Loan rates have changed little during the past 18 years. In fact, the current soybean loan rate is lower than it was in 1980! During the past five years (2007 through 2011), loan rates averaged less than one-half of market prices. All farm program proposals have no change in loan rates.
The Countercyclical Payment (CCP) program was initiated in the 2002 farm bill after a series of ad hoc disaster bills during low price years was necessary to shore up farm income. Countercyclical payments are determined by the relationship of target prices to market prices. If market prices are below the effective target price, payments are triggered.
Unlike loan deficiency payments, these payments are not tied to current production. Instead, payments are made based on historic production (program yields and base acres). Like loan rates, CCP target prices are too low to be considered an adequate safety net.
CCP is eliminated in the 2012 farm bills proposed in both the Senate and House versions.
The best chance to plug the hole in the price safety net is the Price Loss Coverage (PLC) program proposed in the House farm bill. Producers would have to choose between the PLC and RLC shallow-loss program if this bill becomes law.
Like the current CCP program, PLC payments are made when the market price is lower than a target or reference price. However, payments are made on 85 percent of current planted acres, not on historic base acres.
The PLC reference prices are much higher than the CCP target prices. For instance, the reference price under PLC would be $8.40 per bushel for soybeans, compared with the effective target price of $5.56 per bushel under CCP.
Source: Andy Swenson, Farm Management Specialist, NDSU Agribusiness and Applied Economics Department