Iowa Senator Tom Harkin, who chairs the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, is within days of beginning its deliberations on the 2007 Farm Bill. One of the major considerations for a commodity program is offered by IL Senator Richard Durbin and OH Senator Sherrod Brown. If it is included in the Committee proposal, adopted by the Senate, and makes it through the Conference Committee with the House of Representatives, farmers would see some significant changes in farm program payment calculations.

Committee Chairman Harkin has delayed the Senate’s consideration of the Farm Bill until he gets additional funding for conservation and other issues and will jumpstart the Committee’s debate when he’s satisfied with the potential funding.

In the meantime, agricultural economist Carl Zulauf at Ohio State University has analyzed the Durbin-Brown plan. He says one of the elements will keep farmers from collecting both farm program payments and crop insurance indemnity payments on the same yield loss, but could also reduce the cost of crop insurance premiums that farmers have to pay.

Zulauf says the Durbin-Brown proposal replaces the loan deficiency program and the price counter-cyclical program with a new safety net that is based on revenue counter-cyclical payments. It does not change the direct payments which are determined by bushels produced.

The revenue counter-cyclical program has several elements:
• Payments will vary from state to state and are based on yield and revenue calculations in that state.
• A state will have a revenue target, and if the state’s revenue is less than the target, a payment would be made.
• The yield calculation for each state is based on the yield trendline beginning in 1980.
• A spring price for row crops or pre-plant price for small grains would be established, which is based on an average of the current and two prior years.
• However, that pre-plant price cannot increase or decrease more than 15% from year to year.
• The revenue for a given state is determined by the state yield, the acres planted, and a harvest price, which parallels the harvest price calculation for current revenue-based insurance.
• The producer would receive a payment if the state revenue calculation is less than the state target revenue.
• The payment would be calculated on 90% of a producer’s acreage, and based on a producer’s actual production history compared to the state expected yield.

Ohio State University’s Zulauf says the Farm Service Agency and the Risk Management Agency will compare their notes to ensure producers are not compensated by both agencies for the same revenue deficiency. But he says payments may be higher depending on the year, the program parameters such as support levels, and how much the price and yield move in relation to each other. He says a state-based program would provide more protection, since it will reflect more localized weather problems. If a state typically has greater revenue variability, it would tend to receive greater payments than under a national program.

Zulauf also suggests the Durbin-Brown program is more flexible than prior Farm Bills because target prices would be based on a 3-year moving average, instead of fixed for the life of the legislation, and payments are based on planted acres, not a historical acreage number. The target payments would move with the market and not have floors or ceilings. By integrating formulas for determining crop insurance indemnity payments, the Durbin-Brown plan creates a farm safety net based on crop insurance concepts. And by using trendline yield statistics, the Durbin-Brown plan allows farmers to update their program yields annually.

Producers wanting to test their farm program numbers in the Durbin-Brown proposal can utilize a special spreadsheet offered by ag economist Gary Schnitkey at the University of Illinois.

Summary:
Although the House of Representatives Farm Bill contains a revenue counter-cyclical program, but a proposal in the Senate would link the revenue counter-cyclical plan to established formulas for crop insurance, and also break out program payments based on state averages instead of a national average. Such changes would also allow farm program payments to more closely follow the market from year to year, and benefit producers where there is greater variability in farm revenue.