Don’t hold out hope for another
counter-cyclical payment
Cotton and rice crops likely ineligible for final payment

By DOREEN MUZZI
DBJ Contributing Writer

Those farmers checking their mailboxes in search of their final counter-cyclical payments for the 2003 crop might not want to spend that money quite yet.

In the cases of both rice and cotton, the advance payments issued in October 2003 and February 2004 were about equal to the difference between the marketing year average price for the crop year, and the target price minus the direct payment for that crop.

“It looks like it’ll be a wash for both cotton and rice producers,” says Steve Martin, an agricultural economist at Delta Research and Extension Center in Stoneville, Miss.

The average price during the 2003 marketing year for both soybeans and wheat was higher than the effective price, and therefore no counter-cyclical payments were owed to growers on the 2003 crop.

An estimated marketing year average price of $7.49 per hundredweight for rice, and an $8.15 trigger for counter cyclical payments, would suggest a 66-cent per hundredweight counter cyclical payment for the 2003 crop.

However, rice producers were eligible for two advance counter cyclical payments – one in October 2003 for $0.58 per hundredweight, and one in February 2004 for $0.0525 per hundredweight. That means that very little, if any additional money is now due producers.

Cotton producers were paid 4.8 cents per pound in advance counter cyclical money in October of 2003, when the marketing year price projections for cotton were below the threshold level triggering such payments. Then, the price of cotton took an upswing, eliminating any additional advance counter cyclical payments.

According to USDA’s final estimates, the marketing year average price for cotton was 60.8 cents per pound. Counter-cyclical payments for cotton are triggered when the average marketing year price drops below 65.33 cents per pound of lint.

The marketing year average price is a weighted average, depending on the commodity price each month, how much of the crop is marketed each month, and how much of the crop was marketed for the total year. That means the effect of price spikes or drops is often minimized with regards to the marketing year average price if a small amount of the crop was sold that month.

USDA is expected to release the marketing year price projections used to calculate potential counter-cyclical payments for the 2004 crop sometime in mid-October.

Agriculture Secretary Ann Veneman says her office will announcement payment rates for the 2004 crop of wheat, feed grains, upland cotton, rice, soybeans, other oilseeds and peanuts soon after the October World Agriculture Supply and Demand Estimates are released Oct. 12.

“By using the October report, we can incorporate the most current supply and demand information into the projects, says Veneman. “This is also the same approach and timing used for last year’s program.”

Counter cyclical payments are only issued to commodity producers if the average selling price for that market year is less than the target price minus the direct payment for that crop. For corn, soybeans and grain sorghum the marketing year runs from September 1 to August 31. For cotton and rice, it runs from August 1 through July 31, and for wheat and oats, the marketing year runs from June 1 to May 31.

Calculating counter-cyclical payments is similar to the way deficiency payments were made prior to the 1996 Farm Bill, except that the direct payment must be factored into the equation. To estimate an eligible counter-cyclical payment, multiply your base for that crop times 85 percent, times the counter-cyclical yield, times the maximum projected counter-cyclical payment for that crop.

Put more simply, the counter-cyclical payment rate is the amount by which the target price of each commodity exceeds its effective price. The effective price for each commodity equals the direct payment rate plus the higher of either the national average market price received by producers during the marketing year, or the national loan rate for that commodity.

That’s the maximum a producer could receive, but it could also be zero, depending on the current market price for that commodity.

If the price of a commodity makes it eligible for a counter cyclical payment, up to three partial payments can be made at the discretion of the Secretary of Agriculture. The first partial payment, which is equal to 35 percent of the total projected rate, can made in October of the year the crop is harvested, followed by a second partial payment the following February, and a final counter-cyclical payment sometime after the marketing year for each commodity. Any final payments, if prices remain in the range to make it eligible, are based on USDA’s final, season-average market price. DBJ