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ASA: adjust target prices, loan rates

The American Soybean Association says Congress should adjust target prices to 130 percent of a 2000-04 Olympic average market price to remove “major inequities” in price and income support levels in the next farm bill.

The ASA is also proposing that marketing loan rates for each of the program crops be set at a minimum of 95 percent of Olympic average market prices; that is, minus the high and low years, for the same five-year period.

For soybeans, these percentages would increase the target price from $5.80 per bushel to $6.85 per bushel and raise the Commodity Credit Corp. loan rate from $5.00 per bushel to $5.01, Soybean Association leaders said in a white paper. The soybean direct payment would remain at 44 cents per bushel.

ASA leaders said they are not recommending that Congress change the establishment of base acres, payment acres and payment yield or the terms for operation of the marketing loan. No changes should be made in the rules regarding payment limits, they said.

“Major inequities in price and income support levels among program commodities should be corrected by adjusting target prices and loan rates to a percentage of the Olympic average of season average prices in 2000-04,” the paper says.

“The soybean target price and direct payment established in the 2002 farm bill are not equitable, compared to support levels for other program crops. This has resulted in unbalanced income support and distortions in planting decisions.”

The current soybean target price of $5.80 per bushel is 110 percent of the 2000-04 Olympic season average price of $5.27 per bushel. With the direct payment set at 44 cents per bushel, the season average soybean price must fall below $5.36 per bushel before a counter-cyclical payment can be made.

In contrast, corn and wheat target prices are at 124 percent and 121 percent of 2000-2004 average prices, and cotton and rice target prices are at 155 percent and 181 percent. Most of the counter-cyclical payments made under the 2002 farm bill have gone to producers of these two crops, the paper said.

“To reduce the disparity without cutting support levels for any commodity, ASA is proposing to adjust target prices up to a minimum of 130 percent of Olympic average prices in 2000-2004,” it said. “This adjustment would raise income support for all commodities except cotton and rice, which would not be reduced.”

The effective soybean target price (after subtracting the 44-cent direct payment) would increase from $5.36 to $6.41 per bushel or by $1.05 per bushel, making it more likely soybean farmers would receive a counter-cyclical payment in times of low returns for the crop.

“ASA’s proposal to set marketing loan rates at 95 percent of the same five-year Olympic average price would eliminate much of the distorting effect that current loan rates can have on planting decisions,” ASA said. “While the 95 percent level would not result in a significant adjustment in the current soybean loan of $5.00 per bushel, it would bring most marketing loans back into balance.”

USDA’s farm bill proposal also attempts to address CCC loan rates but would set them at 85 percent of the five-year Olympic average and cap them at the levels set in the House-passed version of the 2002 farm bill. For soybeans, that would be $4.92 per bushel.

In the proposal unveiled by Agriculture Secretary Mike Johanns Jan. 31, USDA is asking Congress to consider transferring the savings from adjusting CCC loan rates to direct payments.

The direct payment for cotton would see the biggest increase — from 6.67 cents to 11.08 cents per pound — because of the low prices for the crop in the last two years. USDA is recommending the soybean direct payment rise from 44 cents to 47 cents in 2008 and to 50 cents per bushel in 2010.

ASA leaders concede the cost of updating base and payment acres and payment yields — and raising loan rates and target prices — would require a substantial increase in the CCC budget baseline for the 2007 farm bill. (The Congressional Budget Office is forecasting the baseline for the 2007 farm bill will be substantially below that for the 2002 law.)

“Facing a choice between addressing inequities in target prices that are more likely to provide income support and updating bases and yields while keeping target prices at or near current levels, ASA decided to support addressing inequities in target prices,” the paper said.

The ASA proposals do not list the target price and loan rate revisions that would result from applying its percentage recommendations to the season average prices for cotton and rice. But a quick calculation shows that target price for cotton would decline from 72.4 cents to 61 cents per pound and the loan rate from 52 cents to 44 cents.

For rice, multiplying the Olympic season average price for 2000-04 of $5.81 by 130 percent would reduce the target price from $10.50 to $7.55 per hundredweight and multiplying the Olympic average by 95 percent would reduce the rice loan rate from $6.50 to $5.52 per hundredweight.

Using the ASA proposal, the target price for wheat would rise from $3.92 to $4.15 per bushel and the loan rate from $2.75 to $3.03 per bushel. For corn, the target price would go from $2.63 to $2.75 and the loan rate from $1.95 to $2.01. The peanut target price would get a slight bump from 24.75 cents to 26.7 cents per pound and the loan rate from 18 cents to 19.5 cents.

The ASA paper notes that specialty crop organizations have indicated that eliminating the fruit and vegetable planting restriction in the current law would result in increased production and lower prices, costing producers of these crops $3 billion per year.

“In the event Congress decides to address the WTO panel opinion that direct payments should be considered production- and trade-distorting (Amber Box), ASA is willing to consider replacing direct payments rather than offsetting part or all of this cost impact,” it says.

“Alternative uses of the $5.2 billion annual cost of direct payments could include permanent disaster assistance and increased funding for energy and conservation programs, including a CCC biodiesel production incentive and the Conservation Security Program.”

The paper also notes ASA is opposed to payment limitations, but has supported the caps included in the 2002 farm bill. “ASA believes that more equitable distribution of income support can be achieved through the adjustments in price and income support levels included in its proposal,” it said.

ASA leaders said they know their proposal to adjust target prices and loan rates will require funding beyond the level provided under the March 2007 CBO baseline. They said ASA is working with other farm and conservation organizations to support increasing baseline funding in the FY-2008 Budget Resolution.

“In the event additional funds are not available for ASA’s proposed adjustments in support levels, we will consider supporting alternative farm program structures that provide greater income support for soybeans; these include the revenue- based proposals being advanced by the National Corn Growers Association and by Carl Zuluaf at Ohio State University.”

ASA’s other farm bill proposals include:

• Restoring funding for the Conservation Security Program and increasing funding for the Environmental Quality Incentives Program. Congress should adjust the Environment Benefit Index for the Conservation Reserve Program to encourage non-environmentally sensitive land currently enrolled in the CRP to return to production. “Alternatively, land currently enrolled in the CRP that is non-environmentally sensitive could be allowed to return to production if energy crops will be produced.”

• Increasing funding for the Foreign Market Development Program from $34.5 million to $50 million annually and the Market Access Program from $200 million to $325 million.

• Creating a National Institute of Food and Agriculture within USDA to make grants that fund food and agricultural research through a competitive, peer-reviewed process. ASA also supports the creation of an Innovator Incentive Grant that would pay farmers to plant approved trait-enhanced soybeans.

• Authorizing a new “Biodiesel Incentive Program,” similar to the expiring CCC Bioenergy Program, but specific to biodiesel. “Unlike ethanol, biodiesel imports enter virtually duty-free to qualify for the biodiesel tax incentive and to compete against biodiesel made with domestically grown feedstocks,” ASA said.

“A payment based on the current soybean oil import tariff should be made on each gallon of biodiesel produced from domestic feedstocks. Consideration also could be given to tying the amount of the payment to the relative prices of soybean oil and petroleum diesel.

• Reauthorizing the Biodiesel Fuel Education Program and doubling its funding to $2 million annually and expanding the Bio-based Products and Procurement Program to promote development and increased use by federal agencies of existing and new soy-based products.

• Maintaining the federal crop insurance program. In the event Congress decides to authorize permanent disaster assistance, the CAT (catastrophic) and NAP (Non-Insured Crop Disaster Assistance Program) programs will become redundant, and their elimination would reduce the cost of adding disaster assistance, ASA said.

“ASA supports including permanent disaster assistance in the 2007 farm bill. If the cost of maintaining historical loss reimbursement formulas is too high, consideration should be given to dividing the cost of the program between USDA and a national disaster assistance program.”

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