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Corn+Soybean Digest

Farm Bill 2007

Like the Michael J. Fox character in the movie “Back To The Future,” many obstacles must be maneuvered to reach a bill favored by the House, Senate and Bush Administration.

Many legislators have felt too much emphasis was placed on pleasing foreign countries in World Trade Organization (WTO) talks, and not enough on benefits to U.S. farmers. “Congress will write the next farm bill, not the WTO,” has been a common cry from Republicans and Democrats alike.

The world is watching the farm bill debate. After Secretary of Agriculture Mike Johanns introduced the USDA farm bill proposals, Brazil and the European Union complained that they didn't make enough cuts in grower subsidies to satisfy WTO negotiators.

On the opposite side, some U.S. farm groups argue that the pro-posals would reduce payments too much for growers and swayed too far from the 2002 legislation.

Many aspects of the 2002 bill are included in the USDA proposal. But other provisions would remove benefits provided in 2002.

One controversial point would eliminate the three-entity rule, which enables growers to use several farming entities for payment purposes. Cotton and rice producers, facing low prices, would be affected more than corn, soybean and wheat growers.

The USDA plan would establish loan rates at 85% of the value of the crop as measured by a five-year average of price received. There are new revenue-based counter-cyclical payments. Given current price forecasts, crops expected to be impacted most are cotton and to a lesser extent, rice.

Another USDA proposal would end farm payments to anyone whose adjusted gross income surpassed $200,000. Some farm groups like the American Farm Bureau Federation are against any means testing proposals.

The House and Senate have been feeling out the USDA proposals and discussing them on Capitol Hill and at farmer meetings. U.S. Rep. Collin Peterson, D-MN, chairman of the House Committee on Agriculture, is among those saying the U.S. won't bow to foreign countries at the expense of American farmers.

“I'm sorry, but I've had enough of these trade deals,” he says. “And unless we can get something good out of it, I don't give a darn if we get one.”

U.S. Sen. Tom Harkin, D-IA, chairman of the Senate Agriculture, Nutrition and Forestry Committee, had a diplomatic tone during the committee's recent hearing with Johanns. The committee appreciates Secretary Johanns' proposals that “challenge us to take a new look at issues and problems and to consider new approaches,” he says.

“We have a responsibility to write a new farm bill which looks to the future — not one that clings to the status quo or the past. We made a good deal of progress in the Farm Security and Rural Investment Act of 2002, but farm bills are written for a limited number of years for good reason,” Johanns says.

“The new Farm Bill allows policymakers to correct major inequities in price and income support levels that exist under the 2002 Farm Bill,” says American Soybean Association (ASA) President Rick Ostlie, a soybean grower from Northwood, ND. “While soybean farmers are familiar and comfortable with the structure of farm programs under the 2002 Farm Bill, they are concerned that current support levels don't provide an equitable safety net for soybean production.

“We also want to make sure the Farm Bill assures the continued growth of the emerging biodiesel industry, provides effective conservation practices on working lands, and continues strong support for soybean research and export promotion,” he says.

ASA is proposing that Congress adjust the loan rates and target prices for various commodities to common percentages of the Olympic average of season average prices in 2000-2004. Marketing loan rates should be set at a minimum of 95%, and target prices at a minimum of 130%, of this price average. For soybeans, these percentages would establish a $5.01/bu. loan rate (up from $5) and a $6.85 target price (up from the $5.80) for the duration of the 2007 Farm Bill.

National Corn Growers Association (NCGA) President Ken McCauley says NCGA has proposed a revenue-assurance program similar to the administration's revenue-based counter-cyclical concept. “USDA has obviously recognized the merit a farm bill such as NCGA's revenue-based proposal would have in providing a more effective and efficient farm safety net for producers,” he says.

NCGA proposes that an alternative set of programs form the basis for a new farm bill. They include: 1) Maintain current calculation methods for direct payments; 2) Change the non-recourse loan program to a recourse loan program; 3) Create a new program: Base Revenue Protection (BRP); and 4) Modify current counter-cyclical program into a revenue counter-cyclical program (RCCP).

“BRP is an improved farm-level safety net program for corn farmers,” says McCauley. “Payments would be triggered when net farm corn revenue falls more than 30% below the previous five-year average of per-acre net corn revenue on the farm. Per-acre net revenue is based on farm yields, a national price and regional variable cost estimates.”

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RCCP would replace the price trigger with a revenue trigger, NCGA says. Payments to farmers would be triggered whenever actual per-acre county revenue, defined as the product of the National Agricultural Statistics Service (NASS) season-average price and the NASS county-average yield, falls below the county revenue trigger. That trigger would be defined as the product of the current effective target price and the county trend yield.

“RCCP and BRP work together to provide a strong revenue-based safety net to corn farmers,” McCauley says. “To avoid duplicate coverage and increase program efficiency, the maximum per-acre RCCP payment would equal 30% of the county trigger revenue level. BRP coverage would cover losses above this 30% level.”

Johanns says a revenue-based counter-cyclical program would provide greater support in significant loss situations “and would be a true safety net.

“A farmer from Nebraska told us that the focus should be on revenue which takes into account both prices and yields,” says Johanns. “He said the current farm bill tends to overcompensate when it should not and undercompensate when more assistance is needed.”

Saxby Chambliss, R-GA, ranking Senate Ag Committee Republican, noted that ultimately it's up to Congress to write comprehensive farm policy.

Expanding biofuels is one subject agreed upon by nearly all involved in farm bill policymaking.

Peterson says continued support for biodiesel and ethanol production, as well as cellulosic ethanol, is needed. “One of my top priorities for renewable energy is additional research and development of cellulosic ethanol. It's the real key to achieving energy independence.

“We are going to propose paying farmers and ranchers to grow cellulosic feedstocks, such as switchgrass, sweet sorghum, miscanthus and other crops in actual real-world settings,” Peterson says.

He adds that the livestock industry, hampered by high corn prices, must be also be considered in farm legislation.

Another aspect of the USDA proposal is increasing conservation funding by $7.8 billion and simplifying and consolidating conservation programs.

Johanns said that farm bill policy will be “cussed and discussed” as parties add their inputs to proposed legislation.

The National Cotton Council (NCC) favors a bill similar to the 2002 version, which it says has provided a good safety net for cotton growers still bogged down with low prices.

NCC says the USDA proposal would reduce the current 52¢/lb. cotton loan rate by 9¢. Johanns says the administration proposal would transfer the savings from the reduced loan rates to direct payments for farmers. “Because cotton prices have been lower than those for other commodities, cotton producers would receive a bigger increase — 65%,” says Johanns. He adds that direct payments “are more predictable and are not tied to price or production, thus they would not be subject to challenge under WTO rules.”

The fate of a final 2007 Farm Bill likely will not be known until late summer or in the fall. If WTO talks are stalled, it could be into next year. February's USDA announcement of its 2008 budget of $89 billion is about the same as for 2007.

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