Summer 2002, Vol. 8 No. 3
Iowa's Agricultural Situation
Crop Progress, Options under New Farm Program Legislation, and the Forecast for Hog Farmers
By the the middle of June, all Iowa corn had emerged compared with 95 percent emergence at this time last year and 99 percent on average. Crop spraying was constrained because of strong winds in most of the state. Also, scattered heavy rain and hail in central and northeast Iowa resulted in isolated reports of crop damage during the third week of June. As of June 24, the crop conditions remained stable, with 79 percent of the corn in good to excellent condition and only 4 percent rated poor to very poor. For soybeans, planting is ahead of normal and was completed in the middle of June compared with 90 percent planted this time last year. By the end of the month, almost all soybean acreage had emerged, with 75 percent of the crop rated good to excellent and only 4 percent in the poor and very poor categories.
Until the middle of June, the weather this season was more cooperative than usual, thus evading both the excessively low soil moisture levels recorded in 1999-2000 and the high soil moisture levels that afflicted some producers last year. However, by the end of June, the temperatures had risen. The latest figures on statewide topsoil moisture show that 5 percent of the state's topsoil is very short on moisture while 21 percent is short, 66 percent has adequate moisture, and 8 percent has a surplus. Most of the shortage is in the western two-thirds of the state. In the southwestern section, 62 percent of the topsoil has a moisture shortage. Subsoil moisture levels are very similar. In contrast, last year at this time, 32 percent of the topsoil and 30 percent of the subsoil in Iowa had surplus moisture.
The June 28 Acreage report by the U.S. Department of Agriculture (USDA) surprised most crop analysts. Even though national corn-planted acreage fell from March intentions, it was significantly higher than the USDA's estimate of two weeks earlier. According to the report, U.S. farmers reduced corn plantings by 100,000 acres from their March intentions. As was expected, persistent precipitation in the eastern Corn Belt limited the acreage planted to corn. However, western states nearly compensated for the ground lost in the east as the planting weather allowed for more acres than initially anticipated. Even though persistent rains increased the soybean acreage in the southern and eastern Corn Belt, the switching from soybeans to corn in the western states resulted in just a 27,000-acre increase compared to March soybean planting intentions. In Iowa, corn acreage is up 4 percent this year, for a total of 12.2 million acres. Soybean plantings are estimated at 10.7 million acres, down almost 3 percent from a year ago.
2002 Farm Legislation
On May 13, the Farm Security and Rural Investment Act of 2002, the legislation that will govern federal farm programs for the next six years, was signed into law. Some of the more important changes include the new farm payment program that introduces countercyclical farm income support, expanded conservation land retirement programs, a greater emphasis on on-farm environmental practices, and easier access to federal farm credit assis- tance programs. The provisions for income support now rely on a three-piece safety net comprised of marketing loans, direct payments, and countercyclical payments.
The new farm legislation continues the current marketing loan program at increased loan rates for all commodities except soybeans. In addition, the requirement that producers enter into an agreement for direct payments to be eligible for loan program benefits is eliminated. Loan rates are now fixed in legislation: $1.98 per bushel for corn in 2002-03 and $1.95 in 2004-07, and $5.00 per bushel for soybeans in 2002-07. The previous loan rate for soybeans was set deliberately high at $5.26 per bushel in order to compensate soybean producers for the lack of AMTA (Agricultural Market Transition Assistance) payments.
Countercyclical payments are available to cover commodities whenever the nationwide effective price is less than the target price. The effective price is equal to the sum of the higher of the national average farm price for the marketing year, or the national loan rate for the commodity and the direct payment rate for the commodity. The payment amount for a farmer equals the product of the payment rate, the payment acres (85 percent of base acres), and the payment yield. The payment rate is the difference (if it is positive) between the target price and the effective price. The target prices for corn are $2.60 per bushel in 2002-03 and $2.63 in 2004-07. The target price for soybeans is $5.80 per bushel in 2002-07.
Direct payments, currently in effect for soybeans, are very similar to what was previously known as production flexibility contract (or AMTA) payments and permit planting of any crops except for some fruits and vegetables. The eligible land must be kept in agricultural uses, and farmers must comply with certain conservation and wetland provisions. The amount of the annual payment received by farmers and eligible landowners is equal to the product of the crop payment rate established by statute, the payment acres, and the payment yield. The direct payment rate is $0.28 per bushel for corn and $0.44 per bushel for soybeans.
Farmers have the option to update base payment acres this year using the 1998-2001 average of acres planted and prevented from planting. Otherwise, they can leave it at 1996 levels with an addition of the four-year average soybean acreage as long as the total base acres do not exceed available cropland. Each producer must select one of the two options to update base acres, which will apply to all covered commodities for both direct and countercyclical payments. Three options for determining countercyclical income support payment yields are available to farmers for each individual crop: (1) use current program yields, (2) update yield by adding 70 percent of the difference between program yields and the farm's average yields for the period 1998-2001 to program yields, or (3) update yield to 93.5 percent of 1998-2001 average yields. As for direct payments, program payment yields for the crops covered by the previous farm bill are unchanged. The payment yield for soybeans is determined by the 1998-2001 soybean yield for the farm adjusted back to the equivalent average yield for the old base period used for corn.
Hog prices were the lowest for May and June in more than two decades, with continuing larger-than-expected supplies. Slaughter during the four weeks of June was 6.1 percent higher than the same period a year ago and 1 percent above the official projections. The June 28 USDA Hogs and Pigs report, whose accuracy is questioned by some analysts, seems to indicate that the hog industry will fare better in the fourth quarter than it did in 1998 when hog prices temporarily dropped to $8/hundredweight. According to the report, the all hogs and pigs inventory is 2.1 percent above last year's level. While the market hog inventory is up 2.3 percent, the breeding herd inventory is nearly the same as that of a year ago. Most of the increase in market hog inventory is in the heavier-weight hogs. Even though farrowings are up 2.2 percent compared to 2001, the estimated March-May pig crop is only 1.3 percent larger than last year's crop because there were fewer pigs per litter. Analysts speculate that this pig crop, combined with Canadian feeder pigs finished in midwestern operations and Canadian market hogs, points to a fourth-quarter slaughter of 27 million head, down from the 27.586 million head reported in the fourth quarter of 1998. ♦