Updating Crop Acre and Yield Bases for the 2002 Farm Bill

Mike Rankin
Crops and Soils Agent
University of Wisconsin - Extension

        The 2002 Farm Bill puts crop producers in the position to both meet certain requirements and make decisions.  Not much can be done about the requirements, but time spent understanding the structure of the programs and making informed decisions about crop acre and yield bases will result in maximum benefits for the next seven years.  The three programs that all producers can benefit from are the Direct Payment Program, the Counter Cyclical Payment Program, and the Loan Deficiency Payment (Marketing Loan) Program. Each is unique in how benefits are determined with the Loan Deficiency Program being the only one based on actual current production with no tie to crop acre or yield bases.

Direct Payment Program

        Payments received through the Direct Payment (DP) program are derived from existing or updated crop acre bases and existing yield bases.  Every farm will need to establish a soybean acre and yield base.  This will be done using average production figures from the 1998-2001 crop years.  Because of this, there will be an opportunity to shift acre base from non-oilseed crops to soybeans.  Let's look at an example:

Current farm base acres:  corn-120   wheat-30

Average acres planted from 1998-2001:

        Corn-100      Soybean-40         Wheat-20

Keep existing base:  Total base acres cannot exceed the average total acres planted from 1998-2001, which in this case is 160.  If this producer decides to keep existing base, it's likely the 120 corn base would be maintained and the remaining 40 acres distributed between wheat and soybeans (with a maximum of 40 for soybeans or 30 for wheat).

Update base:  The producer simply uses the average acres planted from 1998-2001 as the base.  If this option is elected, 20 acres of existing corn base and 10 acres of existing wheat base are lost to soybeans.

Does it really make a difference which option is chosen? Yes.  The DP pay rate per bushel for the various commodities is as follows:  Corn - $0.28, Soybean - $0.44, Wheat - $0.52, and Oats - $0.024.  Payments are made on 85% of base acres.  The DP for one acre of corn with a 120 bu/ac yield base would be:

$0.28/bu x 120 bu x (0.85 x 1 ac) = $28.56 per acre

The base yield level needed to match this corn payment for other crops is as follows:

Soybean – 76.4 bu/ac

Wheat – 64.6 bu/ac

Oats – 1400 bu/ac

        From a DP program perspective, it's clear that maintaining as much corn base as possible will usually result in the highest payment (unless base yield for corn is extremely low relative to other crops).  Wheat base acres also appear to be at least equal (and perhaps greater) in value to soybean base acres.  Oat base is nearly worthless.  Here is an important point:  unlike the Counter Cyclical and Loan Deficiency Programs, the DP program offers guaranteed money each year regardless of market price.

Counter Cyclical Program

        Counter cyclical (CC) payments are tied to the USDA 12-month season-average price.  Producers have the opportunity to update both base acres and yields with this program (if yields are updated, base acres must also be updated).  Again, crop years 1998-2001 are used to determine new bases.  The following table lists key components for estimating payments in the CC program.

CC payments will be determined as follows: 

CC Payment = Trigger price – [higher of loan rate or season-average price] x (base acres x 0.85)

        If the season-average price is GREATER than the trigger price, NO CC payment is received for that year.  Conversely, if the season-average price is lower than the loan rate, the loan rate value is used.  This effectively puts a ceiling on the payment (indicated as the maximum payment in the table).

        Producers have the opportunity to update base pay yields in the CC program.  First, you must be able to prove yields in accordance with FSA guidelines for the crop years of 1998-2001.  Second, if you update yields, then you must also update acre bases, which will impact DP program payments.  Yields can be updated using one of two methods:  1) 70 percent of the difference between the current base yield and the new proven yield, or 2) 93.5 percent of the new proven yield.  Determining maximum CC payments will be a function of how effectively crop prices are predicted for the next 7 years.

Help!!

        There are many help sites available on the Internet for determining the "best option" in terms of updating crop acre and yield bases.  I have listed them on our Fond du Lac County Agronomy web site: www.uwex.edu/ces/crops/.  Once you have historical bases and proven yields "in-hand", I am willing to run your numbers through a computer spreadsheet developed by Bruce Jones, UW Farm Management Specialist.  Give me a call if help is desired.