This analysis focuses on four policy options, based on national formulas where implications are examined for varying levels of loan rates and base AMTA payment rates.Agricultural and Food Policy,

Houston, Christy M.

Richardson, James W.

Smith, Edward G.

Womack, Abner W.

English

Research Papers in Economics

Alternative AMTA and Loan Rate Options for Program Crops With
Counter Cyclical Payments Triggered at the National and State Level
Briefing Paper 01-4
James W. Richardson
Edward G. Smith
Abner W. Womack
Christy Houston
Agricultural and Food Policy Center
Department of Agricultural Economics
Texas Agricultural Experiment Station
Texas Agricultural Extension Service
Texas A&M University
June 2001
College Station, TX 77843-2124
Telephone:  (979) 845-5913
Fax:  (979) 845-3140
Web Site:  http://www.afpc.tamu.eduAFPC Briefing Series
The briefing series is designed to facilitate presentation by AFPC related to
requests for specific policy impact analyses.  The materials included in this
package are intended only as visual support for an oral presentation.  The user is
cautioned against drawing extraneous conclusions from the material.  In most
instances, the briefing series will be followed by an AFPC Working Paper. 
AFPC welcomes comments and discussions of these results and their
implications.  Address such comments to:
Agricultural and Food Policy Center
Department of Agricultural Economics
Texas A&M University
College Station, TX 77843-2124
or call 979-845-5913.1
Alternative AMTA and Loan Rate Options for Program Crops With
Counter Cyclical Payments Triggered at the National and State Level
Executive Summary
This analysis focuses on four policy options, based on national formulas where implications
are examined for varying levels of loan rates and base AMTA payment rates.
In all scenarios the following assumptions were utilized:
• All LDP payments are made on 2001 acreage and yield
• All counter cyclical payments are made on 2001 acreage and yield
• All base AMTA payments are made using the formula in the 1996 farm program 
• Each of the options are evaluated around 4 different base periods and 3 added AMTA
payment rates
• Each added AMTA payment is made using the formula in the 1996 farm program 
The four scenarios reported in this briefing paper are:
Scenario 1.  Hold all loan rates at current level, but increase the base AMTA for rice to
$2.56 cwt. and adjust all other crops proportionately.
Scenario 2.  Increase the rice loan rate to $7.54 cwt. a level that reflects the additional
AMTA payment received by soybean producers in 1998, 1999 and 2000.  Adjust all other
loan crops proportionally.  Increase the base AMTA to $2.56 cwt. and adjust all other crop’s
AMTA proportionally.
Scenario 3.  Increase the rice loan rate to $7.54 cwt. and all other crops proportionately. 
Adjust the base AMTA to $2.10 cwt., 2001 rate, and hold all other crops at current payment
levels.
Scenario 4.  Increase the rice loan rate to $7.54 cwt. and all other crops proportionately. 
Adjust the base AMTA to $2.04 cwt., the designated level for 2002 in the current farm bill. 
All other crops are paid at the 2002 base AMTA level.
* Note: All base and supplemental AMTA is paid on the 1996 farm bill formula - frozen base
and yield.
* The base scenario was modified to include the new loan and AMTA defined in each of the four
scenarios, but does not reflect additional CCP or the Added AMTA payment.2
Method of Analysis
A risk analysis of a national counter cyclical payment (CCP) program for six crops was
completed for one year.  National planted acre yield risk over the 1986-2000 period was used
with FAPRI’s stochastic projection of crop prices for 2001 in the analysis.  Four alternative base
periods for triggering a CCP were evaluated.  Three Added AMTA scenarios and a Base
scenario of no additional market loss or CCP were also run for each of the crops.  
In the first part of this study, the four base periods for the CCP were defined as:
• Simple Average 1994-1998
• Simple Average 1995-1999
• Olympic Average 1994-1998
• Olympic Average 1995-1999
Alternative base periods for a CCP program were also reported in this paper:
• Olympic Average 1991-1995
• Olympic Average 1992-1996
• Olympic Average 1993-1997
• Olympic Average 1996-2000
Average base revenue per planted acre, used to trigger a CCP, was calculated as follows for the
two Simple Average base period scenarios:
• Calculate national planted acre yield for each of 5 years
National planted acre yield = national production / national planted acres
• Calculate national market receipts per planted acre for each of 5 years 
National market receipts per planted acre = national season average price * national
planted acre yield
• Calculate the average national market receipts per planted acre calculating a simple
average of the 5 years of receipts.
For the Olympic Average base period scenarios, the same formulas were used but the effective
average for triggering a payment was calculated ignoring the lowest and highest market
revenues.  
A simulation analysis was done using historical yield and price variability for each of  the
crops.  Historical correlation of prices and yields over the 1986-2000 period was assumed to
continue for the present study.  A CCP was paid when the per acre simulated market receipts 
were less than the average base revenue for a particular CCP scenario.  The simulation analysis
repeated the sampling process for 100 replications or iterations so the risk of receiving a CCP
could be estimated.  The formulas for calculating a CCP were:3
Stochastic market receipts = Stochastic price for 2001 * Stochastic national planted acre
yield
If (stochastic market receipts < average base receipts per acre) then the payment equals
CCP = average base receipts - stochastic market receipts 
Because the market receipts were both expressed on a per planted acre basis, the CCP would be
paid to producers based on the number of acres they planted.  The cost of the program was
estimated using USDA’s recent planting estimates for the 2001 crop year.
The Added AMTA scenarios assumed that the announced 2001 AMTA payment rate would
be augmented by a fixed amount.  Three alternative Added AMTA scenarios were analyzed for
each crop.  The added AMTA rates were:
• Rice  – $2.25, $2.50, $2.75/cwt.
• Cotton – $0.067, $0.074, $0.081/lb.
• Corn – $0.295, $0.328, $0.361/bu.
• Wheat – $0.565, $0.628, and $0.69/bu.
• Soybean – $0.061, $0.067, and $0.074/bu.
• Sorghum – $0.248, $0.275, and $0.303/bu.
The Added AMTA payments were analyzed assuming that the payments were made based on the
1996 farm program formula for calculating AMTA payments. 
A Base scenario was run for comparison purposes.  Market receipts per planted acre equaled
stochastic yield times price.  The per unit loan deficiency payment (LDP) was calculated using
the stochastic prices and estimated adjusted world prices, the 2001 loan rate and the stochastic
yield.  Base AMTA payments were calculated using the 1996 farm program formula for
calculating this payment.  The total receipts for the Base scenario were used along with the CCPs
or Added AMTA payments to calculate a total receipts per yield unit for the crops.  Based on the
ratio of rice base acres to planted acres in 2001, it is assumed that every planted acre carries 
approximately 1.27 contract payment acres.  Similar ratios were applied to the other crops.
While we acknowledge that there are crop contract acre payments that do not accrue to
current operators, it was decided that the assumption would be preferable to assuming every
planted acre has only one associated contract acre.  In summary, the primary eight alternatives
analyzed include:
• Base – projected market receipts, loan deficiency payments, and $2.10/bu. AMTA
payments.  No additional CCP payments are included.
• Avg 95-99 – Base revenue plus an additional CCP triggered when 2001 market receipts
fall below the average market receipts on a planted acre basis for the 95-99 marketing
year.
• Avg 94-98 – Base revenue plus an additional CCP triggered when 2001 market receipts
fall below the average market receipts on a planted acre basis for the 94-98 marketing
year.4
• Olym Avg 95-99 – Same as Avg 95-99, except the high and low market year receipts are
dropped and the remaining three years are averaged as the base.
• Olym Avg 94-98 – Same as Avg 94-98, except the high and low market year receipts are
dropped and the remaining three years are averaged as the base.
• AMTA $2.25 – Assumes producers receive an additional $2.25 AMTA paid on the 1996
farm bill formulas for planted acres.
• AMTA $2.50 – Assumed producers receive an additional $2.50 AMTA paid on the 1996
farm bill formula for planted acres.
• AMTA $2.75 – Assumed producers receive an additional $2.75 AMTA paid on the 1996
farm bill formula for planted acres.
Results of the simulation analysis were reported in a probabilistic format for each crop,
using the following variables:
• CCPs or Added AMTA payments per yield unit (cwt,, lb., or bu.),
• Total receipts per yield unit as defined above, and
• Total government payments in 2001 for each crop.
In addition the scenarios were ranked for each crop using a risk ranking procedure assuming that
farmers are averse to risk.  The procedure also reported the marginal economic benefit of the
preferred program option to the alternative scenarios.5
Table 1.  Four Scenarios with Alternative Loan Rates and Base AMTA
Rates for Six Program Crops
Loan Rates Base AMTA
Scenario 1 Rice ($/cwt.) 6.50 2.56
Cotton ($/lb.) 0.519 .0695
Corn ($/bu.) 1.89 .3291
Wheat ($/bu.) 2.58 .575
Soybean ($/bu.) 5.26 0
Sorghum ($/bu.) 1.71 0.3925
Scenario 2 Rice ($/cwt.) 7.54 2.56
Cotton ($/lb.) 0.60 .0695
Corn ($/bu.) 2.19 .3291
Wheat ($/bu.) 2.99 .575
Soybean ($/bu.) 6.10 0
Sorghum ($/bu.) 1.98 0.3925
Scenario 3 Rice ($/cwt.) 7.54 2.10
Cotton ($/lb.) 0.60 .057
Corn ($/bu.) 2.19 .27
Wheat ($/bu.)  2.99 .4717
Soybean ($/bu.) 6.10 0
Sorghum ($/bu.) 1.98 .322
Scenario 4 Rice ($/cwt.) 7.54 2.04
Cotton ($/lb.) 0.60 0.056
Corn ($/bu.) 2.19 0.26
Wheat ($/bu.) 2.99 0.4578
Soybean ($/bu.) 6.10 0
Sorghum ($/bu.) 1.98 .3126Copies of this publication have been deposited with the Texas State Library in compliance with the State Depository Law.
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Alternative AMTA and Loan Rate Options for Program Crops With Counter Cyclical Payments Triggered at the National and State Level

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