2002 Farm Bill

1. 2002 Farm Bill Provisions and Impacts Don Shurley Economist- Cotton University of Georgia

2. http://www.agecon.uga.edu Click on “Extension” Click on “Farm Bill 2002” Click on “Presentations”

3. Producers Have Two Important Decisions To Make What Bases To Have To Maximize Payments? Direct Payments (DP) and Counter Cyclical Payments (CCP) are tied to Base acres and what you produce or not produce has no bearing on these payments. What Crops To Produce? POP’s/LDP’s or Marketing Loan Gains (MLG) are the only payments tied to actual production. If you are likely to reach the payment limit- can you produce without an LDP? If so, which crop(s)? If payment limit will not be a problem, then remember you are producing for cash+LDP or the loan rate.

4. Hypothetical Example of Payments on Base Acres

5. Let Your Agronomic and Economic Comparative Advantage Be Your Guide “The future is unknown. We will have a 6-year farm bill. What about after that? Economics and farm bill issues are unpredictable and uncertain. Think about what farm enterprises we in Georgia have a comparative advantage in producing and think about desirable crop rotations. It may be to your long-term advantage to keep as much base in these crops as possible.”

6. Summary of Significant Commodity Provisions • Is a 6-year Bill -- 2002-2007. • Provides increased income safety net by institution of • new “counter cyclical payment”. • Will allow producers to update base acres and payment • (program) yields. • Continues POP/LDP and MLG provisions and the use of • marketing certificates. • Establishes a new peanut program. • Continues favorable payment limits and use of 3-entity rule.

7. New Terminology “Direct Payment” Timing of Payments: For 2002 “as soon as practical”; “for any or all 2002 AMTA payments already received, 2002 DP will be reduced”; for 2003-2007 “not before October 1 of the year harvested”, “up to 50% in advance beginning Dec 1” of the year before harvested”.

8. New Terminology “Target Price”

9. New Terminology “Counter Cyclical Payment” Target Price - Direct Payment - max(loan, 12-mo. avg mkt price) Example @ 40-cent cotton: 72.4 - 6.67 - 52.0 = 13.73 cents/lb Timing of Payments: “as soon as practical after the end of the 12-month marketing year for the commodity”. PARTIAL PAYMENTS: 1st payment- “not earlier than Oct 1, not later than Oct 31 of the harvest year”, “may not exceed 35%”; 2nd payment “not earlier than Feb 1”, “may not exceed 70% minus amount of 1st payment”.

10. Comparison Of Base Payments @ 40-Cent Cotton

11. Payment Base and Payment Yield Bases Producers may (1) keep bases as they currently are under the 1996 farm bill and add oilseed base OR (2) may update ALL bases to the average of acres planted from 1998-2001. This would include ZERO years. If you have no current (old) base for a crop, you still qualify for updated base (your 1998-2001 average). DP and CCP will be made on 85% of the base. Yield IF BASES ARE UPDATED, producers may also elect to update the farm’s Payment Yield. Your options are (1) keep current yield, (2) the “70% Option”, or (3) the “93 ½% Option”. DP will be made only at the current (old) yield level. CCP will be made at the elected yield.If you do not currently have an established yield, one will be established for you.

12. Timing of Base and Yield Election “as soon as practical …. Secretary shall provide notice to owners of farms” “provided only once” “the manner in which the election must be made and the time periods … . must be submitted by the Secretary”

13. Example of CCP Payment Yield Update Options Current (1996 Farm Bill) Payment Yield: 600 lbs/ac 1998-2001 Payment Yield: 800 lbs/ac • Option 1: Retain old yield • 600 lbs • Option 2: Old yield + 70% of the Difference • + 200 x 70% = 740 lbs • Option 3: 93 ½% of 1998-2001 Yield • 800 x 93 ½% = 748 lbs

14. Keep Current Bases Keep Current Payment Yield OR Keep Current Payment Yield Update (1998-2001) Base OR Elect 70% Option OR Elect 93 ½ % Option Base/Yield Alternatives * You must elect a single option for all bases and payment yields. You cannot update base on some crops and not update others. You cannot update CCP yield unless bases are updated. You cannot choose one CCP yield option for one crop and a different option for other crops. * Excluding peanuts.

15. Payment Limitations * Double payments received as part of financial assistance legislation

16. Base Acres Needed To Reach $40,000 DP Limitation

17. Base Acres To Reach $65,000 CCP Limitation Payments on 85% of Acres Shown

18. Acres of Cotton Needed To Reach LDP/MLG Limit

19. Payments Per Acre of Base At Various Cotton Prices LDP/MLG On Actual Acres Harvested 650 Lb DP Yield, 720 Lb CCP Yield, and 750 Lb Actual Yield

20. Comparison of 2002 Farm Bill To ’96 Bill @ 40-Cent Cotton, Updated Base and Yield

21. Net Returns With and Without Payments At 40-Cent Cotton

22. Price Outlook • Acreage very likely lower in 2002 • Possible large crop if weather cooperates will keep lid on prices • Foreign acreage and production likely down • A-Index should hold at current levels or improve • US prices probably 35-50 cents per pound • Total money still around 58-60 cents with LDP