Elk City, Okla. farmer Danny Davis doesn’t expect the Average Crop Revenue Election (ACRE) program included in the recently passed Food, Conservation and Energy Act of 2008 to fit his operation.
“It doesn’t appeal to me so far,” Davis said following a recent National Cotton Council informational meeting in Altus, Okla. “I never say never, but I don’t know enough about it yet.”
Davis’ main reservation with ACRE is that once a farmer signs up for this revenue option he’s committed through the life of the farm law. Farmers have the option each year to sign up for ACRE, but once they do the decision is irrevocable, said John Maguire, National Cotton Council senior vice president, Washington Operations.
Davis said different loan rates could make the revenue option program “terribly complicated for marketing pools.”
He’s most concerned about the permanent disaster plan included in the new farm program. To qualify, growers must buy crop insurance and Davis is concerned that increased participation will mean more “at risk production” in the system, which could result in more losses to the insurance companies and ultimately higher premiums.
Davis said changes in payment limitations will have little effect on his farm. “It should not be an issue,” he said. “But eligibility is a key.”
He believes larger operations, regardless of income level, should be eligible for program benefits. “Large operators have bigger risks and higher costs of doing business. They have a deeper hole to dig out of,” he said.
Without large farms eligible for program benefits Davis fears that rural communities and farms will lose vital infrastructure. “Large farms support the elevators, gins and dealerships.”
Maguire said the basic structure of the new farm law is in place but the Farm Service Agency still must write the regulations to implement the law. “We still can have input into FSA implementation.”
FSA’s first chore will be to write regulations for the permanent disaster program, which will be available for 2008 crops. “FSA is writing regs after some farmers have already lost crops.”
The program includes only $5 billion for five-years. Ad Hoc disaster programs typically spend that much in one year. “So, we have one-fifth as much money as we’ve had with ad hoc measures.”
He says the permanent disaster program is “shallow protection, but a start. It also doesn’t preclude enacting an ad hoc disaster bill, but it will be harder to get one.”
Maguire said with floods in Iowa and an election year ad hoc disaster may be possible this year.
He said the new farm law consists of two elements, a program for 2008 and another for 2009 through 2012. “Congress passed the bill after a lot of crops were planted so they tried to extend the 2002 law for one year. They maintained the basic structure of commodity programs — with modifications.
“Any changes made that cost money had to be offset by cuts elsewhere. We took some cuts in target prices, for example.”
Maguire said payment limit changes included in the new law may be “more important to cotton than to grain and oilseed.” Payment eligibility and limitations changes begin with the 2009 crop. Changes include:
•The three-entity rule is terminated and direct attribution applies to all commodity program payments.
•Spouses may qualify as “persons” eligible to receive payments. A spouse of an actively engaged farmer is automatically credited with making a significant contribution of labor and management. A spouse is now defined as a “family member,” which qualifies as a substantive change.
•Marketing loan gains/loan deficiency payments are not limited.
•For farmers with all farms enrolled in Direct/Counter-cyclical Payment (DCP) programs the direct payment limit is $40,000 per person and the counter cyclical payment is limited to $65,000 per person.
•For producers with all farms enrolled in the optional revenue program (ACRE) direct payment limit is reduced from $40,000 by an amount equal to the 20 percent reduction in direct payments.
•The limit on revenue-based ACRE payments is increased from $65,000 by the amount of the reduction in the direct payment limit.
Producers with some farms in ACRE and some in the DCP programs are subject to the same limits as if all farms were enrolled in ACRE.
The new law includes an income means test, beginning with the 2009 crop. The test has two triggers, Maguire said, a non-farm income test and a farm income test. For non-farm income, if an entity or individual earns an average of more than $500,000 in adjusted non-farm income during the three years prior to the year preceding the applicable year, the individual or entity is ineligible for any commodity payments for the year.
The farm, ranch and forestry income (FRF) test decrees that if an individual or entity earns an average of more than $750,000 in adjusted FRF income during the three years prior to the year preceding the applicable year, the individual or entity is ineligible for direct payments for the year.
Maguire said the limitations may have more implications than people realize. He also suggested that a farmer and spouse might choose to have their CPA figure income as if they would file income tax returns separately. If either of those incomes is below the limit, one may qualify for payments. “They don’t actually have to file separately, just have the CPA do the figures and take the documentation to FSA.”
Direct payment acres for 2009 through 2011 will be reduced to 83.3 percent of base and restored to 85 percent in 2012.
Conservation titles got budget increases in the new law but also new limits. “Almost all conservation programs were enhanced,” Maguire said, “But they come with a new means test. If during three years prior to the year preceding the applicable year an individual or entity earned an average of more than $1 million in adjusted non-farm income or more than $1 million in adjusted gross income (if less than 66.66 percent is from farming, ranching or forestry) that individual or entity is ineligible for conservation program payments for the year. That limit does not apply to easement programs.
The conservation reserve program will allow up to 32 million acres in the reserve at any one time in 2010-2012. That’s down from 35 million.
Environmental Quality Incentives Program (EQIP) funding increases to $3.4 billion. A new payment limitation is set at $300,000, but allows a waiver to $450,000 if a project has special environmental significance. Funding level for EQIP is set at $37.5 million for each fiscal year from 2009-2012.
The Conservation Security Program has been revamped into a Conservation Stewardship Program with $1.1 billion in new funds and expanded eligible lands to include private forests. Enrollment goal is 12,769,000 acres each fiscal year from Oct. 1, 2008 through September 30, 2017. Payment limitation is $200,000 for all contracts entered into during any five-year period. Other farm law changes include new methods to calculate the adjusted world price (AWP) for cotton. The new formula considers the price in the Far East instead of Northern Europe. Most cotton trade is in the Far East now, Maguire said.
The warehouse location differential has been eliminated for cotton loan rates. Maguire said since most U.S. cotton is now exported, proximity to a port has become more important than proximity to a mill.
USDA may now project cotton prices.
Certain color and leaf combinations have been collapsed and the split in mike schedules between 32 and 33 staple has been eliminated.
Storage credits have been retained “whenever the repayment rate is below the loan. Credits are to be made available at 90 percent of the 2006 rate during 2008-2011 and at 80 percent of that rate for 2012.”
The new law includes a Textile Economic Adjustment Assistance program to help the ailing domestic textile industry.
“Beginning Aug. 1, 2008, through July 31, 2012, the secretary is required to make a payment to domestic users of 4 cents per pound for all upland cotton consumed; beginning Aug. 1, 2012, the rate is adjusted to 3 cents a pound.
“Recipients must agree to invest the proceeds in plant and equipment, similar to requirements for Trade Adjustment Assistance.”
The non-recourse loan is maintained. Maguire said a non-recourse loan is the key to the program.
Kansas, Florida and Virginia are now defined as cotton-producing states and will have representation on the Cotton Board.
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