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Running the figures: Which program options are right for your farm?

It's time to sign up for the 2002 farm bill, and you have some difficult and complex decisions to make.

Let's say you have a 401-acre farm with 303 acres of rice base, 22.9 acres of wheat base, 18.8 acres of cotton base, 9 acres of oat base, and 0.3 acre of grain sorghum base. In the period 1998 to 2001 you've planted rice, soybeans and wheat on this farm.

So what are your options?

  • You could keep the program bases and yields you already have.
  • You could keep your current bases and add as many oilseed acres as you can without reducing your other crop bases.
  • You could update all of your crop bases and program yields using your 1998-2001 production history.
  • You could also keep your current base acres and add an oilseed base, reducing those crop bases you select by the same amount.

If you choose the first option, you'll end up with 354 program base acres. Choosing any of the four remaining options will leave you with just under 391 base acres. Which option may be right for you depends on several factors, including the value of direct payments projected for each crop affected, any potential counter-cyclical payments, program yields, and historical yields.

Updating yields is another matter entirely. If you choose to update all of bases and yields, you then must choose between three different methods of calculating the amount of any potential counter-cyclical payments. In anticipation of program sign-up, the Farm Service Agency sent base option reports and yield option reports to all landowners and farm operators of each farm number in the Farm Service Agency system.

“To me that packet is the most important tool you have in your hand right now. If you know how to read it, it will give you the information necessary to make the calculations and make some decisions,” says Robin Richardson, Farm Service Agency director in Sunflower County, Miss. “We have tried to get this information out to producers and landowners as quickly as we can to get this process going, and we're now ready to take sign-ups,” says Richardson.

“Are we going to have all of the answers when we start this process? No, not by any stretch of the imagination, but we're going to try our best to work through it.”

Base options

When it comes to updating bases, you basically have two choices. You can retain the base acreage you have now and add your oilseed acreage, or you can update your bases using 1998 through 2001 planted and prevented planted acreage for all crops. That said, you must choose one of five available base options before you visit your local Farm Service Agency office.

Your first option is to maintain your current program bases. If you choose this option, you may not update any of your program yields. “You would take this option if no covered commodities were planted in the four-year period 1998 to 2001,” says Richardson. “If a landowner hasn't planted a crop in four years, he's going to take option one. Somebody who's never planted soybeans in those four years but wants to keep the current bases he has is also going to take option one.”

Choosing option two allows you to keep your current base acres, while adding as many oilseed acres as you can without affecting the other crop bases on your farm. You must have planted oilseeds in 1998 through 2001 to be eligible for this option, and you cannot update any crop yields except for the soybeans you are adding.

Under this option, your eligible oilseed acreage is the smaller of the four-year planted average of each oilseed, or the four-year average planting of all covered commodities, less your current program base acres. That means, you take the average of the total acreage of soybean crops you planted over the four years, and subtract your current base acres, to come up with the maximum number of soybean base acres your can add under this option.

Base option three allows us to keep your current base acres plus add a greater number of soybean base acres, based on production history between 1998 and 2001. There's a catch though. Once you exceed the “minimum eligible oilseed” acreage determined in option two, you have to take an acre-for-acre reduction out of your current program base acres.

“Under the other option we determined what our minimum oilseeds were. Here what we're getting credit for is the four-year planted acreage of oilseeds. If it is more than the minimum eligible oilseed acreage, you must reduce another program crop base by the difference between those two,” says Richardson. “I don't see a lot of people using option three. The only crops I can see you swapping soybeans for right now are oats, wheat, corn or grain sorghum, and then only if you can prove very high payment yields for your soybeans.”

Choosing base option four allows you to update bases and yields for all covered commodities on the farm based on your historical production averages in the 1998-through-2001 history. Richardson says, “That's an important point — all crops. There are still some folks out there who say I want to update my bases for rice, but I want to keep my cotton base. That's not an option. You are either going to update all crops on the farm, or no crops on the farm.

“My estimation so far is that between 20 and 40 percent of the farms in my county will probably update bases,” he says. “When you make this decision, you must make it for all crops. It's all or none.

“You can also update yields for all covered commodities under this option, but you are updating yields for counter-cyclical payment purposes only.

“There are a lot of farms that are real close between option two of adding oilseeds and option four. If you are picking up yield, some folks will automatically pick option four. Well, you have to look at that closely because if the price of the commodities go up and there is no counter-cyclical payment, you haven't picked up any additional money.”

Base option five maintains the majority of your current base acres, while allowing you to partially offset the crop bases you choose in order to add a high number of soybean base acres. This option falls in between options two and three.

You must have planted oilseeds in the period 1998 to 2001 to use this option, and you cannot update your program yields, with the exception of soybeans. “You may want to use this option if your oilseed payments are higher than a current program crop such as oats, or some other crop with a very low payment yield,” says Richardson.

“In option two we determined what the minimum amount of soybeans was that you could add without affecting your base. In option three we determined the maximum amount of soybeans that you could add and affect base. The difference between those two is what I call wiggle room. With this option you can decide how much you want to wiggle between those two figures.”

Updating crop yields

If you choose base options one, two, three or five, you will retain your current program yields for all crops except soybeans. Those growers adding oilseed bases can prove a yield for soybeans for direct and counter-cyclical payment purposes using their four-year weighted average yields.

The payment yield for any oilseed added will be either 78 percent of the county average yield or 78 percent of your proven yield for the four-year period 1998 to 2001. The direct payment yield and the counter-cyclical payment yield are one and the same for oilseeds.

Why 78 percent? The Farm Service Agency arrived at that figure by dividing the 1981-through-1985 national average yield by the 1998-through-2001 national average yield. “They had to bring soybean yields back in line with the yields for the other crops. They didn't feel it was fair to bring soybeans in and let those producers use a straight four-year average when we didn't let any of the other crops update that same way,” Richardson says.

Plug yields will apply if the producer submits no production evidence, or a producer's actual proven yield is less than the plug yield. A plug yield equals 75 percent of the county average yield, which is the weighted average per acre for 1998 through 2001 using National Agricultural Statistics Service data for that county. For example, in Sunflower County, Miss., the plug yield for soybeans is 16 bushels per acre.

Richardson says, “That makes people think if I made more than 16 bushels per acre I need to prove my yields, but that's not right. If you made more than 20 in any of the four years between 1998 and 2001, you need to consider proving your yield production.”

Unless taking base option four, the counter-cyclical yield for all crops will be the direct yield.

Updating wheat, corn, grain sorghum, oats, upland cotton and rice payments yields is allowed only if you are updating bases using your 1998-2001 acreage history. If you are updating your bases, and one of your crops did not have a PFC yield prior to the new program, the county committee will assign a direct yield using the PFC yield from similar farms.

For those growers who choose to update bases and yields using base option four, current program yields for all program crops will be retained for direct payment purposes, but not necessarily for counter-cyclical payments.

There is a belief among farmers, Richardson says, that anytime you prove the average yield for one crop on your farm, you must prove the yields for all crops on your farm. That is not true. “If you decide to update bases and you turn in your production for cotton to prove a cotton yield, but for some reason you don't turn it in on your other crops, you are still going to get the plug yield, or 75 percent of the county average, on those crops.”

While growers who opt to update bases and yields must choose one yield option for all crops in a farm number, there are three alternatives: (1) you may use your current direct payment yield, or (2) you can take that direct yield added to 70 percent of the difference between your proven four-year yield average and the direct yield, or (3) you can choose to be paid on 93.5 percent of your proven four-year yield average.

Richardson reminds growers that for yield, options two and three use a four-year average yield, not a four-year average yield that has been factored by 78 percent, as it was for the direct payment on soybeans.

For example, let's say your direct payment program yield for soybeans is 30 bushels per acre, and your four-year proven average is 50 bushels per acre.

To calculate the 70 percent yield option, subtract 30 from 50 to get 20. Then multiple 20 by 70 percent to get 14. Those 14 bushels of soybeans are then added back to your direct yield of 30 bushels, for a counter-cyclical yield of 44 bushels per acre.

In comparison, to calculate the third 93.5 percent option, multiply 50 by 93.5 percent to get 47. In that case 47 bushels per acre would be used as your counter-cyclical payment yield.

That doesn't mean option three will automatically be the best choice for all farms, Richardson cautions producers. “We have to look at this for every crop on the farm. You may have a high direct payment cotton yield, in which case you may not be able to prove a higher yield using counter-cyclical yield options two or three.

“That's what you are going to see in some of your base and yield option reports. You are going to have some yields that are going to be higher, and some that are going to be lower, and all of them have to factor into your decision for each farm.”

After choosing which of the three yield options is right for your farm, you must decide how the base acres will be distributed across farm tracts.

There are three methods by which updated bases will be distributed.

The first, Richardson says, is the cropland method. The cropland acres of each tract will be divided it into the total cropland to come up with a percentage, which will then be multiplied by each base.

The second is the history method, where tracts of land are assigned a base correlating to actual production history.

The third method of determining bases, Richardson says, is “any dang way the owners agree to do it. If you have some landowners that can't agree with each other, you have some way for them to work it out without money changing hands,” he says.

Richardson explains, “Say you have one landowner who may lose some cotton base by updating bases, and one landowner that's gaining base. In order to get that one landowner to agree he may want a little extra cotton base, and another landowner may be willing to give up a little cotton base. Put down exactly what base each one wants, they sign and agree to it.”

e-mail: [email protected].

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