American farm organizations welcomed last week’s passage of a new farm
bill for the United States.
And no wonder.
The new legislation will continue to put wads of government cash into
farmers’ pockets.
“We didn’t get everything we thought we needed, but it’s a good bill,”
said North Dakota farmer Mark Gage, vice-president of the National
Association of Wheat Growers.
The exact amount of money going to individual producers under the
bill’s commodity programs will vary widely, depending on where they
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farm, what they grow, crop yields and changes in market prices
throughout the year.
But a typical U.S. wheat farmer in the Northern Plains can likely count
on receiving tens of thousands of government dollars annually over the
next six years.
The amount will almost certainly exceed what they would have received
from the old farm bill and other support payments.
“It will definitely protect our producers from market fluctuations more
than they have been in the past bill,” Gage said from his farm at Page,
N.D.
Jim Johnson, an economist at Montana State University, said higher
support rates and new payment schemes will mean more dollars for
farmers.
“I would expect some general improvement in net farm income in our
wheat producing states,” he said. “We’re going to see greater price
support … and we’re going to see larger direct payments, which are
decoupled from current production.”
U.S. farmers will be eligible to receive three separate payments from
Washington.
There is a loan deficiency payment (or marketing loan gain) under which
a farmer pockets the difference when the market price falls below the
loan rate. The national loan rate for wheat in the first two years of
the new bill is $2.80 US a bushel, up from $2.58 in the previous
legislation. The actual loan rate varies by county.
There is a direct assistance payment, which is unrelated to production
or prices. The payment rate for wheat is 52 cents a bu., up from 46
cents.
And there is a new counter-cyclical payment, which is designed to kick
in when market prices are low. The payment will decline as prices rise.
It’s based on the target price, which is $3.86 for wheat, down from $4,
and is designed to replace emergency payments.
While not all details of the new legislation have been figured out or
released, Canadian Wheat Board economist Dwayne Lee prepared a
preliminary analysis of the benefits that could be paid to a fictitious
wheat grower in 2002.
In the example, the farmer has a 1,000 acre farm and has grown nothing
but wheat for the past five years.
His 2002 yield is 39 bu. an acre, while the program yield set by the
U.S. Department of Agriculture for his area is 36 bu. His own “updated
program yield” based on his farm’s 1998 to 2001 average yield is 39 bu.
Finally, the market price for wheat is $2.75 a bushel, while the loan
for the farmer’s county is the same as the national loan rate of $2.80
a bu.
Here are the payments that farmer would receive for 2002:
- Loan deficiency payment – Because the market price is below the loan
rate, the farmer receives five cents a bu. ($2.80 minus $2.75) on 100
percent of his actual production of 39,000 bu. That produces a payment
of $1,950.
- Direct payment – The direct payment of 52 cents a bu. is paid on the
production from 85 percent of his base acres. For this farmer, that’s
52 cents a bu. times 30,600 bu. (850 acres times the program yield of
36 bu.) That produces a payment of $15,912. The farmer gets this
regardless of the market price or the commodity actually grown on the
land.
- Counter-cyclical payment – This is calculated by subtracting the
direct payment (52 cents a bu.) and the higher of the loan rate or the
national average market price (in this example, the $2.80 loan rate)
from the wheat target price of $3.86 a bu. That produces a payment rate
of 54 cents a bu., which is paid out on 85 percent of the base acres
(850 aces) using the farmer’s updated program yield of 39 bu. an acre.
The farmer in this example receives a counter-cyclical payment of
$17,901.
Taken together, those three programs provide this particular farmer
with $35,763 in government payments. This figure is not intended to
represent an average payment under the new farm bill but can be used to
compare the new bill with the previous farm bill.
Under the old farm bill the same farmer would have received around
$28,000.
While economist Johnson and other U.S. wheat industry officials say the
new bill won’t distort farmers’ planting or marketing decisions, CWB
chair Ken Ritter disagrees.
“Increased government support will influence input application
decisions, cropping decisions and farm investment decisions by changing
farmers’ perceptions of risk, their ability to obtain credit and their
ability to invest in new technology,”
Ritter said.
