If they could have their druthers, American Farm Bureau Federation leaders say they would rather see Congress increase the funding available for the new farm bill’s counter-cyclical payments by $1.5 billion to $2.5 billion per year.
Since that doesn’t appear likely, Congress needs to look at a counter-cyclical revenue-based program or CCR to see if the limited dollars available could be spent more effectively, the AFBF says.
Farm Bureau supports modifying the counter-cyclical payments triggered by a shortfall in state crop revenue rather than a shortfall in the national average price, its leaders say. But other farm groups are saying they see problems with the revenue-based, statewide counter-cyclical payment approach for their crops.
“This change would bring crop yields and production into the equation,” the Farm Bureau said in a position paper. “There have been years when prices were high but yields were low. Farmers were in need of support but there were no CCPs made to producers.”
The paper cites Oklahoma wheat producers as an example of the problems with the current counter-cyclical payment. Oklahoma wheat growers did not receive a CCP payment in 2006 despite a significant drop in yields that reduced their revenues.
“This is because the national average price for wheat averaged above $4.30 per bushel — well above the trigger price of $3.40 (the $3.92 target price — the 52-cent direct payment = $3.40),” the paper said. “Hence, the CCP payment rate was $0 and no wheat producers received a payment.”
Under the Farm Bureau’s CCR, Oklahoma’s target revenue per acre would have been the state’s Olympic average yield times the national trigger price from the CCP program; that is, 31.7 bushels per acre times a trigger price of $3.40 or a target revenue per acre of $107.67.
For 2006, Oklahoma’s actual yield of 24 bushels per acre times the actual price of $4.30 per bushel put revenues at $103.20 per acre. The CCR for Oklahoma would have been the difference between actual and target revenue or $107.67- $103.20 or $4.47 per acre. A grower with a 1,000-acre wheat base would have received $3,799 or $4.47 times 850 acres.
In Mississippi, on the other hand, cotton prices were low enough in 2003 to result in counter-cyclical payments totaling $36.6 million for the state’s farmers, according to the Farm Bureau paper.
“However, the state’s 2003 average yield of 934 pounds per acre was higher than the Olympic average of 873 pounds per acre. Combining these factors resulted in a state revenue equal to $577.22 per acre, which was higher than Mississippi’s target revenue of $573.80 per acre. Thus, no CCR payment would have been distributed.”
Farm Bureau officials said they would prefer to implement a county-based CCR to maximize responsiveness to farmer needs, but the cost of the program would be too great given the $7 billion limit on commodity spending.
“We view a state-based program as far superior to the USDA revenue-based counter-cyclical program, which uses a national yield variable for the revenue component,” Farm Bureau leaders said.
“It is not a perfect program,” they noted. “Obviously, a producer’s yields will vary from state-based yields. When that occurs, the program will be less effective. However, a revenue counter-cyclical program should help producers better manage risk by making the payment higher in low-income or low-yield years. Producers would be better off receiving a payment in a bad year than a payment in a good year.”
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