USDA payments remain on schedule

From local coffee shops to Congressional offices, speculation has been swirling that USDA was delaying payments to growers because of a shortage of funds. John Johnson, deputy FSA administrator for farm programs, says that worry is without basis.

“All direct and counter cyclical payments will be made on schedule, and the funds are available with which to make those payments,” says Johnson, who was interviewed by telephone.

According to the schedule in the 2002 farm bill, rice, cotton and peanut producers will receive their final counter-cyclical payment for the 2002 crop sometime this month. In October, corn, grain sorghum and soybean producers would receive the final 2002 counter cyclical payment for corn, soybeans, and sorghum, if applicable.

Also in October, USDA will make the final direct payment for all 2003 program crops and the first advance counter cyclical payment for most 2003 program crops.

Counter-cyclical payments will be issued only if the crop’s average annual selling price is less than the target price minus the direct payment for that crop. For corn, soybeans and grain sorghum, the marketing year runs from Sept. 1 to Aug. 31; for cotton and rice, Aug. 1 through July 31; and wheat and oats, June 1 to May 31.

Calculating counter-cyclical payments is similar to the way deficiency payments were made prior to the 1996 farm bill, except that the direct payment must be factored into the equation. To estimate an eligible counter-cyclical payment, multiply your base for that crop times 85 percent, times the counter-cyclical yield, times the maximum projected counter-cyclical payment for that crop.

Put more simply, the counter-cyclical payment rate is the amount by which the target price of each commodity exceeds its effective price. The effective price for each commodity equals the direct payment rate plus the higher of either the national average market price received by producers during the marketing year, or the national loan rate for that commodity.

That’s the maximum you could receive, but it could also be zero, depending on the current market price for that commodity.

On the other hand, direct payments are guaranteed payments similar to the PFC payments made under the 1996 farm bill.

To calculate direct payments, producers should begin with 85 percent of a farm number’s base acreage. Multiply that number by the farm’s direct payment yield, and then multiply it again by the direct payment rate for that crop.

Direct payment rates for program crops are as follows: barley, $0.24 per bushel; other oilseeds, $0.80 per hundredweight; peanuts, $36 per ton; rice, $2.35 per hundredweight; soybeans, $0.44; upland cotton, $0.0667 per pound; and wheat, $0.52 per bushel.

While USDA is expected to announce its counter-cyclical payments schedule for September sometime during the second week of the month, groups like the National Cotton Council are urging the agency to issue the maximum payment allowed under the farm bill.

In a letter to Agriculture Secretary Ann M. Veneman, NCC Chairman Bobby Greene says cotton growers are in desperate need of an initial advance counter-cyclical payment for the 2003 crop at the maximum allowable rate of 4.8 cents per pound.

“Although prices have recovered in recent months, U.S. and international cotton prices remain below long-term average levels, and the counter-cyclical payments will provide an important financial safety net for producers and the rural economy,” he says. He also urged the secretary to make the announcement as soon as possible "so producers and their lenders can plan accordingly."

Using futures prices and world fiber market conditions, an analysis by the National Cotton Council forecasts a likely range for the market year price for upland cotton of 52 to 54 cents per pound. If the market year average price falls between 52 and 54 cents, the counter-cyclical payment would be between 11.73 cents and the maximum rate of 13.73 cents.

The analysis also accounts for the fact that market conditions and price relationships will change as the marketing year progresses. Based on observed market movements for the 1987-88 through 2002-03 period, the analysis indicates that the possibility of prices rising to a level necessary to reduce the CCP payment below an advance rate of 4.8 cents is remote, the commodity organization says.

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