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Government programs affect the wheat market as well as producers'
incomes. Under the Farm Security and Rural Investment Act of 2002
(2002 Farm Act), wheat producers have access to direct payments,
counter-cyclical payments, and marketing loans. In addition, producers
have access to subsidized crop and revenue insurance available under
previous legislation. The wheat market also is affected by trade
policy and by programs that increase wheat use through trade promotion
and food aid.
Farmers are given almost complete flexibility in deciding which
crops to plant. Participating producers are permitted to plant all
cropland acreage on the farm to any crop, except for some limitations
on planting fruits and vegetables. The land must be kept in agricultural
use (which includes fallow), and farmers must comply with certain
conservation and wetland provisions.
The material below provides general information on government programs
affecting wheat producers' management decisions and incomes. For
further information, visit the program
provisions section in the Farm and Commodity Policy briefing
room.
Direct and Counter-Cyclical Payments
Under the 2002 Farm Act, owners of farms had a one-time opportunity
to select a method—based on historic production—for
determining base acreage for both direct and counter-cyclical
payments. The 2002 Farm Act set payment acreage at 85 percent
of base acreage. Payment yields for direct payments remained
at the levels specified by the 1996 Farm Act. For counter-cyclical
payments, farmers could update their payment yields at the
same time they initially enrolled. To receive payments,
owners have to enroll annually. Farmers will receive their
direct and counter-cyclical wheat payment each year regardless
of the crop planted on their cropland that year.
Direct, decoupled payments are available for eligible landowners
and producers of wheat who enter into an annual agreement. The amount
of the direct payment will be equal to the product of the payment
rate, the payment acres, and the payment yield. The 2002 Farm Act
sets the payment rate for wheat at 52 cents per bushel for each
of the crop years 2002-07.
Counter-cyclical payments are available whenever the effective
price is less than the target price. The effective price is equal
to the sum of 1) the higher of the national average farm price for
the marketing year, or the national loan rate for the commodity,
and 2) the direct payment rate for the commodity. The payment amount
equals the product of the payment rate, the payment acres, and the
counter-cyclical payment yield.
Target prices for program crops are specified in the 2002 Farm
Act. The target price for wheat is $3.86 per bushel for 2002-03
and $3.92 for 2004-07. For further information on acreage base,
payment acres, and payment yield for calculating direct and counter-cyclical
payments, as well as conservation requirements, visit the program
provisions section in the Farm and Commodity Policy briefing
room.
Marketing Assistance Loans and Loan Deficiency Payments
The 2002 Farm Act extends nonrecourse commodity loans with marketing
loan provisions, but eliminates the requirement that producers
enter into an agreement for direct payments in order to
be eligible for loan program benefits. All current wheat
production is eligible for the program. Loan rates are fixed
in legislation. For wheat, the rate is $2.80 per bushel
for 2002-03 and $2.75 per bushel for 2004-07.
The marketing loan program allows producers to repay commodity
loans at a rate less than the original loan rate plus interest,
when posted county prices (PCPs) are below commodity loan rates.
When a farmer repays the loan at a lower PCP, the difference between
the loan rate and the loan repayment rate, called a marketing loan
gain, represents a program benefit to producers. In addition, any
accrued interest on the loan is waived. Loan deficiency payments
(LDPs) provide an alternative way for producers to receive marketing
loan benefits—producers can opt to receive a payment when PCPs
are below commodity loan rates, in lieu of taking out commodity
loans. Producers can also receive an LDP if their crop is cut for
silage. The marketing loan program is used to minimize potential
commodity loan forfeitures and subsequent government accumulation
of stocks.
Commodity certificates can be purchased at the posted county price
for wheat. The certificates are available for producers to use immediately
in acquiring crop collateral pledged to USDA's Commodity Credit
Corporation (CCC) for a commodity loan. For producers facing program
payment limits, this provides an opportunity to benefit from the
lower loan repayment rates.
LDPs for grazed-out crops continue for wheat, barley, and oats. The
2002 Farm Act adds triticale to the program, and its LDP
payment rate will be the same as that for wheat. For details
on marketing assistance loans and LDPs, visit the program
provisions section in the Farm and Commodity Policy
briefing room.
Crop and Revenue Insurance
Adverse weather conditions and insect infestations can reduce
a farmer's yields and result in below-normal revenue in any year.
Low prices can also reduce revenue. Wheat farmers can purchase crop
insurance to guard against yield risk, and can buy revenue insurance
for protection against yield and revenue losses. USDA's Risk Management
Agency pays a portion of producers' premium costs for insurance
policies and also pays some of the delivery and administrative costs
of private insurance companies that handle policy sales.
More than 74 percent of planted wheat acreage was covered by insurance
in 2003, with participation concentrated in the Plains States. For
details on crop insurance, visit the Farm
Risk Management briefing room.
Export Programs and Policies
A number of export programs administered by USDA and the U.S.
Agency for International Development (USAID) promote exports of
wheat and wheat products.
The export credit guarantee programs are designed to help foreign
importers that face foreign exchange constraints and need credit
to purchase commodities. CCC operates the Export Credit Guarantee
Program (GSM-102) and the Intermediate Export Credit Guarantee Program
(GSM-103). GSM-102 covers private credit extended for up to 3 years,
while GSM-103 covers private credit extended for 3-10 years. In
essence, the credit programs assure U.S. exporters that they will
be paid. The Supplier Credit Guarantee Program (SCGP) insures short-term,
open-account financing. Under SCGP, CCC guarantees a portion of
payments due from importers under short-term financing (up to 180
days) that exporters have extended directly to importers for the
purchase of U.S. agricultural products. Eligible commodities under
these export programs include wheat, wheat flour, semolina, middlings,
and doughs for breads and pizza.
The U.S. Government provides food aid overseas through the P.L.
480 program, the Section 416 program, and the Food for Progress
(FFP) Program. Under P.L. 480 Title I, USDA makes concessional sales
that provide low-interest loans to qualified developing countries
purchasing U.S. commodities. Generally, wheat shipped under Title
I is purchased on the open market by the recipient country. The
Title II program, administered by USAID, donates wheat and wheat
products to least developed countries.
The Section 416(b) program provides for donations of CCC-owned
surplus commodities to developing countries. It also allows surplus
CCC commodities to be used for the purpose of P.L. 480 Title II
programs and the FFP program.
The Bill Emerson Humanitarian Trust/Food Security Commodity Reserve,
formerly the Food Security Wheat Reserve, authorizes a reserve of
up to 4 million metric tons of wheat, corn, grain sorghum, and rice
to provide food aid to developing countries in times of urgent humanitarian
needs. Currently, the reserve only contains wheat.
The Foreign Market Development Program, also known as the cooperator
program, is administered by USDA's Foreign Agricultural Service
(FAS). The goal of the program is to develop, maintain, and expand
long-term export markets for U.S. agricultural products. For export
program details, visit the program
provisions section in the Farm and Commodity Policy briefing
room. The FAS web site also
provides export program information.
Environment and Conservation Programs
The 2002 Farm Act expands funding for all conservation programs
and significantly increases support for conservation practices on
cropped and fallowed land. Programs such as the Environmental Quality
Incentives Program and the new Conservation Security Program provide
assistance on lands in production. Land retirement programs—including
the Conservation Reserve Program, Conservation Reserve Enhancement
Program, Wetland Pilot Program, and Wetlands Reserve Program—remove
land from production. For details on environmental and conservation
programs, visit the Conservation
Policy briefing room.
Additional 2002 Farm Act Provisions
Hard white wheat incentive payments.
A total of $20 million from CCC is available during 2003-05
to provide an incentive to growers to plant hard white
wheat (HWW). To qualify, a producer must meet minimum
quality criteria and demonstrate the availability of a
market for the HWW crop. Incentive payments will be limited
to 2 million acres or the equivalent volume of production.
Karnal bunt research. Karnal bunt is added to the
list of wheat, triticale, and barley diseases for which the Secretary
of Agriculture may make grants to consortia of land-grant colleges
and universities for multi-state research projects aimed at understanding
and combating the specified diseases.
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