Policy
The Food, Conservation, and Energy Act of 2008 (2008 Farm Act)
provides wheat producers access to marketing loan benefits, direct
payments (DPs), counter-cyclical payments (CCPs), and average crop
revenue election (ACRE) payments. In addition, many producers may
benefit from subsidized crop and revenue insurance available under
previous legislation, as well as from new permanent disaster
assistance. Moreover, wheat producers are affected by conservation
and trade programs.
Under the 2008 Farm Act, program participants are given almost
complete flexibility in deciding which crops to plant. Farmers are
permitted to plant all cropland acreage on the farm to any crop,
with some limitations on planting fruits and vegetables on acreage
eligible for DPs and CCPs. Eligibility for DPs and CCPs is based on
historical production parameters, and no commodity production is
required to receive payments, but the land must be kept in
agricultural use (which includes fallow). Participants in all
programs must comply with certain conservation and wetland
provisions.
General information follows on government programs affecting
wheat producers' management decisions and incomes. For further
information, see the the Farm and Commodity Policy
topic, the Risk
Management topic, and the Conservation
Programs topic.
Marketing
Assistance Loans and Loan Deficiency Payments
The 2008 Farm Act extends nonrecourse commodity loans with
marketing loan provisions for crop years 2010-12. All current wheat
production is eligible for the program. National loan rates are set
in the legislation. For wheat, the rate is $2.75 per bushel for
crop years 2008-09 and $2.94 per bushel for crop years 2010-12.
The marketing assistance loan program is designed to provide
short-term financing in all price environments, as well as to
assist producers when market prices are low. Because the loans are
nonrecourse, producers may forfeit the crop rather than pay back
the loan if prices fall below the loan rate plus interest.
To avoid forfeitures, the marketing loan provisions allow
producers to repay commodity loans at a rate less than the original
loan rate plus interest when posted county prices
(PCPs) are below commodity loan rates plus interest. USDA operates
the program this way to minimize potential commodity loan
forfeitures and, later, government accumulation of stocks. When
producers repay their nonrecourse commodity loans to USDA's
Commodity Credit Corporation (CCC) at a rate less than the loan
rate, the difference between the two rates is called a marketing
loan gain (MLG) and represents a program benefit to producers. In
addition, any accrued interest on the loan is waived.
Producers are also offered the opportunity to receive an
equivalent benefit in the form of a loan deficiency payment (LDP)
if they choose not to participate in the loan program. In this
case, the producer can opt to receive a one-time payment on
harvested production at any time PCPs are below commodity loan
rates during the term of the loan. The difference between the PCP
and the loan rate is the LDP rate. Producers can also receive an
LDP if their crop is cut for silage. LDPs for grazed-out crops
continue for wheat, barley, oats, and triticale. The LDP payment
rate for triticale is the same as that for wheat.
For further information, see the
Marketing Assistance Loans and Loan Deficiency Payments page in
the Farm and Commodity Policy topic.
Direct and
Counter-Cyclical Payments
DPs and CCPs are available to eligible landowners and producers
with wheat base acres who enter into an annual agreement with
USDA's Farm Services Agency (FSA). Base acres and payment yield for
DPs and CCPs are unchanged from the 2002 Farm Act. Payment acres
for DPs are reduced to 83.3 percent of base acres for crop years
2009-11. Payment acres for CCPs are unchanged at 85 percent of base
acres.
DPs are made based on a fixed rate set in the 2008 Farm Act. For
producers with eligible historical wheat base acreage, the payment
rate for wheat is set at 52 cents per bushel for crop years
2008-12. The amount of the DP equals the product of the payment
rate for the specific crop, a producer's historical payment acres
(85 percent of base acres in crop years 2008 and 2012 and 83.3
percent in crop years 2009-11), and a producer's historical payment
yield for the farm.
For producers with eligible historical wheat base acreage, CCPs
are paid whenever a commodity's target price is greater
than the calculated effective price for that commodity. Target
prices are specified in the 2008 Farm Act. The target price for
wheat is $3.92 per bushel for crop years 2008-09 and $4.17 for crop
years 2010-12. 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 DP rate for
the commodity. Thus, the minimum effective wheat price is $3.27 per
bushel in crop years 2008-09 and $3.46 per bushel in crop years
2010-12. The maximum CCP rate for wheat is 65 cents per bushel in
crop years 2008-09 and 71 cents per bushel in crop years 2010-12.
The payment amount equals the product of the payment rate, a
producer's historical payment acres (85 percent of base acres), and
a producer's historical CCP yield, which may differ from the DP
payment yield.
For further information, as well as conservation requirements
for payment eligibility, see the Direct Payments and Counter-Cyclical Payments
pages in the Farm and Commodity Policy topic.
Average Crop Revenue
Election (ACRE) Program
The ACRE program is a new program authorized by the 2008
Farm Act and administered by FSA. Beginning with the 2009 crop
year, producers of wheat and other crops can select this optional,
revenue-based CCP, which is an alternative to receiving CCPs.
However, producers who choose to participate in ACRE also face
reduced DPs and lower marketing assistance loan rates.
Producers may elect the ACRE alternative on a farm-by-farm basis
for crop years 2009-12. Once in ACRE, the farm must remain in the
program through crop year 2012. After selecting ACRE, the producer
must enroll annually to receive payments. Commodities eligible for
ACRE payments are all covered commodities (wheat, corn, grain
sorghum, barley, oats, upland cotton, rice, soybeans, other oilseeds, dry
peas, lentils, small chickpeas, and large chickpeas) and peanuts
for a participating farm. Also, as a condition for the farm's
enrollment in ACRE, direct payments for the farm are based
on 80 percent of the legislated DP rate, and
marketing loan benefits are based on 70 percent of the
legislated national marketing loan rate.
The ACRE program provides participating producers a revenue
guarantee each year based on national market prices and State-level
average planted yields for the respective commodities. The
guarantee is based on a 5-year Olympic average of State-level
planted yields and a 2-year average of national market prices, but
payments depend on crop year State- and farm-level planted yields
and national market prices. ACRE payments are made if:
1) the actual State revenue per acre falls below the State
guarantee per acre
AND
2) actual farm revenue per planted acre falls below the farm
benchmark revenue per acre.
State-level ACRE payments, if triggered, are paid on 83.3
percent (in crop years 2009-11) or 85 percent (in crop year 2012)
of the acreage planted or considered planted to
covered commodities and peanuts on the farm. The acreage for ACRE
payments may not exceed total base acreage for all
covered commodities and peanuts on the farm. Payments are adjusted
to farm-specific relative productivity using a ratio of the ACRE
benchmark State yield to the farm's 5-year Olympic average crop
yield per planted acre.
For further information, see the Average Crop Revenue
Election page in the Farm and Commodity Policy topic.
Payment Limits
The 2008 Farm Act sets the payment limit for DPs at $40,000 per
person or legal entity and for CCPs at $65,000. There are no longer
payment limits for marketing loan benefits (MLGs and LDPs).
Payments are attributed directly to individuals, with spouses
potentially eligible for a full share. The three-entity rule is
eliminated. Authority for commodity certificates, formerly
available as an alternative to MLGs when payment limits were in
force, ends after crop year 2009.
Producers with an adjusted gross farm income of more than
$750,000 (averaged over 3 years) are not eligible for DPs, but
remain eligible for other program payments. Persons or entities
with average adjusted gross nonfarm income in excess of $500,000
(averaged over 3 years) are not eligible for DPs and CCPs, ACRE
payments, marketing loan benefits, or disaster payments.
For more information, see the
Payment Limitations page in the Farm and Commodity Policy
topic.
Crop and Revenue Insurance
Adverse weather, as well as insect and weed infestations, can
reduce a farmer's yields and result in below-normal revenue in any
year. Low prices can also reduce revenue. Wheat producers can
purchase crop insurance to guard against yield risk and can buy
revenue insurance for protection against revenue losses, regardless
of the source of loss. 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 policy sales. For further information, see
the Crop Yield and Revenue
Insurance page in the Farm and Commodity Policy topic and the
Risk
Management topic.
Supplemental Agricultural Disaster Assistance, created in the
2008 Farm Act, provides disaster assistance payments to producers
of eligible commodities (crops, farm-raised fish, honey, and
livestock) in counties declared by the Secretary of Agriculture to
be "disaster counties," including counties contiguous to disaster
counties, as well as any farms with losses in normal production of
more than 50 percent. For further information, see the Natural Disaster and
Emergency Assistance Programs page in the Farm and Commodity
Policy topic.
Environment and
Conservation Programs
The 2008 Farm Act expands support for conservation practices on
all cultivated land (including fallow). To remain eligible for
specified program benefits, farmers cropping highly erodible land are
required to implement an approved conservation plan (highly
erodible land conservation provisions or sodbuster) and to be in
compliance with wetland conservation provisions (swampbuster).
Programs, such as the Environmental Quality Incentives Program
and the new Conservation Stewardship Program, provide assistance on
lands in production. Land retirement programs--including the
Conservation Reserve Program, the Conservation Reserve Enhancement
Program, and the Wetlands Reserve Program--remove environmentally
sensitive land from production and establish long-term,
resource-conserving cover. The acreage cap for the Conservation
Reserve Program is scheduled to decline from 39.2 million acres to
32 million acres beginning in fiscal year 2010 under the 2008 Farm
Act. CRP enrollment tends to be higher in regions where wheat is
typically produced.
For details on environmental and conservation programs, see Conservation
Programs.
Export and Food Aid
Programs
Export programs administered by USDA's Foreign
Agricultural Service (FAS) and the U.S. Agency for
International Development (USAID) help promote and facilitate
purchase of U.S. wheat and wheat products in foreign markets. These
programs include the Export Credit Guarantee Program, the Market
Access Program, and the Foreign Market Development Program.
Export credit guarantees help foreign importers facing foreign
exchange constraints and needing credit to purchase commodities.
The Export Credit Guarantee Program (GSM-102)
underwrites commercial financing of U.S. agricultural exports by
guaranteeing repayment of private, short-term credit for up to 3
years. The CCC does not provide financing, but guarantees payments
due from foreign banks, which allows U.S. financial institutions to
offer competitive credit terms to foreign banks.
The Market Access Program (MAP) aids in the
creation, expansion, and maintenance of foreign markets for U.S.
agricultural products. MAP forms partnerships between USDA's CCC
and nonprofit trade associations, cooperatives, trade groups, or
small businesses to share the cost of overseas marketing and
promotional activities. MAP partially reimburses program
participants for these activities, which include consumer
promotions, market research, trade shows, and trade servicing.
The Foreign Market Development Program, also known
as the Cooperator Program, aids in the creation, expansion, and
maintenance of long-term export markets for U.S. agricultural
products. The program enlists private-sector involvement and
resources in coordinated efforts to promote U.S. products to
foreign importers and consumers around the world. CCC funds are
used to partially reimburse cooperators conducting approved
overseas promotion activities.
The U.S. Government provides food aid overseas through the P.L.
480 program, the Section 416 program, the McGovern-Dole Food for
Education and Child Nutrition Program (FFE), 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.
The McGovern-Dole Program helps support education, child
development, and food security for some of the world's poorest
children. The program provides for donations of U.S. agricultural
products, as well as financial and technical assistance, for school
feeding and maternal and child nutrition projects in low-income,
food-deficit countries that are committed to universal education.
Under the Food for Progress Act of 1985, U.S. agricultural
commodities are provided to developing countries and emerging
democracies committed to introducing and expanding free enterprise
in the agricultural sector. Commodities are currently provided by
donation to foreign governments, private voluntary organizations,
nonprofit organizations, cooperatives, or intergovernmental
organizations.
The Bill Emerson Humanitarian Trust authorizes a reserve of up
to 4 million metric tons of wheat, corn, grain sorghum, and rice to
provide food aid to developing countries in times of urgent
humanitarian needs. Currently, the reserve contains only cash as
remaining commodity stocks were sold for cash in 2008 when wheat
prices were high.
For data on use of these programs for wheat, see Wheat
Yearbook Table 27-U.S. wheat exports by selected government
programs. For more details on these and other export programs,
see the
Major Trade Programs page in the Farm and Commodity Policy
topic. The FAS website also provides Export Program information.
Additional 2008 Farm
Act Provisions
Hard white wheat development program. Funds of up to $35 million
are authorized for fiscal years 2009-12, subject to appropriations,
to establish a hard white wheat (HWW) development program. The
initiative is designed to promote HWW as a viable market class of
wheat in the United States by encouraging production of at least
240 million bushels by 2012. Payments may not be less than 20 cents
per bushel for production and less than $2 per acre for planting
eligible HWW seed.
Durum wheat quality program. Funds of up to $10 million per year
are authorized for fiscal years 2009-12, subject to appropriations,
to compensate producers of durum wheat in an amount not to exceed
50 percent of the actual cost of fungicides they apply to a crop of
durum wheat to control Fusariumhead blight (wheat scab).