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Government programs affect oil
crop markets as well as producers' incomes. Under the
Farm Security and Rural Investment Act of 2002 (2002 Farm
Act), producers of soybeans and other oilseeds (sunflowerseed,
canola, rapeseed, safflower, mustard seed, and flaxseed)
remain eligible for nonrecourse commodity loans and could
establish oilseed acres as part of their base acreage.
Producers with a recent history (1998-2001) of oilseed
production were thus eligible for direct and counter-cyclical
payments. The 2002 Farm Act also eliminated the longstanding
peanut quota marketing system, and replaced it with provisions
similar to those for soybeans and other oilseeds (for
a discussion of provisions that apply uniquely to peanuts,
visit the 2002
Farm Act peanut provisions page in the Farm and Commodity
Policy briefing room). In addition, oil crop producers
have access to subsidized crop and revenue insurance available
under previous legislation. Oil crop markets are also
affected by trade policy and by programs that increase
oil crop and oil crop product use through trade promotion
and food aid.
As in the 1996 Farm Act, farmers are given almost complete
flexibility in deciding which crops to plant. Producers
participating in government commodity programs are permitted
to plant all cropland acreage on the farm to any crop,
except for some limitations on planting fruits, vegetables,
and wild rice. The land must be kept in an approved agricultural
use (which includes fallow), and farmers must comply with
certain conservation and wetland provisions.
Below is general information on government programs
affecting soybean and other oil crop producers' management
decisions and incomes. For further information, visit
the program
provisions section in the Farm and Commodity Policy
briefing room.
Direct and Counter-Cyclical Payments
Under the 2002 Farm Act, producers of soybeans, peanuts,
and other oilseeds are eligible for new direct and counter-cyclical
payments if they established oil crop plantings as part
of their base acreage and participated in the initial
program enrollment. Farm owners had a one-time opportunity
to select from two general options for determining base
acreage used to calculate these payments. Program payment
yields must also be established for newly designated oil
crop base acres.
The first option for calculating base acreage allowed
producers to relinquish base acreage held under previous
legislation and to update acres to reflect actual (plus
prevented) plantings of all covered crops, including oilseeds,
during 1998-2001. Alternatively, producers could maintain
all or a portion of their current base acres of wheat,
feed grains, cotton, and rice from their production flexibility
contract (PFC) for 2002 and add oilseed base acres using
the 4-year average of oilseed plantings during 1998-2001.
In this case, total base acres generally were not allowed
to exceed the difference between total acreage for covered
crops in 1998-2001. Producers could retain their full
base for nonoilseed crops while adding enough oilseed
base to reach their maximum permitted base. Alternatively,
they could increase oilseed base by reducing base of the
other program commodities by an offsetting amount. Base
acres for peanuts were determined separately, as long
as total base acres did not exceed available cropland.
The 2002 Farm Act set payment acreage for both direct
and counter-cyclical payments at 85 percent of base acreage.
For soybeans and other oilseeds, payment yields for direct
payments were determined by multiplying the farm's 1998-2001
average yield by the ratio of the crop's national average
yields during 1981-85 and 1998-2001. For counter-cyclical
payments, farmers could choose the same payment yield
as for direct payments, or opt to update their payment
yields using one of two formulas at the time of initial
enrollment in the program. Only producers foregoing base
acreage held under previous legislation and updating base
acres to reflect 1998-2001 plantings for all covered crops
could update yields for the counter-cyclical payments.
Peanut payment yields for both direct and counter-cyclical
payments were based on average 1998-2001 farm yields,
with the opportunity to substitute historic (1990-97)
average county yields for up to 3 years. For more information
on opportunities to update yields for countercyclical
payments, visit the counter-cyclical
income support payments page in the Farm and Commodity
Policy briefing room.
The amount of the direct payment is equal to the product
of the payment rate, the payment acres (85 percent of
base acres), and the payment yield. The 2002 Farm Act
sets the payment rate at 44 cents per bushel for soybeans,
36 dollars per short ton (1.8 cents per pound) for peanuts,
and 0.8 cents per pound for other oilseeds. These payments
will be made for each of the crop years 2002-07.
Counter-cyclical payments are available whenever the
USDA-calculated effective price is less than an established
target price. Target prices specified in the 2002 Farm
Act are $5.80 per bushel for soybeans and $495 per ton
for peanuts for each crop year 2002-07. For other oilseeds,
the target price is 9.8 cents per pound for crop years
2002-03, and 10.1 cents per pound for crop years 2004-07.
The effective price is equal to the sum of 1) the higher
of the national average farm price for the marketing year,
or the national loan rate for the commodity, and 2) the
direct payment rate for the commodity. The difference
between the target price and the effective price is the
payment rate. The payment amount equals the product of
the payment rate, the payment acres (85 percent of base
acres), and the counter-cyclical payment yield.
However, there will be no counter-cyclical payments for
other oilseeds (sunflowerseed, canola, rapeseed, safflower,
mustard seed, and flaxseed) during crop years 2002-07.
The payment rate will be zero because the loan rate plus
the direct payment rate for the period (equaling the effective
price) will always equal or exceed the target price. For
crop years 2002-03, the effective price of 10.4 cents
per pound (the sum of a 9.6-cent loan rate and a 0.8-cent
direct payment rate) is above the target price of 9.8
cents per pound. For crop years 2004-07, the effective
price will be 10.1 cents per pound (9.3 cents plus 0.8
cents), which equals the target price of 10.1 cents.
To be eligible to receive direct and counter-cyclical
payments, owners will have to enroll in the program annually.
Farmers will receive their direct and (depending on prices)
counter-cyclical oilseed payment each year regardless
of the crop planted on their cropland that year. For further
information on acreage base, payment acres, and payment
yield for calculating direct and counter-cyclical payments,
as well as conservation requirements, visit the program
provisions section in the Farm and Commodity Policy
briefing room.
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Marketing Assistance Loans and Loan Deficiency Payments
The 2002 Farm Act continues nonrecourse commodity loans
with marketing loan provisions for soybeans and other
oilseeds, and extends market loan provisions to peanuts
following elimination of the peanut production quota program.
The Act eliminates the requirement that producers enter
into an agreement for direct payments—as was required
for those signing PFCs under the 1996 Farm Act—to
be eligible for loan program benefits. Thus, all current
soybean, peanut, and other covered oilseed production
is eligible for the program. Loan rates are fixed in legislation.
The loan rate is $5 per bushel for soybeans and $355 per
ton (17.75 cents per pound) for peanuts during 2002-07.
For other oilseeds, the rate is 9.6 cents per pound for
2002-03 and 9.3 cents per pound for 2004-07.
The marketing loan program allows producers to repay
commodity loans at a rate less than the original loan
rate plus interest, when the loan repayment rate is below
commodity loan rates. Loan repayment rates are based on
local, posted county prices (PCPs) for soybeans and other
oilseeds. A national level loan repayment rate for peanuts
is determined weekly by USDA for each of the four peanut
varieties. When a farmer repays the loan at a rate less
than the loan rate, the difference between the loan rate
and the loan repayment rate, called a marketing loan gain,
represents a program benefit to producers. In addition,
any accrued interest on the loan is waived. Loan deficiency
payments (LDPs) provide an alternative way for producers
to receive marketing loan benefits. Producers can opt
to receive a payment when the repayment rate is below
commodity loan rates, in lieu of taking out commodity
loans. The marketing loan program is used to minimize
potential commodity loan forfeitures and subsequent government
accumulation of stocks.
Commodity certificates can be purchased at the loan repayment
rates for oil crops. The certificates are available for
producers to use immediately in acquiring crop collateral
pledged to USDA's Commodity Credit Corporation (CCC) for
a commodity loan. For producers facing program payment
limits, this provides an opportunity to benefit from the
lower loan repayment rates.
For details on marketing assistance loans and LDPs, visit
the program
provisions section in the Farm and Commodity Policy
briefing room.
Crop and Revenue Insurance
Adverse weather conditions and insect infestations can
reduce yields and result in below-normal revenue in any
year. Low prices can also reduce revenue. Soybean, peanut,
and other oil crop farmers can purchase crop insurance
to guard against yield risk, or purchase revenue insurance
for protection against yield and revenue losses. USDA's
Risk Management Agency pays a portion of producers' premium
costs for insurance policies and also pays some of the
delivery and administrative costs of private insurance
companies that handle sales. In 2004, about 58.7 million
soybean acres, 1.8 million sunflower seed acres, and 1.3
million peanut acres were covered by insurance. For details
on crop insurance, visit the Farm
Risk Management briefing room.
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Export Programs and Policies
A number of export programs administered by USDA and
the U.S. Agency for International Development (USAID)
promote exports of oil crops, primarily soybeans and soybean
products.
The export credit guarantee programs are designed to
help foreign importers that face foreign exchange constraints
and need credit to purchase commodities. CCC operates
the Export
Credit Guarantee Program (GSM-102) and the Intermediate
Export Credit Guarantee Program (GSM-103). GSM-102
covers private credit extended for up to 3 years, while
GSM-103 covers private credit extended for 3-10 years.
In essence, the credit programs assure U.S. exporters
they will be paid. The Supplier Credit Guarantee Program
(SCGP) insures short-term, open-account financing. Under
SCGP, CCC guarantees a portion of payments due from importers
under short-term financing (up to 180 days) that exporters
have extended directly to importers for the purchase of
U.S. agricultural products. Eligible commodities under
these export programs include soybeans, peanuts, sunflower,
cottonseed, and their protein meals and vegetable oil
products. Credit became very important in supporting U.S.
agricultural exports to several countries following the
Asian financial crisis of the late 1990s.
The U.S. Government provides food aid overseas through
the P.L. 480 program, the Section 416 program, and the
Food for Progress (FFP) Program. Under P.L. 480 Title
I, USDA makes concessional sales that provide low-interest
loans to qualified developing countries purchasing U.S.
commodities. Generally, commodities shipped under Title
I are purchased on the open market by the recipient country.
The Title II program, administered by USAID, donates commodities
to least developed countries. The Section 416(b) program
provides for donations of CCC-owned surplus commodities
to developing countries. It also allows surplus CCC commodities
to be used for the purpose of P.L. 480 Title II programs
and the FFP program. Food
aid data indicate that, of total planned food aid
for fiscal year 2003, $289 million or 22 percent, consisted
of soybeans, soybean meal, and vegetable oils.
The Foreign
Market Development Program, also known as the cooperator
program, is administered by USDA's Foreign Agricultural
Service (FAS). The goal of the program is to develop,
maintain, and expand long-term export markets for U.S.
agricultural products. For export program details, visit
the major trade
programs section in the Farm and Commodity Policy
briefing room. The FAS
web site also provides export program information.
Environment and Conservation Programs
The 2002 Farm Act expands funding for all conservation
programs and significantly increases support for conservation
practices on cropped and fallowed land. Programs such
as the Environmental Quality Incentives Program and the
new Conservation Security Program provide assistance on
lands in production. Land retirement programs—including
the Conservation Reserve Program, Conservation Reserve
Enhancement Program, Wetland Pilot Program, and Wetlands
Reserve Program—remove land from production. For
details on environmental and conservation programs, visit
the Conservation
Policy briefing room.
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