FAPRI analysis

WASHINGTON, D.C. -- A draft farm bill proposal by the U.S. House of Representatives retains a mix of popular features from the current farm bill, brings back features from the previous farm bill and adds counter-cyclical payments to help farmers in times of low commodity prices.

Commodity provisions of the proposal also increase net farm income by $4.1 billion per year from 2003 to 2010, according to an analysis by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri-Columbia.

Those provisions also increase government expenditures through the Commodity Credit Corporation by an average of $4.8 billion per year.

A partial analysis of the “Draft Farm Bill Concept Paper” will be presented to the full staff of the House Agricultural Committee, Thursday afternoon (July 19) by Bob Young, co-director, and Gary Adams, crop analyst, at FAPRI .

Their analysis indicates the proposal would marginally increase acres planted to grains and cotton while reducing acreage of soybeans and other oilseeds. The total increase of planted area would be less than 1 percent.

The shift could slightly increase all oilseed prices and slightly decrease prices for grain and cotton.

Overall, the return per crop acre would go up $17 per acre. The analysis is in comparison to a FAPRI baseline projected in January of 2001.

A major shift comes in the treatment of soybeans, which under previous farm bills were not a “program” crop. Soybean farmers would become eligible for fixed rate payments and counter-cyclical payments. The change calls for a reduction of the marketing loan for soybeans from the current $5.26 to $4.92 per bushel.

As a counter-cyclical feature, the bill brings back the concept of “Target prices” used in the previous farm bills. Those “targets” are the same as they were in 1995 under the previous farm bill. Target prices of $5.76 per bushel for soybeans and 10.18 cents per pound for minor oilseeds was added, as those were not included before.

Under the counter-cyclical program, when the sum of the fixed government payment and the greater of the marketing loan rate or the average farm price falls below the target price, the government would pay farmers.

FAPRI economists said their analysis is hampered by lack of accurate estimates on farmer participation in switches in base acres on each farm.

Under the proposed bill, farmers can elect to use the base historic acres for their farm, or switch to update their base, using an average of planted acreage for all crops on their farm from 1998-2001.

“There will be advantages both ways for producers, depending on their situation,” said Pat Westhoff of FAPRI. “If, for example, they had a large corn base and have not been growing as much corn in recent years, they may want to retain that old base.

“However, if they have a lot of acres of soybeans and had a small historic crop base, they may want to switch to the new system.”

The counter-cyclical payments are not tied to current production acreages nor will there be any set-aside crop acres. “Current planting flexibility rules apply,” according to the report.

The base acres are used in calculating the fixed payments, similar to Agricultural Market Transition Act (AMTA) contract payments now available. Under the proposed bill, the fixed payments for grains and cotton are set at the same level that will be paid in the current farm bill at the 2002 levels. A fixed payment of 34 cents per bushel is added for soybeans and corresponding rate for minor oilseeds.

The reduction in the marketing loan rate for soybeans is intended to bring soybeans more in line with corn loan rates, analysts say. The higher loan rate on soybeans has contributed to a gradual shift to more soybean acreage. The current analysis shows a slight shift away from those increasing soybean acres. That, in turn will help lower the supply and increase market price.

However, overall, the proposed changes have little impact on total crop acreage, FAPRI reports. For nine major crops, acres increase, compared to baseline, by about 1.3 million acres, or 0.4 percent, in 2002. The increase would be less in following years.

The FAPRI analysis looks only at grain, oilseed and cotton provisions, with some consideration of the Conservation Reserve Program (CRP). Other titles of the proposed farm bill cover peanuts, sugar, dairy, wool, mohair, conservation, trade, research, nutrition and rural development.

The analysis assumes that the CRP acreage does increase from the current limit of 36.4 million acres to near the 40 million acres in the new farm bill proposal.

MU FAPRI, a part of the MU College of Agriculture, Food and Natural Resources, is funded in part by the U.S. Congress.

FAPRI is a joint institute between the University of Missouri and Iowa State University that provides Congress with analysis of alternative policy options. FAPRI also collaborates with economists at Texas A&M University to provide farm-level impacts of these policy options.

Sources: Bob Young (573) 882-882-9717; Abner Womack (979) 845-5913; Pat Westhoff (573) 882-4647

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