Farm and Commodity Policy: Program Provisions

Farm and Commodity Policy Briefing Room Background and Issues Government Payments and the Farm Sector What Is Meant by Decoupling?

Counter-Cyclical Income Support Payments

Under this new program, counter-cyclical payments (CCPs) are available for covered commodities whenever the effective price is less than the target price. The payment amount is equal to the product of the payment rate, the payment acres, and the payment yield.

For example the payment for an individual corn farmer is determined as

Payment rate_corn = (Target price)_corn – (Direct payment rate)_corn – (Higher of commodity price or loan rate)_corn

CCP_corn = [(Base acres)_corn x 0.85] x (Payment yield)_corn x (Payment rate)_corn

To receive payments on crops covered by the program (wheat, corn, grain sorghum, barley, oats, rice, upland cotton, soybeans, minor oilseeds, and peanuts), a producer enters into an annual agreement. At enrollment, producers must select between two options for determining base acres and between three options for determining payment yield.

Farmers must select an option for designating base acres:

1. Choose base acres equal to contract acreage for the commodity that would otherwise have been used for 2002 PFC payments plus average oilseed plantings in 1998 to 2001, so long as base acres do not exceed available cropland, or
2. Update base acres to reflect the 4-year average of acres planted, plus those prevented from planting due to weather conditions, during the 1998 to 2001 crop years.

Each producer must select an option to apply to all covered commodities for both payments and for counter-cyclical payments. Base acres for peanuts can be determined separately, so long as total base acres do not exceed available cropland. Payment acres are equal to 85 percent of base acres for all covered crops.

Owners of farms will have a one-time opportunity to select a method for determining base acreage. An owner who fails to make an election shall be considered to have selected 2002 PFC contract acres and, for oilseed base, the 4-year average of oilseed plantings.

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 uses (which includes fallow) and farmers must comply with certain conservation and wetland provisions.

Three options are available to farmers to determine payment yields for each individual crop that apply only for counter-cyclical income support payments:

1. Use current program yields,
2. Update yield by adding 70 percent of the difference between program yields and the farm’s average yields for the period 1998 to 2001 to program yields, or
3. 93.5 percent of 1998 to 2001 average yields.

The Secretary shall make counter-cyclical payments for the crop as soon as practicable after the end of crop year for the covered commodity. A payment of up to 35% shall be made in October of the year when the crop is harvested. A second payment of up to 70% minus the first payment shall be made after February 1. The final payment shall be made as soon as practicable after the end of the crop year.

The payment limit on counter-cyclical payments is $65,000 per person, per crop year, and the three-entity rule is retained. Under the three-entity rule an individual can receive a full payment directly and up to a half payment from each of two additional entities. Producers with adjusted gross income over $2.5 million, averaged over each of three years, are not eligible for payments unless more than 75 percent of adjusted gross income is from agriculture.

For More Information...

• The 2002 Farm Act: Provisions and Implications for Commodity Markets
• Updating Base Acres and Payment Yields (page 77 of PDF)