Disclaimer: This web page is designed to aid farmers with their marketing and risk management decisions. The risk of loss in trading futures, options, forward contracts, and hedge-to-arrive can be substantial and no warranty is given or implied by the author or any other party. Each farmer must consider whether such marketing strategies are appropriate for his or her situation. This web page does not represent the views of Kansas State University. 
Disclosure:  Dr. Barnaby’s research was the basis for the privately developed Crop Revenue Coverage.

NASS Wheat Price Cap and Disaster Aid Payment Reductions for Non-Harvest[1]

USDA has made a decision to use the National Agricultural Statistic Service (NASS) “all wheat price” of $3.60 for the payment cap rather than the winter wheat price of $3.45.  Because NASS’s “all wheat price” of $3.60 will be used to set the payment cap, it is very unlikely any insured Kansas wheat growers will exceed the per acre payment cap based on combined crop insurance and disaster payments for 2002 wheat losses.  Senator Roberts and Congressman Moran both sent comments to USDA, suggesting the “all wheat price” was the appropriate number for per acre payment limits. 

Disaster aid payment reductions for non-harvest.  As reported in a previous paper, USDA will reduce the disaster payment if the crop was not mechanically harvested.  This most likely will occur on dryland corn in western Kansas but also applies to other crops too.  When corn yields are low, farmers often chop the remaining stalks for livestock feed.  While this may provide poor quality forage, given the drought situation in 2002 any livestock feed became very valuable.  If the crop was not mechanically harvested then corn producers will suffer a 12 percent reduction in their disaster payment (table 1).  On the surface this seems like a very straight forward rule with a yes or no answer, but several questions have been e-mailed to me with other scenarios that are not clear cut.

Scenario 1.  The remaining failed corn crop is salvaged simply by harvesting any yield using a combine.  Under this scenario the grower would be paid the full calculated disaster payment based on the yield used to settle the crop insurance claim.  Of course, this assumes the grower did not exceed the combined disaster and crop insurance per acre payment limit.

Scenario 2.  Grower decides to salvage the remaining corn stalks by chopping it for feed.  The grower uses his\her own equipment to chop the corn stalks.  The grower then sells the feed to a livestock producer who feeds the salvaged corn.  This scenario would also suggest the grower would be eligible for the full disaster payment because the crop was mechanically harvested.

Scenario 3.  Grower chops the remaining corn stalks and retains it to feed his\her livestock.  This scenario would also suggest the grower will be eligible for the full disaster payment.

Scenario 4.  The grower custom hires a forage cutter to chop the remaining corn stalks simply because he\she does not own the equipment.  The chopped forage is then stored on the farm and later fed to his\her livestock.  This scenario would also suggest the grower will be eligible for the full disaster payment.

Scenario 5.  The grower custom hires a forage cutter to chop the remaining corn stalks but sells the chopped forage for cash to a neighbor for livestock feed.  Because the grower incurred the harvest expense the assumption is the grower would be eligible for a full disaster payment. 

Scenario 6.  The grower has neither the equipment to chop the remaining corn stalks or livestock to feed those stalks.  The grower simply sells the crop on the stump to a neighbor.  The neighbor then chops the forage and hauls the feed to his\her farm for later feeding to his\her livestock.  It is unclear, if the grower would be eligible for the full disaster payment because the grower did not incur any harvest expense.  However, if this same grower had hired that same neighbor to custom chop the forage and then sold the forage to the same neighbor for feed, the net would be the same as the grower would have received in the number 5 scenario.  Therefore, because the grower paid harvesting expenses it is assumed he\she would be paid the full disaster payment.  The grower who paid a custom cutter and then sold the forage would have a similar net position as the grower selling the remaining corn stalks on the stump. 

Scenario 7.  The grower turns his\her cows in to the field and allows the cows to salvage any remaining forage from a failed crop.  Under this scenario, the grower would clearly be subject to the discount for non-mechanically harvested acres (table 1). 

There probably are many other scenarios beyond the ones listed here but it is clear FSA will need to interpret non-harvest rules to cover different crop salvage methods.  It is very likely that different counties and county committees may interpret the rules differently for some of these “gray area” scenarios. The really “gray area” scenario is number 6 because if the Farm Service Agency determines the grower is subject to the 12 percent reduction in disaster payments for non-harvest, it is possible the grower is worse off by selling the forage on the stump.  If the payment he\she received for the remaining corn stalks is less then the reduction in disaster payments, then the grower clearly had a net loss.  It is also possible the grower sold the remaining corn stalks for mechanical harvest for a price greater than the reduction in disaster payments.  Therefore even if the grower does suffer a reduction in disaster payments he\she is clearly better off by having sold the corn stalks.

Undoubtedly, this will be another issue that will be viewed differently by one’s personal situation.  Those farmers who sold the stalks rather than paying a custom cutter or harvesting those stalks themselves will likely argue they should be paid the full disaster payment because it was mechanically harvested.  That is certainly a valid argument because if one knew the rules last fall, they could have easily circumvented the harvest rule by simply paying someone to custom cut those stalks and then selling the feed as a separate cash transaction.  A more liberal definition by FSA that simply requires the forage to be mechanically harvested and makes no distinction how the proceeds were distributed would make all of these scenarios non-issues. 

Clearly, this could apply to other crops too such as wheat.  For example, one might have salvaged remaining wheat by baling straw. 

Regardless of how FSA interprets the mechanical harvest rule, farmers are clearly better off receiving disaster payments.  In many cases disaster payments plus crop insurance will generate returns approaching an average crop.  Without those disaster payments clearly many farmers would have suffered losses on the 2002 crop.  However one must remember there was a significant delay from harvest time until disaster aid payments were provided.  Because these payments will come in 2003 there may also be some income tax implications but many growers with their tax adviser have been very proficient managers of their tax liabilities.

Table 1.  Percent of Disaster Aid Payment Rate or Discounts by Crop for acres NOT Harvested with a Mechanical Harvester.

                        Unharvested

Payment                                  Effective

Rate                                        Discounts

Corn                88%                                        12%

Wheat             88%                                        12%

Milo                 86%                                        14%

Soybeans        85%                                        15%

Cotton             79%                                        19%