University of Georgia

University of Georgia

College of Agricultural and Environmental Sciences

2002 Farm Bill

DCP Program Base and Yield Options Decision Aid

UGA-DCPDAvers2-b

Developed By

Don Shurley and Nathan Smith

Department of Agricultural and Applied Economics

November 2002

Download this document in WordPerfect (35 Kb), or Microsoft Word (33 Kb).

Introduction

The DCPDA program is an Excel spreadsheet (Excel 97 and higher). Some familiarity with Excel and/or spreadsheet operation is assumed. Users with problems or questions may contact the authors. The program is designed to be very user friendly with minimal assistance needed. The program is unique in that it is designed to be consistent with Farm Service Agency (FSA) reports format, terminology, and calculations. Most all of the data required (except crop prices) should be contained on FSA forms. The following are helpful hints for general ease of operation:

Before Getting Started

Before sitting down to work through the DCPDA program, you will need 3 items from FSA -- the Acreage History and Base Options Report (MIBBOR-R001), the Yield Report (MIBYUR-R001), and the peanut acreage and yield history letter sent to historical producers. In addition to these 3 items, if the user has a 1996 farm bill PFC base on the farm but the crop was not planted during 1998-2001, then he/she will need to obtain the PFC Yield and the County Average Yield for the crop from FSA. If the farm has no current PFC base for a crop but has planted the crop during 1998-2001, then he/she will need to obtain a PFC Yield for the crop from FSA. If the user plans to update yields for the counter-cyclical payments and use his/her proven yields, he/she will need to gather production records for the years 1998-2001 to enter in the Yield Report worksheet (Page 4). Warehouse receipts, LDP and loan documents and crop insurance claims are examples of verifiable records.

Adjusting The View

The DCPDA program consists of 11 pages or worksheets. What is viewable on your screen will depend on your monitor settings and the “Zoom” setting. If what you see on the screen is too large (you can’t see the entire table) or too small (you want the table larger), then on your Toolbar click “View” then “Zoom” then change to the desired % size. You may have to do this several times until you get it to where you like it. Each page will be different so you may have to set the Zoom different for each one. For example, the Main page has a default view setting of 90% while page 5, Yield History, is set at 100% magnification. For some pages, it will be impossible to set the Zoom to see everything on the screen without scrolling down. That’s okay. It’s more important to be able to easily read what you can see. You can scroll down to see the rest of it if needed. Once this is done, when you Save the file these settings will remain and you will not have to repeat this process again.

Data Entry

Each worksheet or page is numbered 1 through 11. The number and name of the page are noted on the worksheet’s “Tab” at the bottom of the screen. Proceed through them in order. To go to another page, click on its Tab. If you cannot or do not see all the Tabs, you can use the < or > buttons on the bottom left corner to move forward or backward. Data entry, if applicable, is needed on worksheets 2, 3, 4, 6, 7, and 8. Data is entered in the white cells only. The rest of the page is “protected” and no cell entry is allowed. Pages 7 and 8 pertain to peanuts. If the farm has no peanuts, peanut history, or does not wish to consider peanut options at this time these sheets can be skipped.

The present version does not include barley. It may be added in a later version. Barley is not expected to compete with cotton and peanuts, for example, for payments and base so for purposes of this program treat barley as oats or wheat.

To Stay Oriented

On each worksheet or page, I find it helpful to make sure you are in cell A1 before you start. After you go to a page, if you are not in cell A1, the quickest way to get to A1 is to press the “Home” key on your keyboard, then the “Page Up” key, then the “Up Arrow” until you get to A1. If you will make a habit of doing this on each page, it will keep you oriented of where you are and where you then need to go.

Printing

The print range (the selection of cells to print), paper orientation, and page break have already been pre-set for each sheet. The quickest, easiest way to print is to simply go to the sheet or page you wish to print, click “File” on your toolbar, then click on “Print” or “Print Preview” then “Print”.

If there are problems with this setup, an alternative to print any portion of any page is to first go to the upper left corner of what you wish to print. Left click, hold down, and drag to the lower right corner of what you wish to print. Then release and click on your toolbar “File”, then “Print”, then “Selection”. “Landscape” or “Scale To Fit” mode may be needed for some tables or print to several pages. You can “Preview” before you print to see what will be printed.

Working With Files

Always maintain an original clean copy of the DCPDA program. To do this, when your work is finished, save the work file under a different name. Because the file is large, you may wish to save it to your hard drive then copy to a 3.5'” disk if needed. A single disk will hold only one file.

If you want to “clean up” portions of a work file for future use, you’ll want to first delete any data entry you don’t need. The quickest, easiest way to do this is to left click on the cell then press the “Delete” key on your keyboard.

Before saving a file, it is helpful to return to cell A1 on each page and return to the Main page. The next time you load the file it will automatically be at the beginning and each sheet at A1.

Page 1-Main

There is no entry or analysis on this page. It simply serves as a beginning and is useful in denoting the College and Department as the providing institutions. When working with clientele it would be useful to start here. It doing so, we give the College visibility. It would also be helpful to print this page along with other output... again to assure the College gets credit and visibility. After going to this “Main” page, you can proceed with data entry by clicking on the Tab for “2-Acreage History”.

Page 2-Acreage History

All information needed is on FSA Form MIBBOR-R001. This page is designed to look very similar to the FSA form and uses the same terminology. Enter the Farm Number, Effective DCP Cropland, and DCP Double Cropped Acres. Once entered on this page, the Farm Number will be automatically entered on all subsequent sheets. It will not need to be entered again.

Enter the farm’s 2002 PFC Acres and acres planted Acreage History for each year. Please note– the order in which we list the crops is different than on the FSA form. So make sure you have the right numbers in the right places. Once entered, the program will calculate the totals and averages. These calculations should give the same result as on the FSA Form.

When completed with data entry, proceed to the next page by clicking on the Tab “3-Base Options”.

Page 3-Base Options

This page or worksheet also is designed to be consistent with FSA Form MIBBOR-R001. The Base Options are given on the Form below the Acreage History.

This page has 2 tables. No data is entered in the top table. The appropriate numbers will be entered automatically from the Acreage History and from the bottom table. On the top table, if Total Bases exceeds the sum of Effective DCP Cropland and DCP Double Cropped Acres from the Acreage Report, you will be prompted with and “ERROR” message. Go back to Page 2 and check your numbers. Make sure all entries are correct.

If there is no oilseed history (no acres were planted in 1998-2001), the only Base Options applicable to the farm are Option 1 (keep current bases) and Option 4 (update bases). All other Options (2, 3, and 5) should be Not Applicable (N/A). If there is no oilseed history, no data entry is required. You can simply skip this page and proceed to Page 4. As a note, oilseed options do not include peanuts. Peanuts are treated differently by the Farm Bill and handled on Pages 7 and 8.

The oilseed options can be confusing. In simple terms and without going into FSA technical calculations and regs, Option 2 is for those wishing to add only the minimal amount of oilseed base while keeping their current PFC bases. For Option 2, total oilseed base will be limited to the 4-Year Average of Eligible Oilseed Acres from Page 2-Acreage History. Option 3 is for those wishing to add the maximum allowable oilseed base and reduce their current PFC bases. For Option 4, oilseed base added will be the 4-Year Average of acres planted. Option 5 is somewhere between 2 and 3.

If there is oilseed history, the data for Options 2, 3, and 5 must be entered in the bottom table. Read the description of each Option carefully. In Option 2, enter the maximum acres allowed subject to the constraints. If your entry is incorrect, you will be prompted with an “ERROR” message. If on the Acreage History the Eligible Oilseed Acres is zero, Option 2 will be “N/A”.

If on the Acreage History the 4-Year Average of Total Oilseeds Planted is less than or equal to Eligible Oilseed Acres, then Options 3 and 5 will be Not Applicable (N/A). In Option 3, you will be shown your average plantings and the amount of PFC base that must be reduced. Enter the acres by crop that you wish PFC bases to be reduced by. Again, if your data entered is incorrect or not allowed, you will be prompted with an “ERROR” message.

For Option 5, you will be shown your minimum and maximum allowable oilseed base by crop and total. Enter the base desired by crop. If applicable, you will then be shown the reduction or “offset” in current PFC base that is required. Enter, by crop, the acres you wish to reduce each crop base by. Again, if your data entry is incorrect or not allowed you will be prompted with an “ERROR” message.

For each of these oilseed Options (2, 3, and 5) if you are not sure which PFC bases it might be most profitable to reduce, you can always proceed through the program all the way through Page 6 - Prices, then consult Page 9, then come back to Page 3 and make your choice.

When Page 3 is complete, proceed to Page 4.

Page 4-Yield Report

This is probably the most important and crucial data entry.

The primary purpose of the Yield Report is to determine the 1998-2001 4-Year Average Yield. This yield will be used for determining the payment yield options for Counter-Cyclical Payments.

This page is designed to be consistent in format, terminology, and calculation with FSA Form MIBYUR-R001. All data needed for this page should be contained on FSA Form MIBYUR-R001.

For the crop, first enter the County Average Yield. The program will then automatically calculate 75% of County Average.

Next, enter the 2002 PFC Yield. This was the farm’s 1996 farm bill yield used for PFC (AMTA) payments. For non-oilseed crops, if the farm had no 1996 farm bill base of the crop, then FSA must assign a PFC Yield to the farm based on similar farms. If the farm has a PFC base for the crop but no planting history (did not plant the crop during 1998-2001), no Yield Report (MIBYUR) may be received for that crop. If no PFC Yield is given or available, consult FSA. A PFC Yield must be obtained from FSA and entered even if there is no planting history in 1998-2001. For oilseed crops, the PFC Yield is not applicable (N/A) because there were no oilseed bases in the ‘96 farm bill.

Planted Acres have been entered automatically from “2 - Acreage Report”.

Space is then provided for data entry of proven production. Evidence of this production must be verified and approved by FSA. From this production, a Proven Yield is calculated based on the acres planted. If the Proven Yield is less than 75% of County Average, 75% of County Average is automatically used as a “plug” (Yield To Use). The “plug” is also automatically used if no production history is available or is not provided.

The 4-Year Average Yield is the weighted average of Yield To Use. Yield To Use each year will be 75% County Average or the Proven Yield, whichever is greater. If Planted Acres and Production in a year are zero, the Yield To Use will show 75% of County Average but because no acres were planted, it does not enter the calculation of 4-Year Average Yield.

Page 5-Payment Yield Summary

Under the 2002 farm bill, Direct Payments (DP) and Counter-Cyclical Payments (CP) will be available. Payments will be received on 85% of base acres.

No data entry is needed here on Page 5. This page is simply a summary of all yield data and calculations. For non-oilseed crops, the Direct Yield is the farm’s current PFC yield or one established by FSA for crops without a PFC base. The Direct Yield is also shown on FSA form MIBYUR-R001 and will be (should be) the same as the 2002 PFC Yield. For oilseed crops, the Direct Yield is a percentage of the 4-Year Average Yield. Under the new farm bill, Direct Payments will be made at this yield level. For oilseeds, the Direct Yield is calculated automatically from the 4-Year Average Yield. If the Direct Yield is zero or blank on MIBYUR-R001, it likely means the farm has no current base of that crop. A Direct Yield will have to be provided. Consult FSA.

Counter-Cyclical Payments will be made at 1 of 3 levels. If bases are not updated (Base Options 1, 2, 3, and 5) Counter-Cyclical Payments will be made at yield CC(1). This is the Direct Yield or PFC Yield. If bases are updated (Base Option 4), Counter-Cyclical Payments will be made at the choice of CC(1), CC(2), or CC(3). CC(2) is CC(1) plus 70% of the difference between CC(1) and the 4-Year Average. CC(3) is 93.5% of the 4-Year Average.

For Counter-Cyclical Payments, the yield option chosen must be the same for each crop. The program will calculate payments under each possible base-yield combination.

Page 6-Prices

Expected market prices must be entered for (a) each crop with a current PFC base and (b) each crop for which there is a 1998-2001 planting history. Take special note of the unit for the price – bu, lb, ton, etc. and enter the price accordingly.

Prices are used in the program to calculate expected (estimated) Counter-Cyclical Payments (CP). CP is variable depending on market price and thus producers and landowners need to be aware of the uncertainty involved.

The 2002 Expected Average US Price must be entered and the 2002-2007 Expected Average US Price must be entered. This will calculate 2002 expected CP for each crop and the average CP over the life of the farm bill.

Making such price “guess-timates” can be difficult. But just the process of having to make an estimate causes producers and landowners to realize that prices are important to the base-yield decisions they must make. They should put in a number that they are comfortable with. To assist in that process, 5 price levels are shown for each crop. In the first (top) table, Average, Pessimistic, and Optimistic prices are given calculated from USDA price data from the past 10 years. In the second (bottom) table, UGA Extension Economists estimates are given for 2002 and 2002-2007. So this shows where prices have been over the past 10 years and UGA’s best guess. If no price is entered for 2002 and 2002-2007, the loan rate will be used when calculating the estimated CP.

To assist the producer/landowner to see the possible risk or uncertainty in CP and total DCP payments, a “Risk Analysis” (Page 11) will show payments under 5 price scenarios– their 2002 Expected Price, their 2002-2007 Expected Price, the 10-Year Average, Optimistic, and Pessimistic.

Page 7-Peanut History

If there is no peanut production history, Pages 7 and 8 can be skipped. Proceed to Page 9.

Producers must assign peanut base (historical production) to a farm not later than March 31, 2003. Producers and landowners can make their DCP Base-Yield Options decision now, independently of the peanut decision. Producers with peanut history can choose to run the program without peanuts for now and make a separate decision about peanut base assignment later. But including peanuts in the initial analysis might be helpful because the amount of peanut base desired to be assigned to a farm may have an impact on the decision about other bases.

This Peanut History page has been designed to be consistent with FSA reports, data, and calculations. The data needed for this page is contained in a separate “peanut letter” sent by FSA to each historical producer. That letter shows planted acreage, actual yield, and the county average yield for each FSN where peanuts have been produced.

This version of the program allows up to 5 peanut bases (historical production) to be assigned to a single farm. Page 7 contains the required data entry for each base (up to 5) the producer wishes to assign. Enter the Farm Number (FSN) for the production history. For each year, enter the Planted Acreage and Actual Yield. Enter the County Average Yield.

If Actual Yield is less than the County Average Yield, the County Average Yield may be used as a “plug” for up to 3 of the 4 years. If your Actual Yield is less than the County Average Yield, the computer program will automatically substitute the “plug”. If your Actual Yield is less than the County Average Yield in all 4 years, the program will automatically select the 3 out of 4 years to use the “plug” that will maximize Production and Average Yield. (Because the Average Yield is a weighted average based on acres planted, the 3 years to “plug” may not necessarily be the 3 years with the lowest yields.)

Complete a table for each historical production you wish to assign to this farm. For each historical production, your peanut base will be the Average Acreage. The Average Yield will be the payment yield used for both Direct and Counter-Cyclical Payments. The Average Yield computed by the program may not match the Average Yield shown in the “peanut letter” because the peanut letter shows Average Yield based on actual production before the plug is used.

A reminder – for 2002, DCP Payments go to the Historical Peanut Producer. Beginning with the 2003 crop, DCP Payments go the producer on a farm with peanut base.

Page 8-Base Options With Peanuts

If no historical peanut production was entered on Page 7, skip this page and proceed to Page 9. For the peanut producer, this is probably the most important data entry.

This worksheet or page has 3 tables. Data entry may be required only in the third (bottom) table. The first (top) table is simply a summary of the information given and calculations from Page 7. For producers with multiple peanut histories they wish to assign to a farm, it is not yet determined how FSA will, or if it will, aggregate these into a single base and payment yield. For this program and analysis, all bases are summed and a weighted average yield used. If FSA rules on a different approach at a later date, this portion of the program will be revised.

The second (middle) table, is a summary of acres and bases by Base-Yield Option. Total bases cannot exceed Available Cropland (this is the sum of Effective DCP Cropland and Effective DCP Double Cropped Acres from “2-Acreage History”. The program takes the crop bases from the Base Options (Page 3), totals those up and calculates the Remaining Available Cropland. This is the amount of land remaining for other crops and uses without planting on base acres. The Peanut Base from the first (top) table is subtracted to arrive at the Remaining Cropland After Peanuts. This number must be positive. If this number is less than zero, you will be prompted with an “ERROR” message.

If the Remaining Cropland After Peanuts is less than zero (you get an “ERROR” message) you have 2 choices – (a) go back to Page 7 and reduce the peanut bases to be assigned or (b) proceed to the third (bottom) table and adjust other crop bases. To help decide which bases might be the most profitable to reduce, Page 9 may be consulted. Compare the payments per acre of base. The difference in payments is the expected gain or loss from substituting one acre of crop base for another. For example, if DCP payment per acre of base on peanuts is $142/acre and payments on wheat are $38/acre then each acre of peanut base substituted for wheat base would gain $104 per acre ($142 minus $38).

Even if you do not get an “ERROR” message, producers may need to think about their acreage of other crops and uses such as tobacco, fruits and vegetables, pecans, CRP, etc. Is this enough land for those uses? Consult FSA if there are any questions.

In the bottom table, the Required Base Reduction is shown in the first line. Other (non-peanut) crop bases are then shown for each Base Option. This information is directly from page 3. Go to the lower half of the table and enter the amount of acres you wish to reduce other crop bases by. You will continue to be prompted by an “ERROR” message at the bottom of the table until the necessary base reductions are made.

NOTE: Once a crop base is reduced to zero on this page, DCP Payments for that crop will not show up on Page 9. So Page 9 should be consulted BEFORE base adjustments are made. If you zero a base out on Page 8, you can of course always go back an make changes at any time.

NOTE: Some Base Options may require a base reduction while others do not or each Option may require a different reduction. However, if you choose to go back and reduce peanut bases on “7-Peanut History”, this change will be applied to all Base Options. Unfortunately, this is simply the way the program had to be written. The fact is that in some cases the possible base combinations are too numerous for one run of the program to handle. One suggested way around this is to first run the program without peanuts then come back and run it as many other times as needed to look at possible peanut base combinations. The program is fully capable of analyzing any combination the producer may wish to consider -- but multiple runs may be needed.

Page 9-DCP Payments Per Acre

Once you have made it this far, relax. No further data entry is required.

Page 9 is simply a summary of Direct and Counter-Cyclical Payments (DCP) per acre of base by crop. The DP and CP rate per bushel, pound, or ton is also shown. Payments are shown based on expected 2002 average market prices and 2002-2007 average expected market price.

These are expected payments per acre of base. Total DCP payments per crop will be this amount times Base Acres. Direct Payment (DP) per crop will be the DP Rate times the Direct Yield times Base Acres times 85%. Counter-Cyclical Payment (CP) per crop will be the CP Rate times the CC Yield times Base Acres times 85%.

The over-riding purpose of this program is to assist producers and landowners to make the best Base-Yield Options decision for their farm(s). To do this, it is important to consider DCP payments over the entire (2002-2007) life of the farm bill (Page 10). Although payments are calculated and shown both here and on Page 10, it is not necessarily the purpose of the program to calculate specific DP and CP payments by crop and/or by year. A separate program will be developed that will calculate specific DP and CP payments by crop by year. This will be more useful and meaningful after the Base-Yield Option decision is made.

Page 10-Whole Farm Summary

Page 10 is a detailed description and summary of bases, payment yields, and DCP program payments by Base-Yield Option. Payments are calculated based on 2002-2007 Expected Average Prices from Page 6. Producers can compare the Expected Payments by Option to determine which is the most profitable. For each Option, Total Payments are compared to the payment limitation. The limit for all crops excluding peanuts is $40,000 total on Direct Payments (DP) and $65,000 total on Counter-Cyclical Payments (CP). The amount over or under limit is based on these limits. If the farm qualifies or operates under the spouse rule or multiple entity rule, the limits would be higher. The 3-entity rule, for example, would double these limits. Consult FSA about specific regulations and qualifications.

Peanuts have separate and equal payment limits. The amount over or under the limitation is shown separately for peanuts.

Page 11-Risk Analysis

Counter-Cyclical Payments can vary with changes in market prices. Thus, there is some risk and uncertainty in the Base-Yield Option decision. Producers and landowners should consider market price uncertainty in the decision.

Page 11 shows the Direct Payment (fixed and not subject to market price changes), Counter-Cyclical Payments, and Total DCP Payments under 5 different price scenarios. These prices were given and defined on page 6. This analysis excludes peanuts because no suitable or relevant price history is available for peanuts without a government price support program.

A helpful way to look at this Risk Analysis is to look at several factors.

If you are NOT a peanut producer: Which Option is expected to give the highest Total DCP Payments for 2002-2007? Which Option gives the most consistently high Total DCP Payments over the 5 different price scenarios? If the two are not the same, is there an Option that would be a balance? Is the Option with the highest payments worth the difference in risk?

If you ARE a peanut producer: Go back to Page 10 – Which Option is expected to give the highest Total DCP Payments? Now go back to Page 11 – Which Option gives the most consistently high Total DCP Payments over the 5 price scenarios for other crops? Are these 2 Options the same? If not, what is the difference in peanut DCP between the Options? Is this difference worth the difference in risk. Is there a balance?

Conclusions

The UGA-DCPDA program is designed to be user friendly and consistent with Farm Service Agency (FSA) forms, calculations, and terminology. This program is version 2-b. (version 2, revision b). If errors are found, corrections will be made and later versions released. Users are advised to check the University of Georgia Department of Agricultural and Applied Economics website for further updates. The web address is:

Questions, problems, suggestions, or comments may be directed to:

Dr. Don Shurley

229-386-3512

Dr. Nathan Smith

229-386-3512