No matter how many pages of farm bill regulations you muddle through, or how many reams of paperwork you turn into your local Farm Service Agency office, the question looming on the mind of most growers, is how much money will I get, and when will I see a check?
Determining how much money you'll get and when you'll see that check, means calculating at least two long multiplication problems. Direct and counter-cyclical payments are calculated by multiplying your base acreage times 85 percent, times either your direct or counter-cyclical applicable yield, times the applicable rate times your share in the crop.
For example on a farm with 100 acres of cotton base, a 750-pound direct yield and a 900-pound counter-cyclical yield, you would multiply 100 times 85 percent, times 750, times the direct payment rate of $0.0667 to come up with a direct payment of $4,252.
Direct payments, on the other hand, are guaranteed payments similar to the PFC payments made under the 1996-2002 farm bill, Direct payments are guaranteed and growers can choose the month they want to get their check. You can wait until Jan. 1, 2003 to take that payment, or it can be made anywhere between Dec. 1 and Sept. 30. The final 50 percent of any direct payment will be made after Oct. 1, 2003.
To figure the maximum counter-cyclical payment for our farm with 100 acres of cotton base, you multiple 100 times 85 percent, times 900, times the maximum projected counter-cyclical payment of $0.1373, for a potential counter-cyclical payment of $10,503. That's the maximum you could receive, but remember it could also be zero, depending on the current market price for that commodity.
Calculating counter-cyclical payments is eerily similar to the way deficiency payments were made prior to the 1996 farm bill. The old deficiency payment program was based on a target price and a loan rate. If the weighted average market price was higher than the loan rate, the difference between the target price and that weighted average market price equaled your deficiency payment.
There's one major difference between your old deficiency payments and counter-cyclical payments, though. Counter-cyclical payments are not guaranteed payments. Payments are issued only if the average selling price for that market year is less than the target price minus the direct payment for that crop. For corn, soybeans and grain sorghum the marketing year runs from Sept. 1 to Aug. 31. For cotton and rice it runs from Aug. 1 through July 31, and for wheat and oats, the marketing year runs from June 1 to May 31.
According to Farm Service Agency officials, advance cotton and rice counter-cyclical payments of up to 35 percent are scheduled to be made between Oct. 1, 2002 and Jan. 31, 2003. Growers can not designate a month during this period to receive the advance payment.
“You make a choice whether you want that advance, or don't want that advance. Once you make that choice we are going to process payments as quickly as we can. If you don't want any money in this year coming from counter-cyclical payments you don't need to take the option for the first 35 percent advance,” advises Robin Richardson, Farm Service Agency CED in Sunflower County, Miss.
A second advance counter-cyclical payment of up to 70 percent, less any previous advance, may be made beginning Feb. 1, 2003. If you want advance payments, but don't want anything until after the first of the year you're more than likely going to take this option. Then after Feb. 1, 2003, if the Secretary determines that the Farm Service Agency is going to make second advance counter-cyclical payments, they'll make it at that time.”
Final counter-cyclical payments, if applicable, will be made after the end of the marketing year for each crop.
The currently projected counter-cyclical advance rates are 4.81 cents per pound for cotton, and 0.58 cents per pound for rice. No advance counter-cyclical payments are currently projected for other crops.
Advance cotton and rice counter-cyclical payments for 2003 of up to 35 percent made be made from Oct. 1, 2003 until Jan. 31, 2004. “That's a hard decision for somebody to make on counter-cyclical payments. We're making a decision now at sign-up that's going to affect us at the end of the next tax year. That's a hard decision to make, and something you need to think about. It's going to take some planning to know what you want to do before you come in to sign up.
A second 2003 crop year advance counter-cyclical payment of up to 70 percent, less any previous advance, may be made beginning Feb. 1, 2004. That advance can be made anytime up to the time final payments are determined. Your final counter-cyclical payment, beginning with the 2003 crop, will be made after the end of the marketing year for each crop.
Adjusted gross income provisions will apply beginning with the 2003 crop year. The rule says you are ineligible for either Farm Service Agency or Natural Resource Conservation Service program payments and benefits if your adjusted gross income is in excess of $2.5 million, unless 75 percent of more of your income is from farming. Income calculations are based on the average of the three tax years previous to the year for which benefits are requested, excluding zero income years. It's effective for the 2003 through 2007 crop years, and applies down to the individual level and to the entity level.
In addition, substantial beneficial interest provisions do not apply. Any person with a share in a farm, no matter how small, must file an adjusted gross income certification. For example, public pension funds, which own farmland and lease it out for a crop share will be required to certify the adjusted gross income of every member of that pension fund. “That's probably going to change the situation to cash rent,” says Richardson.
The provision does not apply to landowners unless they are in a crop share agreement with the producer. The rule applies only to those people earning a program payment, and any members of any entities earning payments.
Under the 2002 farm bill, payment limitations are $40,000 per person for direct payments, $65,000 per person for counter-cyclical payments, and $75,000 per person for marketing gains and loan deficiency payments.
While the $75,000 payment limitation for marketing gains and LDPs has been doubled in recent years, Richardson says growers shouldn't expect that to happen again. “Don't look for this to change to $150,000. There is too much pressure on payment limitations nationwide already,” he says.
Producers also need to be aware of loan repayment provisions using Commodity Certificates. Once beneficial interest is lost, commodities are ineligible for loan. Richardson explains, “If you place a commodity under loan and you choose the option to redeem that loan with Commodity Certificates, the gain realized by doing that will not be subject to your $75,000 limitation.”
“You'd better take some time to do some calculations and figure out where you could be with this bill payment limitation-wise,” he says. “If you've got commodities that cannot be placed under loan, you need to look closely at those commodities that can be placed under loan, and possibly repaying those with commodity certificates if you think you are going to be close to that payment limitation.”