Title I--Price Support Loan And Payment Provisions
Posted by: Phillip Fraas
June 11, 2008

OVERVIEW: This posting will review the commodity program price support loan and payment provisions in title I (commodities) of the new farm bill. Please excuse the length of the posting; it is due to the need to list loan and payment rates for a number of commodities. The next blog posting will discuss the other key elements of title I.

The commodity title is the heart of any farm bill. Even though the size of the farm bill has grown tremendously since I started following the process in 1977 (the 1977 farm bill was 133 pages long, while the new 2008 farm bill is 673 pages in length) and the variety of topics covered by the farm bill has similarly mushroomed, what hasn't changed is the beginning point of the exercise--the need to update the commodity price and income support programs for farmers.

The necessity for a new farm bill this year was obvious--the prior farm bill only covered the 2002 through 2007 crops. The new legislation will be effective for the 2008 through 2112 crops.

The nature of farm price and income support also has evolved over the years. Again harkening back to 1977, there were marketing and production control programs in operation in conjunction with the loan and payments programs. Those control programs, save for sugar marketing allotments, all are now gone.

Under the new farm bill, for the 2008 through 2012 crops, the loan and payment programs will be available for : wheat, corn, grain sorghum, barley, oats, soybeans, other oil seeds (including sunflower seed, rapeseed, canola, and sesame seed), rice, cotton, peanuts,dry peas, lentils, chickpeas, wool, mohair, and honey. Sugar and milk have different programs, which will be described in the next blog posting.

LOANS: Prices are supported through loans to farmers on harvested crops. The loans are made available at the specified price per unit of production and are nonrecourse--meaning that the farmer need not pay back the loans if the prices fall below the loan price, he or she can just forfeit the collateral. However, these loans are offered as marketing loans, that is, loans that give the producer the option of paying back the loan at the market price if that is lower than the loan rate (this option encourages farmers to pay back loans and put the crop onto the market at times of low prices rather than having the government take ownership and store the commodity.) Further, farmers have the option of receiving price support without going through the loan process at all, by opting for loan deficiency payments that reflect the difference between the loan rate and the market price, if lower.

Following are the old (2007) price support loan rates and the loan rates under the new farm bill (increased or decreased loan rates are in boldface type).

                           2007      2008      2009      2010-2012

Wheat (bu)          $2.75     $2.75      $2.75        $2.94

Corn (bu)             $1.95     $1.95      $1.95        $1.95

Sorghum (bu)       $1.95     $1.95      $1.95        $1.95

Barley (bu)           $1.85    $1.85       $1.85        $1.95

Oats(bu)              $1.33    $1.33       $1.33        $1.39

Upland cotton (lb) $0.52    $0.52       $0.52        $0.52

ELS cotton (lb)     $0.7977 $0.7977   $0.7977    $0.7977

Rice (cwt)            $6.50     $6.50      $6.50        $6.50

Soybeans (bu)     $5.00      $5.00      $5.00        $5.00

Other oils'ds (cwt)$9.30      $9.30      $9.30        $10.09

Peanuts (ton)      $355.00   $355.00  $355.00     $355.00

Dry peas (cwt)    $6.22       $6.22     $5.40         $5.40

Lentils (cwt)        $11.72     $11.72   $11.28       $11.28

Sm ch'peas (cwt)$7.43       $7.43     $7.43        $7.43

Lg ch'peas (cwt)    --             --         $11.28      $11.28

Graded wool (lb) $1.00        $1.00     $1.00        $1.15

Non-gr. wool (lb) $0.40        $0.40     $0.40        $0.40

Mohair (lb)          $4.20       $4.20     $4.20        $4.20

Honey (lb)          $0.60       $0.60     $0.60        $0.69

PAYMENTS: There are two types of outright payments, direct and counter-cyclical, and both are continued for the 2008 through 2112 crops.

Direct payments are made to producers of a commodity, regardless of what the market price for the commodity is. The payments are tied to historical farm acreages and yields. Payments are calculated by multiplying up to 85 percent of a farm's base acreage for the commodity by the farm's payment yield by the payment rate.

For 2008 and 2012, the base acreage perecentage is set at 85. For the 2009 to 2011 crops, it is reduced to 83.3 percent. This change has the effect of making reductions in farm program costs that were needed to comply with congressional budget restrictions.

Direct payments are made on just some of the loan commodities. The direct payment rates under the new farm bill will be unchanged from 2007 rates, except for oats. The direct payment rates are as follows: Wheat (bu), $0.52; corn (bu), $0.28; grain sorghum (bu), $0.35; barley (bu), $0.24; oats (bu), $0.024 [was $0.02 in 2007]; upland cotton (lb), $0.0667; rice (cwt), $2.35; soybeans (bu), $0.44; other oilseeds (cwt), $0.80; and peanuts (ton), $36.00.

Counter-cyclical payments are triggered when the prices for specified commodities fall below the target price for the commodity. Again, the payments are tied to historical farm acreages and yields. Payments are calculated by multiplying 85 percent of a farm's base acreage for the commodity by the farm's payment yield by the counter-cyclical payment rate, which is the difference between the target price and effective price for the commodity. The effective price is (1) the higher of the national average market price and the national average loan rate for the commodity plus (2) the payment rate for direct payments for the commodity.

 Counter-cyclical payments are not available for extra long staple cotton, wool, mohair, or honey.

Following are the old (2007) and new (2008-2012) target prices for purposes of counter-cyclical payment program (increased or decreased target prices are in boldface type).

Wheat (bu)        $3.92     $3.92       $3.92         $4.17

Corn (bu)           $2.63     $2.63       $2.63         $2.63

Sorghum (bu)     $2.57     $2.57       $2.57         $2.63

Barley (bu)        $2.24      $2.24       $2.24         $2.63

Oats(bu)           $1.44      $1.44       $1.44         $1.79

Upl. cotton (lb)  $0.724    $0.7125    $0.7125      $0.7125

Rice (cwt)         $10.50    $10.50      $10.50        $10.50

Soybeans (bu)   $5.80     $5.80         $5.80         $6.00

Oth. oils'ds (cwt)$10.10   $10.10        $10.10       $12.68

Peanuts (ton)     $495.00 $495.00      $495.00      $495.00

Dry peas (cwt)     --           --              $8.32         $8.32

Lentils (cwt)        --           --              $12.81        $12.81

Sm.ch'peas (cwt) --          --               $10.36        $10.36

Lg. ch'peas (cwt) --          --               $12.81         $12.81

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