The US Department of Agriculture made headlines when Secretary Mike Johanns went to every state to listen to farmers and agribusiness about what should be in the next Farm Bill. Then the USDA made headlines when it proposed some creative elements for the 2007 Farm Bill. And the most recent headlines came when the Secretary announced USDA staff members would be writing the details for a new Farm Bill. With political opposition on the Capitol Hill end of Independence Avenue, what will USDA propose that might be accepted?

The agricultural economists at Purdue University have assembled a series of reports on the impact of USDA’s Farm Bill proposals. Allan Gray and Mike Boehlje analyzed the commodity program elements of the administration plan.

For direct payments, corn rises from the current 28¢ per bushel to 30¢ by the end of the five year term of the legislation. Soybeans increase from the current 44¢ to 50¢, and wheat from 52¢ to 56¢. Additionally, direct payments to beginning farmers would be an additional 20%, with annual budget exposure at $5.8 billion. Gray and Boehlje express some concerns that commodity groups will complain about inequitable treatment; the definitions of “beginning farmer” are unclear; will farmers in marginal areas collect the direct payments without producing a crop; and how will the payment plan impact the land market and cash rent?

Another element to a subsidy plan would establish a national target revenue level, and if the actual national revenue fell below that target level, then a payment would be triggered. What Gray and Boehlje say is that this replacement for the counter-cyclical payment is a move toward a revenue assurance program. However they say that by the time the calculations are complete, farmers would be well into the next year of production and the books will long be closed on the old crop.

A third element is the marketing loan and load deficiency program. The loan level would either be 85% of a five year Olympic price level (discard the high and low years) or the loan levels in the 2002 Farm Bill, whichever is the lesser amount. Additionally, the Posted County Price would be converted from daily to a monthly average, which would determine the rate at which a commodity loan would be repaid, or determine the amount of a loan deficiency payment. Gray and Boehlje say producers would no longer be able to pick the best day to either repay a loan or collect an LDP. Because of that producers would have to re-evaluate marketing plans, since the LDP collection would be more closely tied to the actual sale of the crop. The change would provide a safety net on revenue, but eliminate profiting from market swings.

The proposed payment limit rule tightens up the three entity limit, and makes minor changes in limits:
• The overall $360,000 maximum is unchanged.
• The direct payment limit is raised from $80,000 to $110,000.
• The counter-cyclical or revenue assurance limit is lowered to $110,000 from $130,000.
• The marketing loan or LDP cap would be reduced to $140,000 from $150,000.
• The biggest change is to exclude anyone with an adjusted gross income over $200,000 from receiving any farm program payments.
Gray and Boehlje say the payment limit debate will be geographical, since cotton and rice producers have the most to lose. But they question how the limits will be monitored; whether FSA can police the rules; and how the Cornbelt producer will be affected by the AGI limit in a new era of higher commodity prices.

There are two other elements of the commodity program. The first eliminates commodity program payments for any purchaser of land who used 1031 tax exchange provisions of the IRS code, which is designed to soften the rising land market. The other allows fruit and vegetable production on traditional cropland without losing farm program benefits, a change being forced by the World Trade Organization.

Summary:
As the Farm Bill debate continues, the USDA proposal for new legislation is designed to be more WTO compliant; to target the payments to smaller and mid-size farms and beginning farmers; to provide payments in times of low revenues (price times yield) rather than just low prices; and to provide additional flexibility in the production of fruits and vegetables on base acres. That is the environment being pushed by the new Congress and the World Trade Organization and the USDA has responded in kind. However, the final outcome is a long way off.