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Harkin considering revenue plan tied to rising input costs

Instead of counter-cyclical payments fixed for five years (a commodity program approved by the House this summer) the Senate Agriculture Committee is looking at two approaches to a revenue-based commodity safety net that would adjust as production costs move upward.

According to a Senate Agriculture Committee staffer who asked not to be named, one approach is a refinement of a revenue-based counter-cyclical payment in the USDA's farm bill proposal. The Senate version would factor in USDA projections for increased costs each year. That new-improved version of a revenue payment would be offered along with continued direct payments and marketing loans.

The House bill does offer producers a one-time choice of something similar to the USDA farm bill idea of revenue-based counter-cyclical payments. But the staffer said it appears to be less attractive than the conventional CCP program tied to target prices. So it's unlikely that many people will sign up for the House version of a revenue-based CCP.

A second alternative that the Senate committee is considering would be more dramatic and would be based on a farm bill offered by Senators Dick Durbin (D-IL) and Sherrod Brown (D-OH) earlier this summer. That approach would discontinue marketing loans and might lower direct payments to pay for the new program. The revenue trigger would be based on the same February new crop futures prices now used to calculate revenue-based crop insurance -- multiplied by state average yields. If state yields times market prices falls below 90% of that target, all growers in a state would receive a payment.

"It's basically group risk at the state level," the staffer said of the Durbin-Brown approach.

The first alternative wouldn't be such a comprehensive revenue-based program. In essence, it's a better way of calculating counter-cyclical payments tied to base acres (not what you actually plant).

But it's an improvement over the USDA's idea, by about $10 an acre for corn and by about $20 an acre for wheat. And, the staffer said, this program being considered by the Senate committee would have provided countercyclical payments to both wheat and soybeans during the years 2002 through 2006. Under the 2002 farm bill, neither wheat nor soybeans have gotten any counter-cyclical payments.

The target revenue in the USDA farm bill proposal was $140.42 an acre for wheat, $344.12 an acre for corn and $219.58 for soybeans. Your revenue would have to drop below those levels to trigger payments. The target revenue was calculated by multiplying the target price by the average yield from 2002 through 2006, excluding the high and low years. (Because the House bill "rebalanced" target prices for wheat and soybeans, its revenue-based CCP option is $149.92. an acre for wheat and $231.87 an acre for soybeans.)

Under the Senate version of a revenue CCP, the triggers are higher than both the USDA proposal and the House bill: $160 an acre for wheat, $354 an acre for corn and $231 an acre for soybeans.

Here's how the corn target revenue was calculated: First, Senate staffers started with the USDA forecasted cost of production of $461.67 an acre for corn. They multiplied that by 85%, the percentage of base acres that would get a payment. The resulting number is $392.42 an acre. From that, they subtracted $28.67 an acre, which is the amount of direct payment paid on average for corn (28 cents a bushel times an average pay yield of 102.4 bushels an acre). The resulting number after subtracting the direct payment is $363.75 an acre.

To come up with the final Senate target rate per acre, they split the difference between $363.75 an acre and the USDA target revenue of $344.12 an acre. That simple average, rounded to the nearest dollar, is $354 an acre.

The Senate proposal over six years, through 2013, also adjusts for increases in cost of production, using the USDA's Economic Research Service projections for variable costs. By taking that approach, the wheat target revenue goes from $160 an acre in 2008 to $167 an acre in 2013. In the same time period, corn goes from $354 an acre to $368 an acre. The soybean target revenue rises from $231 to $236. Those changes are based on the USDA's 10-year projection released last Feburary. If this idea becomes law, the USDA would revise its estimates of variable costs each year.

The Senate proposal, if it had been in the 2002 farm bill, would have treated all commodities except peanuts better than the existing counter-cyclical program. From 2002 through 2006, that program paid nothing to wheat or soybeans and an average of 13 cents a bushel to corn (29 cents in 2004 and 35 cents in 2005). From 2002 through 2006, the Senate proposal would have paid an average of 29 cents a bushel on wheat base acres (making a payments every year except 2006, with a high payment of 79 cents in 2002). At 17 cents a bushel, corn payments would have averaged slightly higher than 13 cents from the existing program, Soybean payments would have averaged 9 cents a bushel (from one payment of 44 cents in 2002).

Even though this is an improvement over earlier revenue-based CCP proposals, it still isn't drawing support from all quarters in rural America.

John Thaemert, president of the National Association of Wheat Growers, told Agriculture Online Friday that he had a chance to see the enhanced revenue-based CCP idea when he was in Washington last week.

"I think Senator Harkin and his staff are trying to come up with something that can work," Thaemert said. It appears that the proposal was made to fit available funds, he said.

"The cost of production across the country is close to $220 an acre, so it's substantially less," Thaemert said.

Seed for planting winter wheat this fall is running $18 to $20 for a 50-pound back, double last year's prices, said the Kansas farmer who raises about 1,500 acres of wheat, milo and alfalfa. Thaemert is also vice president of Citizens State Bank and Trust in Ellsworth, Kansas.

And, he added, NAWG is concerned that revenue-based programs tied to specific crops might not survive if another nation succeeded with a legal challenge under the World Trade Organization.

"We have serious concerns that this will not fit within the WTO guidelines," he said.

The Wheat Growers are instead lobbying for higher direct payments, which didn't happen in the House but Thaemert said they still hope to convince the Senate agriculture committee to raise them.

"A lot of people in Kansas haven't had a crop in five years and that's what's gotten them through," he said.

Thaemert argues that farmers already have a revenue-based program in the form of revenue-based crop insurance products. A bigger direct payment can be used to buy better coverage or pay for marketing consulting, he said.

"For a very, very low cost, you're able to support producers in a way that's meaningful and dependable," he said. "That's a very important part of food and fiber security and, increasingly, fuel security-keeping producers on the land."

The issue of a revenue-based safety net in the farm program isn't new, said Chad Hart, an agricultural economist with the Center for Agricultural and Rural Development (CARD) at Iowa State University.

Hart looked at a program called supplemental income payments for producers (SIPP) in 2000.

Hart said this week that the National Corn Growers have been successful in getting members of Congress to consider revenue-based commodity programs. The Durbin-Brown bill is similar to the Corn Growers' proposal, except that it's at the state level and the NCGA proposal was at the county level.

But other commodity groups, including those of soybeans and wheat, haven't been supporting the concept this year.

"I think there is a comfort level with the programs we have today that also played against the proposal of the Corn Growers," Hart said.

Instead of counter-cyclical payments fixed for five years (a commodity program approved by the House this summer) the Senate Agriculture Committee is looking at two approaches to a revenue-based commodity safety net that would adjust as production costs move upward.

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