The 2002 Farm Security and Rural Investment Act provides for three different types of payments to agricultural producers and landowners: direct, counter-cyclical and loan deficiency payments. Eligiable recipients will have the opportunity to update their acreage bases and programs yields under a new set of rules.

Edwards, William M.

English

Research Papers in Economics

Farm Security and Rural Investment Act of 2002
Commodity Programs for Crops
bases for each year 1998 to 2001. However, your soybean base
acres for each year cannot be larger than your actual soybean
acres in each year. Then average the soybean base acres over
four years. Include prevented planting acres as well as planted
acres in your calculations. If you wish, you can shift acres
from other bases such as oats to your soybean base.
Example: Keep old program bases
Assume your current PFC corn base is 400 acres.
During 1998-2001, your crop acres have consisted of
300 acres each of corn and soybeans, or 600 total acres
of program crops. You can establish a soybean base
equal to the average of your total program crop acres
each year, 600 acres, minus your existing corn base of
400 acres. So, your soybean base is 200 acres.
Now suppose instead that you had a corn base of 350 acres
and an oats base of 50 acres. Your soybean base would still be
600 acres minus 350 corn acres minus 50 oats acres, or 200
acres. However, you could add the 50-acre oats base to your
soybean base to raise the soybean base to 250 acres. You
cannot make your soybean base any larger than your actual
planted acres of soybeans in each year, though. In this case,
300 acres would be your upper limit. You could also shift corn
base acres to soybeans, but this would probably result in
smaller total payments. You cannot shift acres from other
bases into any crop base except an oilseed crop.
In general, it will pay to shift oat base acres to soybeans,
but not to shift corn or wheat base acres.
Alternatively, you can elect to establish new base acreages
equal to your actual planted and prevented planted acres of
each crop during 1998 to 2001. If a crop was not grown in a
certain year, that year counts as zero acres. Under this option you
cannot shift acres from other crops into your soybean base.
In general, if your old corn base is 20 percentage points or
more higher than your new base would be, it will not pay
The 2002 Farm Security and Rural Investment Act (FSRIA)
provides for three different types of payments for an expanded
list of farm commodities:
· · · · · Loan Deficiency Payment (LDP) or Marketing
Assistance Loan: similar to previous bill
· · · · · Direct Payment: replaces AMTA, PFC, Market Loss
Assistance, and Oilseed Payments
· · · · · Counter Cyclical Payment (CCP): new
The crops that are covered by the bill include corn, soybeans,
oats, wheat, grain sorghum, barley, upland cotton, rice,
sunflowers, rapeseed, canola, safflower, flax, and mustard
seed. In addition, loan deficiency payments are extended to
long staple cotton, dry peas, lentils, small chickpeas, wool,
mohair, and honey.
Hay and forages are not covered crops.
Decisions to Make
There are three basic decisions to make regarding the new
commodity programs:
1. You can keep your current program base acres, or
update your base acres to reflect 1998-2001 cropping
patterns.
2. If you do not update base acres, a soybean base will
be created. You can then shift some base acres from
other program crops into your soybean base.
3. If you do update base acres, you can keep your old
program yields based on 1981-1985 levels, or you
can update yields based on 1998-2001 levels.
Base Acres for Program Crops
You can choose to keep your current corn base (PFC acres), as
well as any bases you have for oats, wheat, or other program
crops. If you choose this option, you can also establish a base
for oilseeds, such as soybeans. Your soybean base acres will
be equal to your total acres planted to the program crops listed
above minus your total acres in PFC corn base and other crop
Summary of Payments, Acres and Yields
Payment Payment Rate per bu. Payment Acres Payment Yield
Loan deficiency County loan rate – posted county price Actual harvested acres Actual harvested bu.
Direct Fixed rate 85% of old or new base Old program yield
Counter cyclical Target price – direct payment 85% of old or new base Old or new program
rate - higher of loan rate or market price yield
FM 1872a   Revised   August 2002to update base acres. This will vary according to how much
you can increase your corn program yield, however.
Program Yields
If you do not update base acres, you cannot update your
program yields. You will keep your established yields for corn,
oats, or other bases. However, you do not have an established
soybean yield, so it is calculated as 78 percent of your 1998-
2001 average yield. If you had a low yield in any one of those
years, you can use 75 percent of the county average soybean
yield for that year instead.
If you do update your base acres, then you have three choices
for program yields:
1. Keep your old program yields, including the soybean
yield as described above.
2. Update yields to 93.5 percent of your average yields
for 1998-2001.
3. Update yields to your old yields plus 70 percent of
the difference between your old yields and your
1998-2001 average yields.
Average yields are calculated as the total bushels produced
from 1998-2001 divided by the total planted acres during that
period. Again, you can substitute 75 percent of the county
average yield in years that your yields were lower. The
decision to update yields affects counter cyclical payments,
only, not direct payments. Direct payments always use “old”
program yields.
If you updated base acres, it will probably pay to update
yields, as well. If your new yields are more than 28 percent
higher than your old yields, use the 93.5 percent option.
Example: Program yields. Current established
program yield for corn is 120 bushels per acre.
Actual yields: Corn Soybeans
1998 135 40
1999 155 55
2000 165 47
2001 145 58
Average 150 50
Program yields could be:
a) Use old yields: Corn 120
Soybeans 50 x .78 = 39
b) Update yields, Corn 150 x .935 = 140
     method 1 Soybeans 50 x .935 = 47
c) Update yields, Corn 120+.70 x (150 –120)=141
    method 2 Soybeans 50 + .70 x (50 – 39)=47
Loan Deficiency Payments
The same rules and procedures for loan deficiency payments
and market assistance loans will apply as before—only the
national average loan rates have been changed. The new
national average loan rates are:
National Average Loan Rates
Corn Soybeans Oats Wheat
Previous $1.89 $5.26 $1.21 $2.58
2002-2003 $1.98 $5.00 $1.35 $2.80
2004-2007 $1.95 $5.00 $1.33 $2.75
The county loan rates were also revised. In Iowa the new
county loan rates are $.12 higher for corn in most counties and
$.26 lower for soybeans in all counties. If the “posted county
price” that is designated daily by the Farm Service Agency is
below your county loan rate, you can apply for a loan
deficiency payment equal to the difference, on the bushels you
actually produce each year.
Direct Payments
Direct payments are calculated based on your old program
yields and calculated “old” soybean yield, only, and are fixed
once you determine your base acres. The payment calculation
is:
Direct payment = payment rate x old program yield
    x 85% of base acres
Payment rates per bushel are specified as follows:
· Corn $.28
· Soybeans $.44
· Oats      $.024
· Wheat $.52
The example below shows how the direct payments per acre
might compare. As mentioned before, it will usually be
beneficial to maximize corn base acres, and shift any oats base
acres to soybeans.
Comparison of Direct Payments
Corn   Soybeans Oats Wheat
Payment rate per bu. $.28 $.44 $.024 $.52
x old yield (example) 120 39 60 50
= payment per
   program acre $33.60 $17.16 $ 1.44 $26.00
x 85% = payment per
   base acre $28.56 $14.59 $1.22 $22.10
Counter Cyclical Payments
Counter cyclical payments are made when national average
prices are below the target levels specified in the bill by more
than the amount of the direct payment rate. Target prices for
2002 and 2003 are as follows:
· Corn $2.60
· Soybeans $5.80
· Oats $1.40
· Wheat $3.86
The payment rate is equal to the target price minus the higher
of the national season average market price or the nationalloan rate, minus the direct payment rate for the same crop. The
season average price for corn and soybeans is measured from
September of the year the crop is harvested through the
following August. The total counter cyclical payment is equal
to the payment rate times the program yield (old or new) times
85 percent of the base acres. The example below shows what
some typical payments could be. This is the maximum
payment, which would occur when the national season
average market price is below the national loan rate for each
crop.
Comparison of Counter Cyclical Payments
Corn  Soybeans Oats Wheat
Target price $2.60 $5.80 $1.40 $3.86
– loan rate 1.98 5.00 1.35 2.80
– direct payment rate .28 .44 .024 .52
= payment rate per bu. $.34 $.36 $.026 $.54
x updated program yield
(example) 141 bu. 47 bu. 60 bu. 50 bu.
= payment per
program acre $47.94 $16.92 $1.56 $27.00
x 85% = payment
per base acre $40.75 $14.38 $1.33 $22.95
Timing of Payments
Loan deficiency payments or marketing loans can be taken
any time from harvest until May 31. Direct payments for 2002
crops will be paid as soon as possible after December 1;
however, FSA will deduct advance AMTA payments on 2002
crops first. In the future, up to 50 percent of the direct
payments will be paid in December prior to the crop year, and
the rest in October in the harvest year. Counter cyclical
payments will be made up to 35 percent in October of the harvest
year (based on projected prices), up to 35 percent in February,
and the remainder after September 1.
Comparison of FAIR act and FSRIA
Compared to the 1996 FAIR act plus Market Loss Assistance
and Oilseed payments made in 2001, the safety net provided
by FSRIA is slightly higher. The following example illustrates
the minimum total revenue per bushel that can be expected,
assuming market prices plus the loan deficiency payment are
equal to the county loan rate, the old corn program yield is 80
percent of the actual yield, and new program yields are 93.5
percent of actual yields.
Example: Minimum revenue per harvested bushel
FAIR 2001 FSRIA 2002
Corn    Soybeans Corn   Soybeans
Market price (example) $1.66 $4.30 $1.66 $4.30
Loan deficiency
payment (example) .10 .81 .22 .55
AMTA payments
x 85% x 80%* .39
Oilseed payment .14
Direct payment x 85% x 80%* .19 .29
Counter cyclical
payment x 85% x 93.5%* .27 .29
Total revenue $2.15 $5.25 $2.34 $5.43
*depend on program yields, not actual yields.
The graphs below illustrate how the mix of revenue would
change as the national average price increases. This example
assumes that the actual selling price is equal to the posted
county price, and both are $.10 per bushel below the national
average market price.
Payment Timeline
December October December February May September
Prior year   <—— Crop year ——> <————Following year————>
LDP    Anytime from harvest to May 31
Direct Up to 50%   remainder
Counter    Up to 35%    Up to 35%   remainder
cyclical
Payment Limitations
New payment limitations are in effect for each type of
payment:
· LDPs and loans $75,000 (no limit if you use
generic certificates)
· Direct payments $40,000
· Counter Cyclical $65,000
· Total $180,000
Payment limits are applied separately to each type of payment.
Limits are doubled for two spouses or multiple interests.
Total Expected Revenue - Corn
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$1.77
$1.88
$1.99
$2.10
$2.21
$2.32
$2.43
$2.54
$2.65
$2.76
Season Average Price
$/bu.
Direct Payment
CC Payment
LDP Payment
Harvest Price
Total Expected Revenue - Soybeans
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$4.18
$4.50
$4.83
$5.15
$5.48
$5.80
$6.13
$6.45
$6.78
$7.10
Season Average Price
$/bu.
Direct Payment
CC Payment
LDP Payment
Harvest Price
As the market price increases, the loan deficiency payment
will decrease and finally disappear when the posted county
price reaches the county loan rate. If the national average price
becomes higher than the national loan rate, the countercyclical payment will begin to decrease, and will reach zero
when the national price equals the target price minus the direct
payment rate ($2.32 for corn and $5.36 for soybeans). The
direct payment is not affected by actual prices. Note that both
direct and counter cyclical payments depend on program
yields, not actual yields, so the example values per harvested
bushel will change as yields change. Under higher prices,
FSRIA will actually provide less total revenue than FAIR did.
This is because the new counter cyclical payments phase out
as prices rise. This assumes that the MLA and Oilseed
Payments under FAIR would have continued under higher
prices, which might not necessarily have happened.
Note that for a farm with a high corn base, total revenue may
actually be less under the new bill, because payments are now
more evenly set between corn and soybeans. In either case,
though, farms with a high corn base fare better than farms
with smaller corn bases.
Actions to Take
Producers and owners should begin assembling information
about their crop acres and harvested bushels from 1998-2001
so that the process can be completed as soon as possible. If
bases and yields are not updated, current base acres and
program yields will be used. However, soybean yields will
still need to be submitted to assign a soybean program yield.
Acceptable information includes sales records, warehouse
reciepts, and FSA storage measurements. If yield information
is not available, 75 percent of the county average yields will
be used. Each farm number, as designated by the Farm Service
Agency, will require a seperate decision regarding acres and
yields.
File: Economics 1-8
...and justice for all
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Agriculture (USDA)
prohibits discrimination in
all its programs and
activities on the basis of
race, color, national origin,
gender, religion, age,
disability, political beliefs,
sexual orientation, and
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(Not all prohibited bases
apply to all programs.)
Many materials can be
made available in
alternative formats for ADA
clients. To file a complaint
of discrimination, write
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Rights, Room 326-W,
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SW, Washington, DC
20250-9410 or call 202-
720-5964.
Issued in furtherance of
Cooperative Extension
work, Acts of May 8 and
June 30, 1914, in
cooperation with the U.S.
Department of Agriculture.
Stanley R. Johnson,
director, Cooperative
Extension Service, Iowa
State University of Science
and Technology, Ames,
Iowa
An electronic spreadsheet version of this worksheet is available from Iowa State University
Extension online at http://www.extension.iastate.edu/feci/
2002 FSRIA Commodity Programs Payment Worksheet
Name of producer or farm: FSA farm number:
Payment Acres (a)
Corn
(b)
Soybeans
(c)
Oats
(d)
Wheat
(e)
Total
(f)
SB base acres
1 1998 acres
2 1999 acres
3 2000 acres
4 2001 acres
Soybean base
acres = col. e
each year minus
line 6, col. e, but
not more than
col. b each year
5 Average of 1998-2001 acres lines 1+2+3+4 / 4
6 Current PFC base acres
7 Calculated soybean base Same as line 5, col. f
8 Base acres to shift to soybeans - + - - Add shifted acres to SB base, subtract  others.
9 Base acres, adjusted Line 7 + line 8 for SB, line 6 Ð line 8 for others
10 Base acres to use Choose line 5 or line 9.
11 Payment acres (85% of base) 85% x line 10
Payment Yields Corn Soybeans Oats Wheat
12 1998 bushels
13 1999 bushels
14 2000 bushels
15 2001 bushels
Substitute 75% of the county average yield if it
is higher than the farm yield in any year.
Exclude from the averages any years that no
acres of a crop were grown.
16 Average of 1998-2001 yields .25 x (Lines 12 + 13 + 14 + 15) / line 5
17 A. Current USDA program yields
Soybean yield =
.78 x 1998-2001 average yield, line 16
18 B. Updated yields (method 1) = .935 x 1998-2001 average yields, line 16
19 C. Updated yields (method 2) Current yield, line 17 + .70 x (line 16 Ð line 17)
20 Payment yields to use (A, B or C) With old base acres you must use A, line 17.
You must use the same line for all crops.
21 Payments for 2002 Corn Soybeans Oats Wheat
22 Direct payment rate for 2002 $.28 $.44 $.024 $.52
23 Direct payment Line 11 x  line 17 x line 22
24 National target price $2.60 $5.80 $1.40 $3.86
25 National average loan rate $1.98 $5.00 $1.35 $2.80
26 National season avg. market price Enter your estimates.
27 Counter cyclical payment rate Line 24 -  larger of line 25 or line 26  Ð  line 22
28 Counter cyclical payment Line 11 x line 20 x line 27
29 Direct plus counter cyclical pmts. Line 23 + line 28
30 Total payments for all crops Sum line 29 for all crops.
Prepared by
William Edwards,
extension economist."Iowa State University does not discriminate on the basis of race, color, age, 
religion, national origin, sexual orientation, sex, marital status, disability, 
or status as a U.S. Vietnam Era Veteran.  Any persons having inquiries 
concerning this may contact the Director of Affirmative Action, 1031 Wallace 
Road Office Building, Room 101, 515-294-7612."  
 

Farm Security and Rural Investment Act of 2002: Commodity Programs for Crops

http://www.econ.iastate.edu/sites/default/files/publications/papers/p7184-2002-01-01.pdf

Farm Security and Rural Investment Act of 2002: Commodity Programs for Crops

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