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Marketing Assistance Loans and Loan Deficiency Payments
Direct and Counter-Cyclical Payments
Average Crop Revenue Election Program
Payment Limits
Crop and Revenue Insurance
Environment and Conservation Programs
Export and Food Aid Programs
Additional 2008 Farm Act Provisions
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 Program Provisions section in the Farm and Commodity Policy briefing room, the Farm Risk Management briefing room, and the Conservation Policy briefing room.
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 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 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 in this manner to minimize potential commodity loan forfeitures and subsequent 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 briefing room.
Direct and Counter-Cyclical Payments
Direct and counter-cyclical payments 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 direct and counter-cyclical payments are unchanged from the 2002 Farm Act. Payment acres for direct payments 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.
Direct payments 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 direct payment 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, counter-cyclical payments 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 direct payment 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 counter-cyclical payment 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 briefing room.
Average Crop Revenue Election (ACRE) Program
The ACRE program is a new program in the 2008 Farm Act and is administered by FSA. Beginning with the 2009 crop year, producers of wheat and other crops can elect this optional, revenue-based counter-cyclical program, which is an alternative to receiving CCPs. However, producers that choose to participate in ACRE also face reduced direct payments 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 electing 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 direct payment 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 are dependent upon 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 briefing room.
Payment Limits
The 2008 Farm Act sets the payment limit for direct payments at $40,000 per person or legal entity and for counter-cyclical payments 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 marketing loan gains 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 direct payments. Persons or entities with average adjusted gross nonfarm income in excess of $500,000 (averaged over 3 years) are not eligible for direct and counter-cyclical payments, ACRE payments, marketing loan benefits, or disaster payments.
For more information, see the Payment Limits page in the Farm and Commodity Policy briefing room.
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 briefing room and the Farm Risk Management briefing room.
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 briefing room.
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, visit the Conservation Policy briefing room.
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 are designed to 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, 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 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 briefing room. 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 Fusarium head blight (wheat scab).
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