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The Farm Security and Rural Investment Act of 2002 (2002
Farm Act) provides direct government income support to
eligible feed grain producers mainly through three programs:
direct payments, counter-cyclical payments, and the marketing
loan program. In addition, subsidized crop and revenue
insurance continues to be an important source of risk
management to farmers. Moreover, feed grain producers
receive benefits from government programs promoting trade
liberalization and food aid. Ethanol subsidies and clean
air regulations also have an impact on feed grain markets.
Near-complete planting flexibility-a critical component
of the 1996 Farm Act-continues with the 2002 Act. Farmers
are permitted to plant their cropland acreage to virtually
any crop without losing program benefits. The only planting
limitations are for certain fruits and vegetables. Farmland
must be kept in agriculture (including fallow use), and
production must comply with conservation and wetland provisions.
Below is general information on government programs affecting
feed grain production. For more information on government
policy, visit the program
provisions section of the Farm
and Commodity Policy briefing room, the Conservation
Policy briefing room, and the Farm
Risk Management briefing room.
Direct Payments
Under this program, fixed payments are made annually
to eligible producers. Farmers must enroll annually to
receive payments. Direct payments are decoupled from production,
i.e., they are made regardless of the level of production
or which crops are grown. Multiple payments will be issued
if a farm has base acres and yields in more than one commodity.
Eligible crops include corn, sorghum, barley, oats, wheat,
upland cotton, rice, soybeans, other oilseeds, and peanuts.
The direct payment is calculated by multiplying the
commodity payment rate by the farm's payment yield and
85 percent of the farm's base acres. With corn as an
example:
DP for corn = direct payment rate
for corn x payment yield for
corn x [base acres for corn x
0.85]
- Feed grain payment rates are set at $0.28 per bushel
for corn, $0.35 per bushel for sorghum, $0.24 per
bushel for barley, and $0.024 per bushel for oats.
- Payment yields (which are based on historical farm
yields) are crop-specific commodity yields used to
calculate direct payments and counter-cyclical payments.
For direct payments, payment yields are unchanged
from the rate used with production flexibility contract
payments under the 1996 Farm Act and cannot be updated.
However, payment yields can be updated for counter-cyclical
payments.
- Base acres (based on historical farm plantings)
are a farm's crop-specific acreage for program commodities
used in calculating direct payments and counter-cyclical
payments. Farmers have two options under the 2002
Farm Act in designating base acres:
1) Choose base acres equal to contract acreage for
the commodity that would otherwise have been used
for 2002 production flexibility contract payments
under the 1996 Farm Act, plus average oilseed plantings
in crop years 1998-2001 (if base acres do not exceed
available cropland).
2) Update base acres to reflect the 4-year average
of acres planted to covered commodities, plus those
prevented from planting due to weather conditions,
during crop years 1998-2001.
Marketing Assistance Loan Program
The 2002 Farm Act extends the marketing assistance loan
program. A key change from the 1996 Farm Act is that farmers
need not enroll in direct payment or counter-cyclical
payment agreements in order to participate.
The marketing assistance loan program provides nonrecourse
loans to eligible producers, with the farm's program
crop used as collateral. Producers may settle the
loan either by forfeiting the collateral to the Commodity
Credit Corporation (CCC) at maturity with no penalty
or by repaying in full at the repayment rate (loan
rate plus interest or the posted county price, whichever
is lower). Marketing loan provisions take effect when
the posted county price falls below the local loan
rate. The amount of this difference multiplied by
the crop quantity redeemed is called a marketing loan
gain. Alternatively, producers may forgo taking out
a loan and instead receive a loan deficiency payment
(LDP) equal to the difference between the posted county
price and local loan rate multiplied by the quantity
eligible for loan. Availability of LDPs for grazed-out
crops continues for wheat, barley, and oats. The 2002
Farm Act also added triticale to the program, and
its LDP payment rate will be the same as for wheat.
Farmers can also receive an LDP for feed grains used
for silage.
The 2002 Farm Act continues to allow commodity certificates
to be purchased at the posted county price. The certificates
are available for producers to use immediately in
acquiring crop collateral they have pledged to the
CCC for a commodity loan. These provisions enable
producers who are facing payment limits an opportunity
to benefit from the lower loan repayment rates when
marketing loan gains are otherwise forthcoming.
Commodity loan rates were changed in the 2002 Farm
Act. Per-bushel feed grain loan rates for 2002-03
are $1.98 for corn and sorghum, $1.88 for barley,
and $1.35 for oats. Per-bushel loan rates for 2004-07
are $1.95 for corn and sorghum, $1.85 for barley,
and $1.33 for oats. A key change in the 2002 Farm
Act is that the corn loan rate is raised relative
to the soybean rate. The corn and soybean loan rates
had been $1.89 and $5.26, respectively. Under the
2002 Farm Act the soybean loan rate is fixed at $5
per bushel for 2002-07.
Counter-Cyclical Payments
Counter-cyclical payments (CCPs) are available
to farmers whenever the effective price is less than
the target price. The effective price is defined as
the sum of the direct payment rate and either the
national average farm price or the national average
loan rate (whichever is larger). This difference between
the effective and target price is the counter-cyclical
payment rate.
Target prices for different program commodities were
legislated in the 2002 Farm Act. Per-bushel feed grain
target prices for 2002-03 are $2.60 for corn, $2.54
for sorghum, $2.21 for barley, and $1.40 for oats.
Per-bushel target prices for 2004-07 are $2.63 for
corn, $2.57 for sorghum, $2.24 for barley, and $1.44
for oats.
Counter-cyclical payments are based on a farm's base
acres and payment yields, and are calculated in much
the same way as direct payments, although farmers
have the option to update payment yields for counter-cyclical
payments. CCPs are made to eligible farmers regardless
of the level of production or which crops are grown
on the farm. As with direct payments, farmers must
enroll annually to participate.
Multiple payments will be issued if a farm has base
acres and yields in more than one commodity. Eligible
crops include corn, sorghum, barley, oats, wheat,
upland cotton, rice, soybeans, other oilseeds, and
peanuts. A farm's CCPs are equal to the product of
the counter-cyclical payment rate, the payment yield,
and 85 percent of the farmer's base acres. With corn
as an example:
Counter-cyclical payment rate for
corn = target price for corn
- direct payment rate for
corn - (higher of commodity price or loan rate)
CCPfor corn = counter-cyclical
payment rate for corn x payment yield for corn x
[base acres for corn x 0.85]
Crop and Revenue Insurance
Weather problems, pest pressures, and low market
prices can adversely affect farm income. Feed grain
producers can purchase subsidized crop or revenue
insurance products to manage these risks. USDA's Risk
Management Agency pays a portion of contract premiums
for producers' insurance policies and also pays some
of the delivery and administrative costs of private
insurance companies that sell these policies. In 2001,
74 percent of corn planted area, 76 percent of sorghum
planted area, 76 percent of barley planted area, and
19 percent of oats planted area were covered by crop
or revenue insurance.
Export Programs and Policies
USDA's Foreign Agricultural Service promotes exports
of U.S. feed grains. The Export
Credit Guarantee Program (GSM-102) and the Intermediate
Export
Credit Guarantee Program (GSM-103) help to facilitate
feed exports. These credit programs are used to underwrite
credit extended by U.S. banks to approved foreign banks
to pay for food and agricultural products sold to foreign
buyers. The credit programs provide assurance to U.S.
exporters that they will be paid. In addition, as part
of U.S. food-aid programs, USDA provides low-interest
loans to qualified developing countries purchasing U.S.
commodities. Food-aid sales, however, account for a
very small portion of U.S. feed grain exports.
Environment and Conservation Programs
Under the 2002 Farm Act, producers can
choose from a wide range of voluntary conservation
and environmental
programs designed to protect multiple resources. Land
retirement programs—including the Conservation
Reserve Program, Conservation Reserve Enhancement Program,
Wetland Pilot Program, and Wetlands Reserve Program—remove
land from production. Working lands programs, such
as
the Environmental Quality Incentives Program and the
new Conservation Security Program, provide assistance
on lands in production.
Ethanol Policy
Ethanol is used as a gasoline additive to reduce
the carbon monoxide content of engine exhaust and to increase
gasoline's octane rating, which reduces engine knock.
Corn is the primary feedstuff used to produce ethanol;
however, other grains (especially sorghum) are also important.
Passage of the 1990 Clean Air Act Amendments have led
to greater use of corn-based fuel. Fuel alcohol helps
meet clean air standards by reducing carbon monoxide emissions.
The U.S. Government blender tax credit, various State
production subsidies, and some States' required use of
fuel alcohol, as well as the cost and availability of
substitute fuel additives (especially MTBE), affect the
amount of ethanol used.
Ethanol production has been increasing in recent years.
Corn used for fuel alcohol production increased from 35
million bushels in 1980/81 (less than 1 percent of total
domestic corn use) to 690 million bushels in 2001/02 (9
percent of total domestic corn use). The potential banning
of MTBE in many States, including California and New York,
following instances of it leaching into groundwater is
one factor in the growing demand for ethanol.
In addition, the 2002 Farm Act extended the Bioenergy
Program. This program (first introduced in fall 2000)
provides incentive payments to ethanol, and especially
biodiesel, producers who expand bioenergy production from
eligible commodities.
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