Even as the price of corn is rising for this fall's harvest, farmers are getting federal subsidies for last year's crop. USDA announced last Thursday (October 12) that the average price for the 2005 crop was $2 per bushel. That means farmers will receive a countercyclical payment (CCP) of 35 cents per bushel, based on their farm's historical production.
For Iowa corn farmers, those payments will total $536 million, says Chad Hart, an Iowa State University economist. That subsidy comes on top of a fixed annual payment, which totals $408 million in Iowa. Also, there are additional subsidies in the form of loan deficiency payments that are tied to farmers' actual production.
Corn growers are likely to get little in the way of subsidies other than the fixed payments on their 2006 harvest, given the way prices are rising, says Hart. Corn prices for March delivery closed Oct. 12 at $3.08 on the Chicago Board of Trade.
Farmers receive the CCP payments when USDA determines that the national price of corn is below $2.35 per bushel for the marketing year, which runs from September 1 through the following August. The payment was 29 cents per bushel on the 2004 crop.
No countercyclical payments for beans
Since the effective price for soybeans exceeds its target price, USDA will not issue any 2005-crop soybean CCPs. The final marketing year price for 2005-crop soybeans is $5.66 per bushel.
To receive direct or countercyclical payments for corn or soybeans, farmers with base acres must be enrolled in USDA's Direct and Counter-Cyclical Program (DCP) for the respective program year for an eligible commodity. Farmers with base acres of certain commodities are eligible for DCP payments.
Direct payments are not based on farmers' current production choices, but instead are tied to historical acreage bases and yields. For each commodity, the direct payment for each crop year equals 85% of the farm's commodity base acreage times the farm's direct payment yield times the direct payment rate.
The CCP rate is the amount by which a commodity's target price exceeds its effective price. The effective price equals the direct payment rate plus the higher of: (1) the national average market price received by producers during the marketing year, or (2) the national average loan rate for the commodity. These payments also are not based on producers' current production choices, but instead are tied to historical acreage bases and yields.
The CCP amount equals the CCP rate, times 85% of the farm's commodity base acreage, times the farm's CCP yield for that commodity. USDA's Farm Service Agency distributes direct payments and CCPs on behalf of CCC.
For more information on the Direct and Counter-Cyclical Payment (DCP) program, visit your local USDA Service Center or www.fsa.usda.gov.