Order Code RS21493
Updated December 10, 2004
CRS Report for Congress
Received through the CRS Web
Payment Limits for Farm Commodity
Programs: Issues and Proposals
Jim Monke
Analyst in Agricultural Economics
Resources, Science, and Industry Division
Summary
Payment limits restrict the dollar amount of farm program payments per person.
Limits on commodity program payments have been imposed since 1970. The 2002 farm
bill retains the former limits and adds limits for the new counter-cyclical program. It
continues to permit commodity certificates to be used to avoid marketing loan limits.
Federal budget constraints and public awareness of large payments reaching a small
number of very large farms have focused congressional attention on payment limits.
In the108th Congress, Senator Grassley introduced S. 667 to reduce the maximum
amount of direct and counter-cyclical payments that producers can receive, and to count
commodity certificates toward the marketing loan limit. Senate budget resolutions for
both FY2005 and FY2004 also contained nonbinding amendments by Senator Grassley
to reduce agriculture spending, presumably through savings from payment limits.
Converting the dollar limits into acreages for each crop makes it easier to see how
certain farms might be affected. Reducing payment limits likely would affect more
cotton and rice farms than feed grain and oilseed farms . This report will be updated as
events warrant.
Background on Payment Limits
Payment limits restrict the dollar amount of farm program payments a “person” can
receive. They have been prescribed in the law since the Agricultural Act of 1970 (P.L.
91-524) and continue in the 2002 farm bill (the Farm Security and Rural Investment Act,
P.L. 107-171, Sec. 1603). The term “person” is defined more broadly than an individual,
and can include certain kinds of corporations, partnerships, and trusts.
The issue was controversial when the 2002 farm bill was written, and the policy
debate continues into the 109th Congress. The debate is more about farm size and the
purpose of farm programs, rather than the financial needs of recipients, since farmers do
not need to demonstrate financial hardship to be eligible. Limits are intended to reduce
program expenditures and to address perceived inequities in payment distributions.
Congressional Research Service ˜ The Library of Congress

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CRS-2
The effect of payment limits varies greatly across individuals and regions.
Geographically, the South and West tend to have more large farms than the Upper
Midwest or Northeast. By commodity, cotton and rice farms are affected more often
because the subsidy per acre is relatively higher. Cotton and rice farms are also the largest
users of commodity certificates (which are not limited).
Review of Payments Subject to Limits
Under the 2002 farm bill, producers generally receive three types of commodity
payments that are subject to limits: direct payments, counter-cyclical payments, and
marketing loan payments. Direct and counter-cyclical payments depend on a farm’s
historical base acreage and yields. The marketing loan program makes payments based
on actual production. For more background, see CRS Report RS21779, Farm Commodity
Programs: Direct Payments, Counter-Cyclical Payments, and Marketing Loans.
With respect to payment limits, direct and counter-cyclical payments are relatively
straightforward since they are direct transfers made in cash. Marketing loans, however,
are more complicated because limits do not apply to all marketing loan mechanisms.
The marketing loan program has four mechanisms to provide benefits when market
prices are below loan rates (see CRS Report RS21604, Marketing Loans, Loan Deficiency
Payments, and Commodity Certificates).
Subject to limits:
! loan deficiency payment (LDP) — a direct payment instead of a loan,
! marketing loan gain (MLG) — repaying a loan at a lower market price.
Not subject to limits:
! “commodity certificates” — purchased at the posted county price to
repay the loan; similar to an MLG but not counted toward payment limits
(P.L. 106-78, Sec. 812, exempted commodity certificates from payment
limits),
! forfeiting the collateral (commodity) and keeping cash from the loan.
Other farm bill programs also have payment limits. These include the Milk Income
Loss Contract (MILC, 2.4 million pounds of milk annually), the Conservation Reserve
Program ($50,000) and the Environmental Quality Improvement Program ($30,000).
Current Payment Limits
The 2002 farm bill retains annual payment limits, adds limits for the new counter-
cyclical program, and incorporates newly eligible commodities. It also creates an income
test that prohibits payments to persons or entities with adjusted gross income (AGI)
exceeding $2.5 million (unless 75% or more comes from farming). Table 1 shows the
limits under the 1996 farm bill, the 2002 farm bill, and S. 667 in the 108th Congress.
The annual limit per person is $40,000 for direct payments, $65,000 for counter-
cyclical payments, and $75,000 for marketing loan gains and loan deficiency payments.
These amounts add to $180,000, but can be doubled to $360,000 under rules described

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in the next paragraph. However, because commodity certificates and forfeiture are not
subject to limits, the limit on MLGs and LDPs simply becomes the point at which a
farmer shifts to commodity certificates, making the marketing loan program unlimited.
The 2002 farm bill preserves two ways to double the payment limits. One is the
“three entity rule,” allowing one person to receive payments on up to three entities, with
second and third entities eligible for one-half of the limits. The other is the “spouse rule,”
allowing a husband and wife to be treated as separate persons to double a farm’s payment
limit. Only one of the two mechanisms can be used to double the limit.
Although payments for most qualifying commodities are combined toward a single
limit, separate limits apply to peanuts, wool, mohair and honey.1
Table 1. Payment Limits on Farm Commodity Programs
1996 Farm Bill
2002 Farm Bill
108th Congress

P.L. 104-127
P.L. 107-171
S. 667
Direct and Counter-Cyclical Payments
(a) Direct Payments
$40,000 *
$40,000
$20,000
(b) Counter-Cyclical Payments
N/A
$65,000
$30,000
Doubling under Three Entity
$40,000 *
$105,000
$50,000
and Spouse Allowance
Direct and Counter-cyclical
$80,000 *
$210,000
$100,000
(c) Marketing Loan Payments
(1) Marketing Loan Gains and
$75,000 *
$75,000
(2) Loan Deficiency Payments
$87,500
(3) Commodity Certificates
No limit **
No limit
(4) Loan Forfeiture Gains
No limit
No limit
Doubling Under Three Entity
$75,000 *
$75,000
$87,500
and Spouse Allowance
Marketing Loan Payments
$150,000 *
$150,000
$175,000
Practical Limit on Marketing
No limit
No limit
$175,000
Loan Payments
Sum of Direct, Counter-Cyclical, and Marketing Loan Payments
Total, Excluding Commodity
$230,000 *
$360,000
$275,000
Certificates or Loan Forfeiture
Practical Limit, Accounting for
No limit
No limit
$275,000
All Payments Above
Source: CRS.
Notes: Payments for most qualifying commodities are combined toward a single limit. However, separate
payment limits apply to peanuts, wool, mohair, and honey in the 2002 farm bill and S. 667.
* Emergency farm assistance doubled limits under the 2002 farm bill for direct payments in 2000-2001, and
for marketing loans in 1999 to 2001 (P.L. 106-78, Sec. 813; P.L. 106-387, Sec. 837; P.L. 107-25, Sec. 10).
** P.L. 106-78, Sec. 812, exempted commodity certificates used to repay loans from payment limits.
1 See also the USDA fact sheet [http://www.fsa.usda.gov/pas/publications/facts/payelig03.pdf].

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Policy Issues In Congress
Supporters of payment limits use both economic and political arguments.
Economically, they contend that large or unlimited payments benefit large farms, facilitate
consolidation of farms into larger units, raise the price of land, and put smaller, family-
sized farming operations at a competitive disadvantage. They say that smaller limits
would reduce financial incentives for farms to expand, and facilitate small and beginning
farmers in buying and renting land. Politically, they believe that large payments to large
farms undermines public support for farm subsidies and is costly to the federal budget.
Critics of payment limits counter that all farms are in need of support, especially
when market prices decline, and that larger farms should not be penalized for the
economies of size and efficiencies they have achieved. They say that such payments help
U.S. agriculture compete in global markets and that income testing is at odds with federal
farm policies directed toward improving U.S. agriculture and its competitiveness.
In August 2003, the Payment Limits Commission (created by the 2002 farm bill)
provided a detailed report to Congress. The commission was charged to study impacts
on the agricultural sector from tighter limits. The commission’s ultimate recommendation
was that policy makers should wait until the next farm bill before making any changes.2
In the 108th Congress, Senator Grassley introduced S. 667 to reduce the maximum
amount of direct and counter-cyclical payments that producers can receive, and to count
commodity certificates toward the marketing loan limit. The Senate budget resolutions
for both FY2005 and FY2004 also contained nonbinding amendments by Senator
Grassley to reduce agriculture spending, presumably through payment limitations.
S. 667 in the 108th Congress. On March 19, 2003, Senator Grassley introduced
a bill that would reduce payment limits on direct, counter-cyclical, and marketing loan
payments to a total of $275,000, and count commodity certificates and loan forfeiture
toward marketing loan limits. The statutory limit (before doubling) on direct payments
would decrease from $40,000 to $20,000; and the limit on counter-cyclical payments
would decrease from $65,000 to $30,000. While the stated limit on the marketing loan
program would rise slightly from $75,000 to $87,500, the effective limit is reduced
because commodity certificates and loan forfeiture would be counted toward the limit.
This is a key feature because, as a practical matter, marketing loan payments are not
limited under the 2002 farm bill. When MLGs and LDPs hit the limit, producers can shift
to commodity certificates without limit.
Tighter limits were proposed in the Senate-passed version of the 2002 farm bill (S.
1731, 107th Congress) by Senators Dorgan and Grassley, but those limits were not
accepted by the conference committee. That bill would have limited direct and counter-
cyclical payments to a combined $75,000, allowed only a $50,000 spouse benefit,
replaced the three-entity rule with direct attribution, limited the marketing loan program
to $150,000, and counted commodity certificates and forfeiture in the limit. Thus, the
total limit would have been $275,000, but with slightly different limits for each payment
2 USDA, Report of the Commission on the Application of Payment Limitations for Agriculture,
August 2003, at [http://www.usda.gov/oce/oce/payments/payment-commission.htm].

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and less generous doubling rules than S. 667. In March 2003, CBO estimated such
provisions would save $156 million the first year, and $883 million over five years.
S. 667 would establish a new rule allowing a person with an interest in only a single
farming operation to double the payment limits without needing to use the three-entity or
spouse rules, both of which would continue. Thus, individual farmers would have another
means and find it easier to double the payment limits.
The bill instructs the Secretary of Agriculture to promulgate regulations to assure
that all commodity program payments (made to joint operations, multiple entities, or other
financial or management arrangements under the primary control of one person) are
counted together toward the $275,000 limit per individual.
The changes proposed in S. 667 would apply to the “covered commodities” and
certain loan commodities as a group (wheat, corn, grain sorghum, barley, oats, upland
cotton, rice, soybeans, other oilseeds, extra long staple cotton, dry peas, lentils, and
chickpeas). But peanuts, wool, mohair, and honey are not addressed by S. 667, and thus
would remain eligible for the higher limits enacted in the 2002 farm bill, including
unlimited use of commodity certificates and forfeiture.
Senate Budget Resolutions. During Budget Committee debate for the FY2005
budget resolution (S.Con.Res. 95, 108th Congress), Senator Grassley added an amendment
by a 16-6 vote to reduce mandatory agriculture spending by $1.2 billion and increase
mandatory conservation, rural development, and child nutrition spending by the same
amount. Although the reduction was stated to come from tighter payment limitations, the
resolution did not contain specific reconciliation instructions and would have shifted
funds only within the total pool of money available to the Agriculture Committee. With
jurisdiction over both commodity and conservation programs, the Agriculture Committee
would not have been bound to propose any legislative changes in either program, even if
this budget resolution had been adopted.
A year earlier, similar actions were taken for the FY2004 Senate budget resolution
(S.Con.Res. 23, 108th Congress). On March 13, 2003, an amendment by Senator Grassley
was incorporated by a 14-9 vote to reduce mandatory agriculture spending by $1.4 billion
(presumably through payment limitations) and increase mandatory conservation spending
by the same amount.
Size of Farms Affected
How many acres can be farmed before reaching the payment limits? Table 2
presents a simple example for several crops. The example is hypothetical because it
assumes only a single crop is grown on a farm and uses national, multi-year averages for
yields and prices so that no single year skews the results. Nonetheless, the table provides
a useful comparison across different crops based on program rules. Estimates are for a
single entity only, without using the doubling rules.
The table shows how cotton and rice farms can reach one or more of the payment
limits with fewer acres than wheat, corn, or soybeans. This is especially noticeable since
cotton and rice farms tend to be larger, as indicated by the Census of Agriculture. Cotton

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requires the smallest acreage to reach the marketing loan limit, especially important if
certificates become subject to the limit.3
For direct payments, the table shows that an average wheat farm could have 2,320
base acres before reaching the $40,000 limit. A rice farm would reach the limit with only
351 acres. If the maximum counter-cyclical payment were paid (that is, the season
average market price is less than the loan rate), a wheat farm would reach the $65,000
limit with 3,631 acres. The rice farm would need only 813 acres. Thus, the direct
payment limit is more binding than the counter-cyclical payment limit for wheat, corn,
soybeans and rice, but counter-cyclical payments are more restrictive for cotton.
For marketing loans, assuming that commodity certificates are not used to avoid
payment limits, the $75,000 limit would not be reached until the wheat farm exceeded
4,329 acres, or 1,712 acres for a cotton farm.
Table 2. Example of Acreage Needed to Reach Payment Limits
Under the 2002 Farm Bill
Planting a single crop, without
Wheat
Corn
Soybeans
Cotton
Rice
doubling the payment limits:
Base acres to reach $40,000
2,320
1,323
2,971
1,176
351
direct payment limit
Base acres to reach $65,000
3,631
1,771
5,901
928
813
with max. counter-cyclical pmt.
Acres to reach $75,000 LDP
4,329
2,347
4,267
1,712
3,236
based on avg. harvest price
In comparison with:
Actual average acreage (multiple
241
162
186
420
336
crops possible on the same farm)
Data:
2002 farm bill
Direct payment rate
$0.52/bu.
$0.28/bu.
$0.44/bu.
$0.067/lb.
$2.35/cwt
Target price
3.86/bu.
2.60/bu.
5.80/bu.
0.724/lb.
10.50/cwt
Loan rate
2.80/bu.
1.98/bu.
5.00/bu.
0.52/lb.
6.50/cwt
U.S. avg. yield/acre, 1998-2001
42 bu.
136 bu.
38 bu.
642 lb.
61 cwt
Payment yield (at 93.5%)
39 bu.
127 bu.
36 bu.
600 lb.
57 cwt
Harvest price, avg. 1998-2001
$2.39/bu.
$1.75/bu.
$4.54/bu.
$0.452/lb.
$6.12/cwt
Season price, avg. 1998-2001
2.63/bu.
1.90/bu.
4.62/bu.
0.462/lb.
6.17/cwt
Source: CRS.
Note: Actual acreage from 1997 Census of Agriculture. Assumes one crop per farm, ignoring planting
flexibility and not using doubling rules. Prices and yields from USDA World Agricultural Supply and
Demand Estimates. Payment yields computed using a base updating formula in the 2002 farm bill (93.5%
of the 1998-2001 average. Payment acres=85% of base acres. In reality, an individual would use farm-level
yields, with annual production and prices to determine marketing loans and counter-cyclical payments.
3 For more analysis, see Farm Level Projections of the Impacts of Payment Limitations,
Agricultural and Food Policy Center (Texas A&M), June 2003, at [http://www.afpc.tamu.edu/
pubs/3/402/bp-2003-02.pdf]; Analysis of Stricter Payment Limitations, Food and Agriculture
Policy Research Institute (University of Missouri), June 2003, at [http://www.fapri.missouri.edu/
outreach/publications/2003/FAPRI_UMC_Report_05_03.pdf]; and Analysis of Stricter Payment
Limits: Additional Information, June 2003, at [http://www.fapri.missouri.edu/outreach/
publications/2003/FAPRI_UMC_Report_06_03.pdf].

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