MEDIA RELEASE
June 12, 2002
Written By Kent Thiesse, U of M Extension Service
(507-389-8141)
New Farm Bill Does Not Justify Cash Rent Increases
The ink is barely dry on the new Farm Bill and already there is considerable talk about higher cash rental rates for 2003, according to Kent Thiesse, University of Minnesota Extension Service. The expectation of much higher farm subsidy payments in the new farm program, compared to the existing program, has been created by several national news media stories about higher Federal spending in the new Farm Bill.
Thiesse encourages crop producers to use extreme caution before bidding up 2003 cash rents or agreeing to higher rental rates from landlords based on expected extra income from government farm payments. He doesn't expect the farm subsidy payments in 2002 and 2003 for most individual farm operators to increase by a significant amount over current farm program payment levels. The payments may be paid out in new and different forms, such as counter-cyclical payments. However, the market loss assistance and oilseed payments of recent years were eliminated and soybean loan rates were lowered substantially.
Thiesse points out that the only guaranteed subsidy payments in the new farm program are the fixed, direct payments, which replace the former fixed, AMTA payments. The direct payment rate for corn for the six years (2002-2007) of the new program is $.28 per bushel, compared to $.269 per bushel in 2001. This amounts to approximately a four percent increase in guaranteed payments for corn base acres.
Thiesse said that soybeans were added as a program crop in the new Farm Bill. The direct payment rate for soybeans is $.44 per bushel. However, that payment is only paid on 85 percent of the new soybean base acres and is only paid on approximately 78 percent of the 1998-2001 soybean yields. It will probably be about $12.00-$13.00 per soybean base acre for most Southern Minnesota farmers.
Thiesse indicated that the "trade-off" to have soybeans added as a program crop in the new Farm bill, was a significant reduction in the national soybean loan rate from $5.26 per bushel to $5.00 per bushel, a drop of five percent. Most Southern Minnesota county loan rates are 10-15 cents per bushel below the national rates. The county loan rates provide a minimum price per bushel on every bushel of soybeans produced. So, the approximate $.25 per bushel reduction in county loan rates for soybeans in 2002, results in an estimated $12.50 per acre less guaranteed income per acre on a soybean yield of 50 bushels per acre. This reduction is almost exactly the same as the estimated added direct payment per soybean base acre in the new farm program.
National CCC loan rates for corn in 2002 were increased $.09 per bushel from $1.89 to $1.98 per bushel. However, most County loan rates in Southern Minnesota only increased $.06 per bushel for 2002, compared to 2001, and are $.17 - $.22 below the National loan rate for corn. Thiesse estimates that the $.06 per bushel increase in the local loan rate on 150 bushel per acre corn adds about $9.00 of price protection per acre of corn.
Thiesse said that much of the focus of the added subsidies in the new Farm Bill have been about the new "counter-cyclical" payments that are based off newly established target prices for each crop. The maximum counter-cyclical payments for corn are $.34 per bushel, or about $30.00-$40.00 per corn base acre and $.36 per bushel for soybeans, or about $10.00-$13.00 per soybean base acre. If the 12 month average prices for corn or soybeans are above the National loan rates of $1.98 for corn and $5.00 for soybeans, then the level of counter-cyclical payment is reduced. If the 12 month average prices are above $2.32 for corn or $5.36 for soybeans, there would be no counter-cyclical payment. These payments are not guaranteed and are totally dependent on harvest and post-harvest market prices.
Thiesse points out that most farm operators have received significant emergency subsidy payments from 1998-2001 in the form of market loss assistance payments for corn and oilseed payments for soybeans. In 2001 most market loss assistance payments in Southern Minnesota were $25.00-$35.00 per corn base acre and oilseed payments were $5.00-$6.00 per soybean acre. These payments will not occur with the new farm program.
Thiesse says that the bottom-line is that total estimated farm program payments for 2002 and 2003 will be very similar to the payment levels for 1999-2001, and a lower percentage of those payments will be guaranteed. Producers need to keep this in mind as they look ahead to cash rental rates for 2003.
The University of Minnesota Extension Service has developed a hand-calculated "Base Acreage and Program Yield Decision Worksheet" to assist with decisions related to the new farm program. This Worksheet and other Information Sheets on the new Farm Bill are available on the University of Minnesota Extension Service Farm Bill Web Site (www.extension.umn.edu/farmbill) or from the Blue Earth County Extension Office (507-389-8325).