in addition to, not in the place of existing export sales. Payments can be made in the form of cash or commodity certificates.
1990 – The 1990 Farm Bill sets the minimum price for milk at $10.10, compared to $11.10 in the 1985 Farm Bill. The price of milk is supported through Commodity Credit Corporation purchases of nonfat dry milk and milk products (butter, cheese, and nonfat dry milk). The Secretary may set the relation of price support between butter and nonfat dry milk in a manner that will result in the least cost to the USDA. These adjustments can only be made twice a year.
If the level of government purchases between 1991 and 1995 exceeds five billion pounds (milk equivalent, total milk solids basis) in any one year, the Secretary shall decrease the support rate by at least $0.25 per hundredweight, but not more than $0.50 per hundredweight. On the other hand, if the level of purchases is less than 3.5 billion pounds, the Secretary shall increase the amount of support at least $0.25 per hundredweight. In no event shall the price of milk be supported at less than $10.10 per hundredweight. The dairy export incentive program is extended from the 1985 Farm Bill.
1996 – The 1996 Farm Bill continues past price supports through government purchases of milk and milk products until December 31, 1999. After that time recourse loans are available to commercial producers to assist the processors to manage inventories of eligible dairy products and assure price stability. The loan rate is set at $9.90 per hundredweight of milk.
Similar to the 1996 Farm Bill the Secretary may set the rate of price support between butter and nonfat dry milk in a manner that will result in the least cost to the USDA or achieve other objectives the Secretary considers appropriate. These adjustments can be made only twice a year. The 1996 Farm Bill requires a reduction in Federal milk marketing orders from the current 33, to not less than ten or more than 14 orders.
The dairy export incentive program is continued. Slight modifications are made to insure program compliance with World Trade Organization obligations. Although, the 1996 Farm Bill terminated the dairy price support program on December 31, 1999, subsequent legislation extended the program through May 2002.
2002 – The 2002 Farm Bill continues the milk support purchase program through 2007 for the lower 48 states. The milk support price equals $9.90 per hundredweight. Announced purchase prices are set to enable plants of average efficiency to pay producers, on average, at least $9.90 per hundredweight for milk.
The 2002 Farm Bill calls for national dairy market loss payments, which will be administered as the Milk Income Loss Contract (MILC) program. A monthly payment is to be made to dairy farm operators if the monthly Class I price in Boston (Federal Order 1) is less than $16.94 per hundredweight. Payments are made on up to 2.4 million pounds of milk per fiscal year per operation, which corresponds to the production from about 135 cows. The MILC program expires on September 30, 2005.
The dairy export incentive program remains unchanged.