August, 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 U.S. agriculture sector. 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 eligible production and facilitating 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:

1. Sign a direct and counter-cyclical program (DCP) agreement with the Farm Service Agency (FSA);

2. Report how they use all their farms' cropland acreage;

3. Comply with conservation and wetland protection requirements on all their farms;

4. Comply with the planting flexibility requirements;

5. Use the cropland for agricultural or related activities; and

6. Control noxious weeds and maintain land in sound condition, if the field is not cultivated.

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

1. Comply with conservation and wetland protection requirements; and

2. Report how they use all their cropland acreage on the farm.

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

Landowners have a one-time opportunity to either:

1. Use their farms' 2002 PFC acreage and add acreage bases for oilseeds and peanuts that reflect average 1998-2001 plantings; or

2. Update their farms' acreage bases to reflect average 1998-2001 plantings for all commodities eligible for direct and counter-cyclical payments.

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

1. 93.5 percent of the 1998-2001 average yield; or

2. The direct program payment yield (the PFC payment yield in effect under the 1996 Act) plus 70 percent of the difference between the 1998-2001 average and the direct program payment yield. 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.

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 wheat direct payment rate is $0.52 per bushel.

Payments for the 2002 crop begin as soon as the farm is enrolled for direct payments.

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 wheat 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 wheat target price for the 2002-2003 crops is $3.86 per bushel and $3.92 per bushel for the 2004-2007 crops. The wheat loan rate for the 2002-2003 crops is $2.80 per bushel and $2.75 per bushel for the 2004-2007 crops.

The wheat marketing year is June 1-May 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

On January 31, 2003, the 2002 wheat counter-cyclical payment rate was calculated using a forecast season average farm price of $3.65 per bushel. The effective price was determined as follows:

EP = DPR + higher of (SAFP, NLR)

$0.52 + (higher of ($2.80 or $3.65)) = $0.52 + $3.65 = $4.17

Because the effective price exceeded the target price, no counter-cyclical payment was projected for the 2002 crop. The season average farm price NASS reports at the end of the marketing year must be below $3.34 per bushel to require a counter-cyclical payment for the 2002 and 2003 crops. For the 2004-2007 crops, a farm price below $3.40 per bushel is required to trigger a payment.

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

If the partial payments received exceed the final calculated payment, then producers are required to refund the balance.

Under marketing loan provisions, producers may (under certain conditions) repay a 9-month nonrecourse marketing assistance loan at less than the loan rate plus accrued interest and other charges whenever CCC estimates that the local market price is lower. Producers are also eligible for a loan deficiency payment (LDP) in lieu of obtaining a loan. The wheat loan rate for the 2002-2003 crops is $2.80 per bushel and $2.75 per bushel for the 2004-2007 crops.

Producers must:

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

Control of the commodity - The producer retains the ability to make all decisions affecting the commodity, including movement, sale, and the request for a loan or LDP;

Risk of loss in the commodity - The producer is responsible for loss or damage to the commodity. If the commodity is insured, any indemnity must be payable to the producer; and

Title to the commodity - The producer has not sold or has not delivered the commodity or warehouse receipt to the buyer. Title may be considered to be transferred before the producer receives payment for the commodity.

Once beneficial interest in the commodity is lost, the commodity loses eligibility for a loan or an LDP 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 FSA county office.

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 applicable county loan rate plus accrued interest and other charges (per bushel); or

2. The marketing loan repayment.

Loan repayment rates are established and available at each local USDA Service Center based upon the previous day's market prices for each wheat class at appropriate U.S. terminal markets, as CCC determines, adjusted to reflect quality and location.

Producers realize a marketing loan gain if they repay their loans when the loan repayment rate is less than loan principal. The marketing loan gain rate equals the amount by which the loan rate exceeds the marketing loan repayment rate.

Producers eligible to obtain a loan, but who agree to forgo the loan, may obtain an LDP. The LDP rate equals the amount by which the applicable county loan rate where the grain is stored exceeds the loan repayment rate. The LDP equals the LDP rate times the quantity of wheat for which the LDP is requested and is otherwise eligible to be placed under loan.

The final loan/LDP availability date is March 31 of the calendar year after the calendar year the grain is harvested. For example, for crop year 2003, wheat loans may be requested through March 31, 2004.

Producers may either obtain a loan or receive an LDP on all or part of their eligible production during the loan availability period.

Wheat producers electing to use their wheat acreage for livestock grazing may receive grazing payments if they would otherwise be eligible for LDPs. Producers receiving grazing payment must forgo any mechanical harvesting of the crop. The grazing payment is determined by multiplying the wheat acreage grazed times the farm's direct payment yield times the LDP rate on the date of the payment request. Grazing payments may be requested no earlier than the normal harvesting date. Grazing payments must be requested by the final loan availability date.

Grazing payments are also available for barley, oats, and triticale. Triticale is a hybrid offspring developed from crossing wheat and rye. Triticale grazing payments are determined using the farm's wheat direct payment yield and wheat LDP rate.

Commodity certificates are available to producers for acquiring 2002- through 2007-crop marketing assistance loan collateral pledged to CCC. Commodity certificates will be available for sale at local FSA Service Centers to producers with outstanding nonrecourse marketing assistance loans. The exchange rate will be the effective posted county price (PCP) on the date the commodity certificate is purchased. Commodity certificate exchanges will not be available when the exchange rate exceeds the applicable loan rate.

For further information, see the fact sheet "Commodity Certificates," contact a local USDA Service Center, or visit the FSA Web site at: 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 (WR/FAVs) planting restrictions, but slightly eases 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 fruits, vegetables, and wild rice without restrictions.

Producers seeking to receive direct and counter-cyclical payments relative to the farm are prohibited from planting wild rice, fruits, and vegetables (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:

1. In any region with a history of double cropping commodities eligible for direct and counter-cyclical payments with WR/FAVs,

2. On a farm with a history of planting WR/FAVs except that direct and counter-cyclical payments will be reduced acre for acre planted to WR/FAVs, and

3. For a producer with an established history of planting a specific WR/FAV, except that the acreage may not exceed the average annual plantings in the 1991-1995 or the 1998-2001 crop years (excluding any crop year with no plantings) and that direct and counter-cyclical payments shall be reduced acre for acre planted to WR/FAVs.

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:

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: www.fsa.usda.gov

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

The 2002 Act made available $20 million of CCC funds, providing hard white wheat incentive payments for the 2003-2005 crops. The production incentive payment rate is $0.20 per bushel on production up to 60 bushels per acre. An additional incentive payment of $2.00 per acre is available to producers who plant certified seed. However, planting certified seed is not a requirement for receiving the per bushel incentive payment.

To receive the per bushel payment, the hard white wheat must grade #2 or higher under the grading standards, established by the Federal Grain Inspection Service (FGIS). In addition, it must be sold for domestic food use or export. Hard white wheat production enrolled in the hard white wheat incentive program retains eligibility for marketing assistance loan program. Producers can apply for incentive payments at their local USDA Service Center.

Note: Please see Wheat 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.