Corn Growers Outline Income Support Proposal

April 26, 2001

The National Corn Growers Association has proposed that Congress approve a counter cyclical income support program as part of the next farm law. Lee Klein, NCGA president, of Battle Creek, NE, presented the proposal Wednesday to the House Agriculture Committee. The proposal incorporates the benefits of the marketing assistance loan program and the market loss assistance payments into one program that NCGA says complies with World Trade Organization rules.

"We need a complete package that provides farmers opportunities in the market place with minimal interference in production decisions and that includes a safety net against those economic forces that are beyond producers' control," said Klein.

NCGA believes that just to rebalance the loan rate levels will not address the underlying dissatisfaction with loan rates across county and state lines. In fact, rebalancing may exacerbate this and the previously outlined concerns with the marketing loan, said Klein. Should Congress choose to retain the marketing loan NCGA suggested that:

–Growers be allowed to determine their loan deficiency payment rate on any or all eligible commodities after harvest or beginning Sept.1;

–LDP eligibility be continued for silage, high moisture, mycotoxin-infected and damaged corn;

–Rules be revised to give a producer the choice to have the LDP set in the county where the crop is grown or marketed;

–USDA be directed to use the posted county price as the average of the two adjusted terminal price for the county.

Also, Klein said, the 1996 farm law "does not protect those who may have suffered a natural weather disaster and do not have a crop from which to collect an LDP." He added, "Yes, these growers may have crop insurance, but they still face a significant shortfall in income when they have far fewer bushels on which to collect an LDP and are facing such extremely low prices for the limited bushels that they have produced."

The NCGA proposal establishes an annual target income for corn and other loan-eligible commodities. The target income is based on the average crop value during the base period and incorporates producer benefits from the marketing loan program and the market loss assistance payments. This base period average income is adjusted for each year of the farm bill by a factor that reflects projected production increases. This adjustment is necessary to ensure that producers have adequate income protection as crop yields increase, Klein explained.

For each loan-eligible commodity the adjustment factor to determine the national target income for each commodity is calculated by dividing the production, as projected by the Congressional Budget Office, by the average production during the base period. The factor will "lock in" CBO assumptions for budget growth assumed for the marketing assistance loan programs due to production increases.

In addition to a counter-cyclical program, the NCGA proposal assumes the continuation of production flexibility contract (PFC) payments at 2002 levels for the life of the new farm bill. Consequently, the PFC payments are not included in target income. And by establishing a base period, the corn growers intend to ensure that the counter-cylical program is not trade distorting.

Under this proposal, a producer would sign up by providing acreage data and yield data for his or her operation during the base period. "We suggest the 1996 through 2000 crop years to reflect the experience of the first five years of the current farm program. We recognize that it will be necessary to adjust production for producers who suffered major crop losses during one or more of those years. We would suggest a provision to allow producers in declared disaster areas to substitute crop insurance transition yields (T-yields) for purposes of calculating eligible payment units," said Klein.

Each year, crop income would be calculated using USDA production estimates and the average price during the first three months of each commodity's marketing year. For corn and other commodities with a marketing year that begins on Sept.1, the third month price would be the preliminary estimate as cdetermined by the National Agricultural Statistics Service.

A three-month price allows payments to be calculated and made when they are most needed by farmers, said Klein. "We would anticipate that this would allow farmers the option of receiving these payments either prior to or after Dec. 31 or each year for optimal tax management. Whenever the national crop income is less than the target income, producers will receive a payment based on their eligible bushels."