2002 Farm Bill
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2002 Farm Bill. Provisions and Impacts. Don Shurley Economist- Cotton University of Georgia. http://www.agecon.uga.edu Click on “Extension” Click on “Farm Bill 2002” Click on “Presentations”. Producers Have Two Important Decisions To Make. What Bases To Have To Maximize Payments?

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2002 Farm Bill

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2002 farm bill

2002 Farm Bill

Provisions and Impacts

Don Shurley

Economist- Cotton

University of Georgia


2002 farm bill

http://www.agecon.uga.edu

Click on “Extension”

Click on “Farm Bill 2002”

Click on “Presentations”


2002 farm bill

Producers Have Two Important Decisions To Make

What Bases To Have To Maximize Payments?

Direct Payments (DP) and Counter Cyclical Payments (CCP) are tied

to Base acres and what you produce or not produce has no bearing on

these payments.

What Crops To Produce?

POP’s/LDP’s or Marketing Loan Gains (MLG) are the only payments

tied to actual production. If you are likely to reach the payment limit-

can you produce without an LDP? If so, which crop(s)? If payment

limit will not be a problem, then remember you are producing for

cash+LDP or the loan rate.


2002 farm bill

Hypothetical Example of Payments on Base Acres


2002 farm bill

Let Your Agronomic and Economic Comparative Advantage

Be Your Guide

“The future is unknown. We will have a 6-year farm bill. What about

after that? Economics and farm bill issues are unpredictable and

uncertain. Think about what farm enterprises we in Georgia have a

comparative advantage in producing and think about desirable crop

rotations. It may be to your long-term advantage to keep as much base

in these crops as possible.”


2002 farm bill

Summary of Significant Commodity Provisions

  • Is a 6-year Bill -- 2002-2007.

  • Provides increased income safety net by institution of

  • new “counter cyclical payment”.

  • Will allow producers to update base acres and payment

  • (program) yields.

  • Continues POP/LDP and MLG provisions and the use of

  • marketing certificates.

  • Establishes a new peanut program.

  • Continues favorable payment limits and use of 3-entity rule.


2002 farm bill

New Terminology

“Direct Payment”

Timing of Payments: For 2002 “as soon as practical”; “for any or all

2002 AMTA payments already received, 2002 DP will be reduced”;

for 2003-2007 “not before October 1 of the year harvested”, “up to 50%

in advance beginning Dec 1” of the year before harvested”.


2002 farm bill

New Terminology

“Target Price”


2002 farm bill

New Terminology

“Counter Cyclical Payment”

Target Price - Direct Payment - max(loan, 12-mo. avg mkt price)

Example @ 40-cent cotton:

72.4 - 6.67 - 52.0 = 13.73 cents/lb

Timing of Payments: “as soon as practical after the end of the

12-month marketing year for the commodity”. PARTIAL

PAYMENTS: 1st payment- “not earlier than Oct 1, not later than

Oct 31 of the harvest year”, “may not exceed 35%”; 2nd payment

“not earlier than Feb 1”, “may not exceed 70% minus amount

of 1st payment”.


2002 farm bill

Comparison Of Base Payments @ 40-Cent Cotton


2002 farm bill

Payment Base and Payment Yield

Bases

Producers may (1) keep bases as they currently are under the 1996

farm bill and add oilseed base OR (2) may update ALL bases to the

average of acres planted from 1998-2001. This would include ZERO

years. If you have no current (old) base for a crop, you still qualify

for updated base (your 1998-2001 average). DP and CCP will be

made on 85% of the base.

Yield

IF BASES ARE UPDATED, producers may also elect to update

the farm’s Payment Yield. Your options are (1) keep current yield,

(2) the “70% Option”, or (3) the “93 ½% Option”. DP will be made

only at the current (old) yield level. CCP will be made at the elected

yield.If you do not currently have an established yield, one will

be established for you.


2002 farm bill

Timing of Base and Yield Election

“as soon as practical …. Secretary shall provide notice to owners

of farms”

“provided only once”

“the manner in which the election must be made and the time

periods … . must be submitted by the Secretary”


2002 farm bill

Example of CCP Payment Yield Update Options

Current (1996 Farm Bill) Payment Yield: 600 lbs/ac

1998-2001 Payment Yield: 800 lbs/ac

  • Option 1: Retain old yield

  • 600 lbs

  • Option 2: Old yield + 70% of the Difference

  • + 200 x 70% = 740 lbs

  • Option 3: 93 ½% of 1998-2001 Yield

  • 800 x 93 ½% = 748 lbs


2002 farm bill

Keep Current Bases

Keep Current Payment Yield

OR

Keep Current Payment Yield

Update (1998-2001) Base

OR

Elect 70% Option

OR

Elect 93 ½ % Option

Base/Yield Alternatives *

You must elect a single option for all bases and payment yields. You

cannot update base on some crops and not update others. You cannot

update CCP yield unless bases are updated. You cannot choose

one CCP yield option for one crop and a different option for other crops.

* Excluding peanuts.


2002 farm bill

Payment Limitations

* Double payments received as part of financial assistance legislation


2002 farm bill

Base Acres Needed To Reach $40,000 DP Limitation


2002 farm bill

Base Acres To Reach $65,000 CCP Limitation

Payments on 85% of Acres Shown


2002 farm bill

Acres of Cotton Needed To Reach LDP/MLG Limit


2002 farm bill

Payments Per Acre of Base At Various Cotton Prices

LDP/MLG On Actual Acres Harvested

650 Lb DP Yield, 720 Lb CCP Yield, and 750 Lb Actual Yield


2002 farm bill

Comparison of 2002 Farm Bill To ’96 Bill

@ 40-Cent Cotton, Updated Base and Yield


2002 farm bill

Net Returns With and Without Payments

At 40-Cent Cotton


2002 farm bill

Price Outlook

  • Acreage very likely lower in 2002

  • Possible large crop if weather cooperates will keep lid on prices

  • Foreign acreage and production likely down

  • A-Index should hold at current levels or improve

  • US prices probably 35-50 cents per pound

  • Total money still around 58-60 cents with LDP


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