October 16, 2002

Base and Yield Options Under the 2002 Farm Bill Explained

The 2002 farm bill provides a one-time opportunity for landowners to update their crop acreage bases and yields with the Farm Service Agency (FSA). There are five options for doing that and the decision of which to use is important because it will impact farm payments for the life of the farm bill, notes North Dakota State University agricultural economist Dwight Aakre.

"The acreage bases and yields on each farm will be used to calculate the direct and counter-cyclical payments for the 2002 through 2007 crop years, regardless of the crops a landowner chooses to produce," says Aakre, a farm management specialist with the NDSU Extension Service. "The FSA crop acreage bases and yields are important components in determining potential profitability and therefore the market value as well as the rental value of crop land."

Landowners will have a choice of five different options for determining the base acres that will apply to their farm land. "Once this choice is made, the resulting base acres will be used to determine both the direct payment and any counter-cyclical payment that may be due for the years 2002 through 2007," Aakre notes.

Actual payment acres is 85 percent of the base acres for each crop base. Whichever option is used, the resulting base acres will be used for both direct and counter-cyclical payments. If a landowner chooses the full base update option, than he may or may not update yields. The updated yields will only be used for the counter-cyclical payments. Direct payments will use existing payment yields.

Four of the five options for base selection include retaining 2002 Production Flexibility Contract (PFC) bases. This refers to the base acres that were in effect for the 2002 crop year under the 1996 Farm Bill.

Aakre outlines the five options.

Option 1. Retain PFC bases. This option allows a landowner to keep in place the crop bases that were in effect for the 2002 crop year under the previous (1996) farm bill. This option includes wheat and feed grain bases but does not include soybeans and minor oilseeds. The payment yield for both direct and counter-cyclical payments remains the same as it was under the PFC with the 1996 farm bill.

Option 2. Retain PFC bases and add oilseeds without PFC offset. This option allows the landowner to keep existing PFC wheat and feed grain bases and add eligible soybean and minor oilseed bases. Eligible oilseeds are determined from the total planted and prevented planted acres of soybeans and minor oilseeds during the four-year period 1998 to 2001. Eligible oilseed acreage is determined by subtracting the total PFC base acres from the total planted and prevented planted acres of all covered commodities, but may not be less than zero. This difference is determined for each year and the four-year average becomes the eligible oilseed base that may be added to the existing PFC base for the farm. Covered commodities refers to wheat, feed grains, soybeans, minor oilseeds, cotton, rice and peanuts. This is the default option that will be applied if a landowner fails to make a base option election for any reason.

Option 3. Retain PFC bases and add oilseeds with maximum PFC offset. With this option, the landowner keeps existing PFC wheat and feed grain bases and adds eligible soybean and minor oilseed acres plus increases oilseed bases by offsetting one or more PFC bases on a one-for-one acre basis. The amount of oilseed acres that are used to offset PFC acres is limited to the difference between the total average oilseed history minus the eligible oilseed acres.

Option 4. Update bases using the 1998-2001 average acreage of covered commodities. With this option, the old PFC bases are eliminated and new bases are established. These bases are simply the average acreage over the four-year period for all covered commodities. If this option is selected, the landowner may choose to retain PFC (old) yields or update yields based on a percentage of the average yield 1998-2001. If a yield update is selected, it will be either 93.5 percent of the average 1998-2001 yield or the old yield plus 70 percent of the 1998-2001 average minus the old yield. However, the updated yield is used only for the counter-cyclical payment. The direct payment will always be based on the old PFC yields.

Option 5. Retain PFC bases and add oilseeds with partial PFC offset. With this option, PFC bases are retained, eligible oilseeds are added and additional oilseed acreage up to a maximum of the average planting of oilseeds may be used to offset low-paying PFC bases on an acre-for-acre basis. The oilseed acreage that may be used for offset cannot exceed the amount by which average oilseed acreage exceeds the eligible oilseed acreage that can be added as additional base acres.

Yields for options 1, 2, 3 and 5 will always be old PFC yields for both direct and counter-cyclical payments. For soybeans and minor oilseeds, it is necessary to create a yield that is equivalent to what national yield levels were 1981-1985. That is the base period for old yields for PFC crops. This is accomplished by multiplying a factor times the average yield for 1998-2001. That factor is 0.80 for sunflowers, 0.65 for flax, and 0.78 for soybeans and other minor oilseeds.

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Source: Dwight Aakre, (701) 231-7378, daakre@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu