April, 2003

The Farm Security and Rural Investment Act of 2002 (2002 Act) provides for direct and counter-cyclical payments, nonrecourse marketing assistance loans, and loan deficiency payments for the 2002-2007 crops, which help ensure a strong and viable agriculture sector in the United States. Direct payments under the 2002 Act are similar to production flexibility contract (PFC) payments under the Federal Agriculture Improvement and Reform Act of 1996 (1996 Act). Counter-cyclical payment rates depend on market prices and increase as market prices decline below specified levels. Counter-cyclical payments replace ad hoc market loss assistance payments, which supplemented PFC payments under the 1996 Act. Marketing assistance loans and loan deficiency payment provisions of previous legislation are continued under the 2002 Act, providing interim financing on their eligible production and facilitating the orderly marketing of loan eligible commodities throughout the year.

Commodities eligible for direct and counter-cyclical payments and nonrecourse marketing assistance loans for the 2002-2007 crops are wheat, corn, grain sorghum, barley, oats, soybeans, other oilseeds (including sunflowers, canola, safflower, flaxseed, rapeseed, mustard seed, crambe, and sesame), rice, upland cotton, and peanuts. Other commodities eligible for nonrecourse marketing assistance loans are Extra Long Staple (ELS) cotton, honey, wool, mohair, dry peas, lentils, and small chickpeas. For ELS cotton, marketing assistance loans must be repaid at the loan rate plus interest and loan deficiency payment provisions do not apply.

Direct payments are decoupled from current production and prices. Counter-cyclical payments are decoupled from current production, but linked to current prices.

Direct and Counter-cyclical Payments. Producers are eligible for direct and counter-cyclical payments on farms with eligible acreage bases. To be eligible for payments on these farms, producers must annually:

Nonrecourse Marketing Assistance Loans. To be eligible for marketing assistance loans, producers must:

Direct and counter-cyclical payment agreements are not required for marketing assistance loan eligibility.

Land owners have a one-time opportunity to either:

If they choose to update their farm's acreage bases, they may also update their counter-cyclical payment yields using one of the following two methods:

Direct payment yields are the same as the payment yields that were used for making PFC payments.

If no election is made before the 2002-crop sign-up period ends, acreage bases for the farm will be established using the farm's 2002 PFC acreage and adding acreage bases for oilseeds. Direct and counter-cyclical payment yields will be the same as the payment yields that were used for making PFC payments.

Direct payments are similar to the fixed, decoupled payments (PFC payments) producers received for wheat, feed grains, rice, and upland cotton under the 1996 Act. For each commodity, the direct payment equals the direct payment rate times 85 percent of the farm's base acreage times the farm's direct payment yield. The 2002-2007 rice direct payment rate is $2.35 per hundredweight (cwt).

For the 2002 crop, an eligible producer may begin receiving direct payments as soon as the farm is enrolled in the program.

For the 2003-2007 crops, direct payments are made after October 1 of the year the crop is harvested. Producers may request up to 50 percent of the direct payment in advance, but no earlier than December 1 of the year before the crop is harvested. Table 1 shows the 2003 rice direct and counter-cyclical payment cycles.

For each commodity, the counter-cyclical payment equals the counter-cyclical payment rate times 85 percent of the farm's base acreage times the farm's counter-cyclical payment yield. Counter-cyclical payments are made when a commodity's effective price is below its target price. The effective price (EP) equals the direct payment rate (DPR) plus the higher of: (1) the season average farm price (SAFP) producers received during the marketing year, or (2) the national loan rate (NLR). The rice target price for the 2002-2007 crops is $10.50 per cwt. The rice loan rate for the 2002-2007 crops is $6.50 per cwt.

The rice marketing year is August 1-July 31.

The National Agricultural Statistics Service (NASS) determines the average market price producers received for the marketing year. NASS publishes monthly average prices for selected commodities near the end of each month in Agricultural Prices listed on the NASS reports calendar Web site at: http://www.usda.gov/nass/pubs/rptscal.htm

Counter-cyclical Payment Rate Calculation Example:

On January 31, 2003, the 2002 rice counter-cyclical payment rate was calculated using a forecast season average farm price of $3.85 per cwt as follows:

TP - EP = TP -[DPR + higher of (SAFP, NLR)]

$10.50-[$2.35+higher of ($3.85 or $6.50)]=$10.50–[$2.35+$6.50]=$10.50-$8.85=$1.65.

For crop years 2002-2006, three partial counter-cyclical payments are made.

For crop year 2007, the counter-cyclical payment cycle consists of two payments.

If the partial payments received exceed the final calculated payment, then producers are required to refund the balance. For the 2002 rice crop, an initial payment of $0.57 per cwt was authorized for October 2002, and a payment of $1.16 per cwt, less any initial payment received, was authorized for February 2003.

Marketing assistance loans provide eligible producers with interim financing on their production. Instead of selling the crop immediately at harvest, producers may pledge their production as loan collateral, receiving loan proceeds equal to the loan rate times the quantity placed under loan. Marketing assistance loans mature at the end of the ninth month following the month in which the loan was received.

Under marketing loan provisions, rice producers may repay a loan at the lower of the loan rate plus accrued interest or the adjusted world price (AWP). If the AWP is lower than the loan rate, the amount by which the loan rate exceeds the AWP is the marketing loan gain (MLG) rate.

Producers are also eligible for a loan deficiency payment (LDP) in lieu of obtaining a loan.The LDP rate is the amount by which the loan rate exceeds the AWP-the same as the MLG rate.

Rice (Oryza Sativa L.) must meet the definition for rough rice provided in the U.S. Standards for Rice, including rice of special grade designations. Grains referred to as wild rice (Zizania aquatica L.) are ineligible. Rice grade standards are available on the following Web site:Rice grade standards Web site.

Aromatic rice (such as Jasmine varieties) must be pledged under a loan agreement separate from nonaromatic rice and stored separately from nonaromatic rice. When aromatic rice is delivered to USDA's Commodity Credit Corporation (CCC), it must be delivered to a CCC-approved facility able and willing to store such rice on an identity preserved basis, i.e., aromatic rice may not be commingled with nonaromatic rice. Producers shall not receive any credit for expenses incurred in the delivery of aromatic rice to storage.

The national average loan rate for the 2002-2007 crops of rough rice is $6.50 per cwt. To achieve this national average rate and provide rate adjustments for different classes and qualities, separate loan rates are provided for whole and broken milled rice kernels. For 2002-crop rice, the whole kernel loan rates per pound are 10.66 cents for long grain, 9.66 cents for medium and short grain, and 5.33 cents for brokens.

Farm- and Warehouse-Stored Loan Rates

Loan rates for farm-stored rice (or rice for which the grade and milling yield are not determined) are based on state average grade and milling qualities for the prior five years. The farm-stored marketing assistance loan rates for 2002-crop rough rice are:

Loan rates for warehouse-stored rice are based on class, quality, and milling yield determinations obtained from grading and milling a sample of the individual lot of rice. The milling quality refers to the quantity of milled whole kernels and milled broken kernels resulting when a rough rice sample is well milled. As the share of whole kernels increases, the milling quality is deemed higher. The following example assumes that the milling of 1 cwt of long grain rough rice yields 55 pounds of whole kernels, 15 pounds of broken kernels and 30 pounds of hulls and bran (for which no loan value is provided). The loan value for long grain rough rice of this milling quality would be calculated as follows:

55 pounds whole x 10.66 cents/pound = $5.86

15 pounds broken x 5.33 cents/pound = $0.80

Loan value per cwt rough rice = $6.66

Applicable discounts may be applied to this rate for grade and smut (a fungus that can affect the quality of rice). Costs associated with storing rice while under loan are the producer's responsibility.

Loan rates are subject to discounts for U.S. Grade #3 and lower and smut content. These discounts apply uniformly across all regions. The Grain Inspection, Packers and Stockyards Administration determines grade definitions. Standards for rough rice may be found on the Internet at: Standards for Rough Rice Web site .

Grade discounts (per cwt of rough rice) are 30 cents for Grade #3, 60 cents for Grade #4, $1.00 for Grade #5, and $2.00 for Grade #6, and $5.50 for Sample Grade.

Discounts for smut content (per cwt of rough rice) are 5 cents for 0.1 to 1.0-percent smut; 10 cents for 1.1 to 2.0-percent smut; and 15 cents for 2.1 to 3.0-percent smut. Rice containing more than 3.0 percent smut is referred to as "smutty rice." Smutty rice is sample grade and considered low quality rice for determining loan eligibility.

Low quality rice is eligible for loan at a rate equal to 20 percent of the discounted loan rate. Because smutty rice is eligible for a nonrecourse loan, LDPs are available to producers at the same rate as commodities without low quality.

The national average rough rice loan rate is used to determine farm-stored loan proceeds in States other than the six major rice-producing States. Grade and quality factor discounts apply when rice is delivered to CCC upon loan maturity.

Producers must:

Beneficial Interest

A producer retains beneficial interest in the commodity if all of the following remain with the producer:

Once beneficial interest in the commodity is lost, the commodity loses loan and LDP eligibility and remains ineligible even if the producer later regains beneficial interest. For further information see the Farm Program fact sheet on "Beneficial Interest Requirements For Loans and LDPs, Excluding Sugar and Tobacco" or contact a local USDA Service Center.

Loans mature on the last day of the ninth calendar month following the month in which the loan is approved.

Producers may settle their outstanding nonrecourse loan:

The loan repayment rate is the lower of (1) the loan rate plus accrued interest and other charges (per cwt) or (2) the adjusted world price (AWP).

Loan repayment rates are established for each class on a national basis and are available at each USDA Service Center based upon the price of rice sold in world markets, adjusted to U.S. quality and location.

USDA announces the rice AWP every Tuesday at 3 p.m. Eastern time, along with applicable MLG and LDP rates. If the Tuesday is a Federal holiday or is not a Government workday, the announcement is made on the next workday. Announced AWP and MLG/LDP rates are applicable until the next announcement. Producers can obtain these prices and rates from their local USDA Service Center or online at: ftp://ftp.fsa.usda.gov/public/cotton/default.htm

The rice AWP reflects the value of well-milled white rice sold in world markets, adjusted to U.S. quality and location. The quality and location adjustments are described in Title 7 of the Code of Federal Regulations (CFR) Part 1421, Section 25, at the following Government Printing Office (GPO) Internet site: http://www.access.gpo.gov/nara/cfr/cfr-retrieve.html#page1 .

If the AWP is below the loan rate when the loan is repaid, the producer is allowed to retain the difference between the loan rate and the AWP. This retained amount is referred to as the MLG. If the producer elects to forego a loan on a quantity of rice otherwise eligible for loan, an LDP may be requested at the MLG rate applicable on the date of the request for the LDP. MLG and LDP rates are calculated and announced separately for long, medium, and short grain rice based on national average qualities of rice and are not adjusted for individual loans.

Loan repayments at a rate below the loan rate plus accumulated interest are not accepted during the 1-hour period preceding the weekly AWP announcement, unless the repayment rate has been locked in using a CCC-697. Loans repaid at the original loan rate, plus interest, are also not subject to this restriction.

The prices, as well as other Agency news releases and media advisories, are available on the Internet at the FSA home page: http://www.fsa.usda.gov .

The interest rate charged on loans is based on the rate the U.S. Treasury charges CCC, plus 1 percentage point at the time the loan is made. Any loan outstanding as of December 31 is subject to the January interest rate from January 1 until the loan is repaid.

Producers may receive LDPs for rice delivered directly from the field to a processor, buyer, warehouse, or cooperative and receive the LDP rate effective on the date of delivery. Request for such payments must be made on or before the date of harvest using form CCC-709. Rice quantities included under such requests are not eligible for marketing assistance loans, even if the LDP rate on the date of delivery is zero.

The final rice loan/LDP availability date is May 31 of the calendar year after the calendar year the grain is harvested.

Commodity certificates are available to producers for acquiring 2002- through 2007-crop collateral pledged to CCC for a commodity loan. Commodity certificate exchanges will be available for sale at FSA offices to producers with outstanding nonrecourse marketing assistance loans. The exchange rate will be the effective AWP on the date the commodity certificate is purchased. Commodity certificate exchanges are not available when the exchange rate exceeds the applicable loan rate.

For further information, see the fact sheet "Commodity Certificates," or contact a local USDA Service Center, or visit the FSA Web site at: http://www.fsa.usda.gov.

Producers repaying a loan at less than the loan rate plus accrued interest and other charges or receiving an LDP must provide production evidence acceptable to CCC, such as evidence of sales, warehouse receipts, or load summary or assembly sheets.

The 2002 Act continues wild rice, fruit, and vegetable planting restrictions, but slightly eases the restrictions compared with those under the 1996 Act. To be eligible for loan benefits and payments under the 1996 Act, producers signed 7-year contracts and fruit and vegetable restrictions applied to the entire contract period. Under the 2002 Act, producers may annually opt out of eligibility for direct and counter-cyclical payments and plant wild rice, fruits, and vegetables (WR/FAV) without restrictions.

Producers seeking to receive direct and counter-cyclical payments with respect to the farm are prohibited from planting WR/FAVs (other than lentils, mung beans, and dry peas), on base acres unless the commodity, if planted, is destroyed before harvest or meets the following statutory exceptions. Plantings of WR/FAVs are not limited:

Starting with the 2003 crop, individuals and entities whose previous 3-year average adjusted gross income (AGI) exceeds $2.5 million are ineligible for many program benefits unless they can establish that at least 75 percent of their AGI is derived from agriculture. Program benefits for which individuals or entities exceeding the AGI limit will be ineligible include:

Direct payments , Counter-cyclical payments , Loan deficiency payments , Marketing loan gains , Agricultural Management Assistance Program •, Conservation Security Program , Conservation Reserve Program , Environmental Quality Incentives Program , Farmland Protection Program , Grassland Reserve Program , Ground and Surface Water Conservation Program , Wetland Reserve Program

The 2002 Act also establishes limits on payments a "person" may receive from farm programs. The definition of "person" includes individual farmers, but also encompasses limited partnerships, corporations, and other types of organizations. The 3-entity rule, carried over from previous legislation, limits to three the number of entities through which a "person" may receive payments.

The sum of LDPs and marketing loan gains for the commodities listed below is subject to a $75,000 per-person payment limitation for each crop year. This payment limitation is separate from the $40,000 per-person limitation for direct payments and $65,000 per-person limitation for counter-cyclical payments. For more information on payment limitations see the FSA fact sheet Payment Eligibility and Limitations, contact a local USDA Service Center, or visit the FSA Web site at: http://www.fsa.usda.gov

The per "person" payment limitations apply for each crop year for the following:

Note: Please see Rice PDF for the following tables:

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact USDA's TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 1400 Independence Avenue, SW, Washington, D.C., 20250-9410, or call (202) 720-5964 (voice or TDD).

USDA is an equal opportunity provider and employer.