October 14, 2002

Confusion about Base and Yield Options for Determining Decoupled Payments

Despite the volumes of material released about the new farm bill, a North Dakota State University agricultural economist says many producers are still confused about key elements of the program.

"Certain issues are very complex, and decisions made now will affect program payments from now until 2007," notes Andy Swenson, a farm management specialist with the NDSU Extension Service. "Most confusion seems to surround how to determine bases and yields from which decoupled farm program payments will be made each year of the program."

According to Swenson, here are the basics:

Decoupled payments. There are two decoupled payments – direct and counter-cylical. Both payments are totally independent from actual production on the farm in 2002 and through 2007. The decoupled payments are determined by payment rates per bushel (or lb.), base acres and payment yields. The payment rates for direct payments are fixed over the life of the farm bill. The counter-cyclical payment rate can vary because it is related to the national average marketing year price.

Base acres. Every farm currently has base acres and payment yields that were used under the previous farm bill. Landowners have two main decisions regarding base acres under the new farm bill. One is to keep the old bases (and add eligible oilseeds) and the other is to do a full base update. The full base update is simple: the new bases are the 1998-2001 average planted (and prevented planted) acreage for each covered commodity.

For those who keep the old base acres, the options regarding oilseeds can be confusing. Oilseeds (soybeans and the minor oilseeds: sunflowers, canola, flax, mustard, safflower and rapeseed) were added in the 2002 farm bill as covered commodities eligible for decoupled payments. Therefore, even if landowners choose to keep their old bases, they may be able to add oilseed base acres, if there were oilseed acres on the farm 1998-2001. Some computations are necessary to determine the amount of oilseeds that are eligible to add to the existing base, and on Oct. 2, the USDA changed those computations.

There is an additional option available to landowners who keep the old base acres and add eligible oilseeds. If of their 1998-2001 average oilseed acreage is in excess of what was eligible to add to their existing base, they can make an acre-for-acre substitution of those oilseed acres for old base acres. The total base acres (old base plus eligible oilseeds) remains the same, but base acreages of the individual crops could change. For example, it would be wise to substitute soybean acres for oat base acres because soybeans garner more decoupled payments.

Whatever option is chosen for determining base acres, the resulting base acres are used to compute both direct and decoupled payments.

Yields for direct payments. As mentioned earlier, every farm has payment yields that were used under the previous farm bill. Those same yields are used for direct payments under the 2002 farm bill. However, because oilseeds are new covered commodities, payment yields must be established for them. The first step in establishing payment yields for oilseeds is to determine the 1998-2001 weighted average yield per planted acre. Each year, the higher of the actual production per planted acre on the farm and a minimum plug yield (75 percent of the 1998-2001 county average yield) can be used in calculating the average. If a landowner does not have the records to verify the actual yields, then the plug yield is used.

Lastly, to establish payment yields for oilseeds, an adjustment is made to the 1998-2001 weighted average yield per planted acre. This adjustment (0.80 for sunflowers, 0.65 for flax and 0.78 for other oilseeds) is made so the payment yields reflect the 1981-1985 period from which payment yields were established for wheat and feed grains.

Counter-cyclical payment yields. These yields are the same as direct payment yields with one exception. If, and only if, a landowner does a full base update, he/she has two options for updating the yield for counter-cyclical payments. One option is take the farm's 1998- 2001 average yield per planted acre for a crop, subtract the direct payment yield, then add 70 percent of the difference to the direct payment yield. The other option is to take 93.5 percent of the farm's 1998- 2001 average yield per planted acre for the crop. The option that is selected must be applied to all crops.

Calculating the options. "Fortunately, you don’t have to know how to calculate the different base acre and payment yield options to determine which provides the greatest income," Swenson notes. "Computer tools are available that will do the calculations for you." Swenson has developed an electronic spreadsheet that can be operated with Excel 97 or later versions. It will also work with later versions of Lotus 1-2-3 and QuattroPro.

The software, an input form, instructions and county "plug" yields for North Dakota are available on the Web at http://www.ag.ndsu.nodak.edu/aginfo/farmmgmt/farmmgmt.htm . NDSU county extension agents have had training with the software. Producers and landowners with questions about the software or without computer access can contact their local county extension office for assistance.

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu

Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu