Order Code RS21999
Updated February 21, 2006
CRS Report for Congress
Received through the CRS Web
Farm Commodity Policy:
Programs and Issues for Congress
Jim Monke
Analyst in Agricultural Policy
Resources, Science, and Industry Division
Summary
Farm commodity programs represent the heart of U.S. farm policy. The 2002 farm
bill (P.L. 107-171) establishes farm income support and commodity price support
programs for the 2002-2007 crop years. The payment framework combines the direct
payments of the 1996 farm bill (P.L. 104-127) with counter-cyclical payments of prior
laws. About 25 commodities representing a third of gross farm sales qualify for support.
The 109th Congress is facing several issues regarding the farm commodity programs
including budget reconciliation (P.L. 109-171 and FY2007 Administration budget
request), payment limits (S. 385 and H.R. 1590), dairy program extension (H.R. 859,
H.R. 1260, S. 273, and S. 307), planting flexibility (H.R. 2045, S. 1038, and S. 194), and
resolution of international trade disputes. This report will be updated as events warrant.
Since the 1930s, federal law has required the U.S. Department of Agriculture
(USDA) to offer price and income support to producers of certain farm commodities.1
Authority comes from three permanent laws: the Agricultural Adjustment Act of 1938
(P.L. 75-430), the Agricultural Act of 1949 (P.L. 81-439), and the Commodity Credit
Corporation (CCC) Charter Act of 1948 (P.L. 80-806). Congress typically alters
provisions in these laws through multiyear farm bills or appropriations to address current
market conditions, federal budget constraints, or other policy concerns.
The most recent authorizing legislation, the Farm Security and Rural Investment Act
of 2002 (the 2002 farm bill, P.L. 107-171, May 13, 2002), temporarily suspends most
provisions of the permanent laws. Title I contains provisions for farm income and
commodity price support programs for the 2002-2007 crop years. Other titles in the law
affect conservation, trade, nutrition, credit, rural development, and research.2
1 For more information about the history of federal farm income support programs, see CRS
Report 96-900, Farm Commodity Legislation: Chronology, 1933-2002.
2 See CRS Report RS21233, The 2002 Farm Law at a Glance, and CRS Report RL31704, A New
Farm Bill: Comparing the 2002 Law with Previous Law and House and Senate Bills.
Congressional Research Service ˜ The Library of Congress

---

CRS-2
Commodities Eligible for Support
This report summarizes the mandatory subsidies available for about 25 agricultural
commodities that represent about one-third of gross farm sales. Table 1 lists the support
prices that Congress has set by statute. Other CRS reports, listed below, provide details
on specific commodity programs. USDA fact sheets also describe the programs.3
! The “covered commodities” are the primary crops eligible for support
and include wheat, corn, grain sorghum, barley, oats, upland cotton,
rice, soybeans, and other oilseeds (including sunflower seed,
rapeseed, canola, safflower, flaxseed, mustard seed, crambe, and
sesame seed).4 Producers receive three types of payments: (1) direct
payments, (2) counter-cyclical payments, and (3) marketing loans. See
CRS Report RL33271, Farm Commodity Programs: Direct Payments,
Counter-Cyclical Payments, and Marketing Loans.

! Peanut support is now identical to that for the covered commodities,
rather than the old system of marketing quotas and price supports. The
2002 farm bill compensated quota owners with a one-time quota buyout
of 55¢/lb. See CRS Report RL30924, Peanut Program: Evolution from
Supply Management to Market Orientation.
! “Loan commodities” are eligible for marketing assistance loans and loan
deficiency payments. In addition to the “covered commodities,” these
include wool, mohair, honey, dry peas, lentils, and small chickpeas.
See CRS Report RS20896, Farm Commodity Programs: Wool and
Mohair; and CRS Report RS20759, Farm Commodity Programs: Honey.
! Dairy price supports continue through the long-standing system of
federal purchases of nonfat dry milk, butter, and cheese. In addition,
producers also receive a counter-cyclical “milk-income loss contract”
(MILC) payment when prices fall below a target price. See CRS Issue
Brief IB97011, Dairy Policy Issues.
! Sugar support differs from most other commodities in that no direct
payments are made to growers and processors. The 2002 farm bill
indirectly supports prices through import quotas and domestic marketing
allotments. See CRS Issue Brief IB95117, Sugar Policy Issues.
Commodities Not Eligible for Support
The list of commodities that normally do not receive direct support includes meats,
poultry, fruits, vegetables, nuts, hay, and nursery products (about two-thirds of farm
sales). Producers of these commodities, however, may be affected by the support
3 USDA fact sheets are online at [http://www.fsa.usda.gov/pas/publications/facts/pubfacts.htm].
4 Covered commodities are defined in Section 1001 of P.L. 107-171 (7 U.S.C. 7901). Crambe
and sesame were added in the FY2004 Appropriations Act (P.L. 108-7, Division A, Sec. 763).

---

CRS-3
programs because intervention in one farm sector can influence production and prices in
another. For example, program commodities such as corn are feed inputs for livestock.
Congress and the Administration often provide periodic assistance to some non-
program commodities. For example, the 2002 farm bill provided $94 million to apple
growers for 2000 market losses, and $200 million annually to purchase fruits, vegetables,
and specialty crops for food assistance (see CRS Report RS20235, Farm and Food
Support Under USDA’s Section 32 Program).
Table 1. Support Prices for Agricultural Commodities
Type of payment
Direct Payment
Counter-cyclical
Marketing Loan
Payment based on
Historical base acres and yield
Actual production
Loan rate
Price used in formula
Payment rate
Target price
(national average)
Crop years
2002-2007
2002-03 2004-07
2002-03
2004-07
“Covered commodities”
Wheat, $/bu
0.52
3.86
3.92
2.80
2.75
Corn, $/bu
0.28
2.60
2.63
1.98
1.95
Sorghum, $/bu
0.35
2.54
2.57
1.98
1.95
Barley, $/bu
0.24
2.21
2.24
1.88
1.85
Oats, $/bu
0.024
1.40
1.44
1.35
1.33
Upland Cotton, $/lb
0.0667
0.724
0.52
Rice, $/cwt
2.35
10.50
6.50
Soybeans, $/bu
0.44
5.80
5.00
Minor Oilseeds, $/lb
0.008
0.098
0.101
0.096
0.093
Other commodities
Peanuts, $/ton
36
495
355
ELS cotton, $/lb
*
*
0.7977
Wool, graded, $/lb
*
*
1.00
Wool, nongraded, $/lb
*
*
0.40
Mohair $/lb
*
*
4.20
Honey, $/lb
*
*
0.60
Peas, dry, $/cwt
*
*
6.33
6.22
Lentils, $/cwt
*
*
11.94
11.72
Chickpeas, small, $/cwt
*
*
7.56
7.43
Milk, $/cwt
*
16.94
9.90
Sugar, raw cane, $/lb
*
*
0.18
Sugar, beet, $/lb
*
*
0.229
* not applicable.
Source: CRS, compiled from the Farm Security and Rural Investment Act of 2002 (P.L. 107-171), Title
I, Sections 1103, 1104, 1202, 1303, 1304, 1307, 1401, 1501, and 1502.

---

CRS-4
Policy Background
When farm programs were first authorized in the 1930s, most of the 6 million farms
in the United States were small and diversified. Policy makers reasoned that stabilizing
farm incomes using price supports and supply controls would help a large part of the
economy (25% of the population lived on farms) and assure abundant food supplies.
In recent decades, the face of farming has changed. Farmers now comprise less than
2% of the population. Most agricultural production is concentrated in fewer, larger, and
more specialized operations. In 2002, about 7% of farms accounted for 76% of the sales
(these 151,000 farms had average sales over $1 million). Most of the country’s 2 million
farms are part-time, and operators rely on off-farm jobs for most of their income.
Although some features of the commodity programs date to the 1930s, the programs
have evolved to respond to changes in agriculture, the economy, the federal budget, and
international trade. Congress and the Administration have sought for decades to make
farming more market-oriented. However, periods of low prices and economic pressures
on smaller “family farms” from consolidation have made that goal difficult to achieve.
When Congress began writing the 2002 farm bill, farm groups asked for automatic
payments when commodity prices were low, rather than waiting for emergency ad hoc
“market loss payments” that were appropriated each year from 1998 to 2001 (see CRS
Report RL30794, Farm Economic Relief and Policy Issues in the 106th Congress: A
Retrospective). The 2002 farm bill restored “counter-cyclical payments,” similar to the
deficiency payments and target prices that existed from 1974 to 1995 but were eliminated
by the 1996 farm bill. A counter-cyclical payment program also was begun for dairy.
Farmers also sought to expand the number of qualifying commodities. Soybeans and
other oilseeds were added to those receiving direct and counter-cyclical payments. Dry
peas, lentils, and chickpeas were added to the marketing loan program. The peanut
program was converted from a quota system to one with direct payments. Programs for
wool, mohair, and honey were reinstated, after having being dropped in 1996.
These changes attracted widespread criticism from those who viewed the new law
as reversing the market-oriented course of the 1996 farm bill. They contended that
expanded farm subsidies undermined U.S. credibility in world trade negotiations where
the United States has called on other countries to reduce trade-distorting subsidies.
Supporters of the current farm programs counter that the policy provides needed support
for farmers who otherwise would see declining income and land prices.
Issues in Congress
Even though the 2002 farm bill continues through the 2007 crop year, several issues
have raised legislative action. Moreover, Congress began field hearings about the next
farm bill in February 2006 (see CRS Report RL33037, Previewing a 2007 Farm Bill).
Deficit Reduction Act of 2005. Recent federal budget deficits have caused
concern over the ability or willingness to fund the 2002 farm bill. On February 8, 2006,
the President signed the Deficit Reduction Act of 2005 (P.L. 109-171) which includes net

---

CRS-5
reductions of $2.7 billion over five years (FY2006-2010) for USDA mandatory programs,
as scored by CBO. Farm commodity support payments are cut by $1.7 billion,
conservation spending by $934 million, mandatory research programs by $620 million,
and rural development programs by $419 million. The measure also includes a two-year
extension of MILC, at an estimated cost of $998 million. No reductions to food stamp
spending were included in the conference agreement.
Most of the reduction in farm programs comes from changing the timing of direct
payments without reducing the overall level of payments to farmers. Prior to
reconciliation, up to 50% of direct payments were paid in advance of the crop year. The
new law reduces the advance payment rate to 40% in the 2006 crop year and to 22% in
2007.5 Not included in the conference agreement is an across-the board cut in farm
commodity payments, which was recommended at different levels in the House- and
Senate-passed bills. The act also eliminates the upland cotton step-2 program in response
to Brazil’s successful challenge of the program in the World Trade Organization (WTO).
For more on budget reconciliation, see CRS Report RS22086, Agriculture and FY2006
Budget Reconciliation, by Ralph M. Chite.
FY2007 Budget Reconciliation? In February 2006, the Administration proposed
legislative changes to reduce farm commodity program spending by $1.1 billion in
FY2007 (a 6.2% cut) and $7.7 billion over ten years. The Administration proposes
tightening payment limits, making a 5% across-the-board cut to all direct payments,
charging an assessment on dairy and sugar marketings, and allowing USDA to adjust
purchase prices of surplus dairy products to minimize outlays. Any further action depends
on whether the pending FY2007 budget resolution contains reconciliation instructions to
the Agriculture Committees, and how they carry out any such instructions. (The
Administration proposed similar commodity program cuts in February 2005, but Congress
rejected those proposals during final consideration of the Deficit Reduction Act of 2005.)
Payment Limits. Payment limits set a maximum amount of farm commodity
program payments that a person can receive. Payment limits were created in 1970 and
continue in the 2002 farm bill. Federal deficits and public awareness of large payments
reaching a small number of large farms have focused congressional attention on the issue.
In the 109th Congress, S. 385 and H.R. 1590 would tighten the limits to a total of
$250,000 from the current limit of $360,000, and would count toward the limits the use
of commodity certificates and loan forfeiture which are currently unlimited. The
Administration also proposed tighter payment limits in both its FY2006 and FY2007
budget requests. A floor amendment by Senator Grassley to add payment limits to the
Deficit Reduction Act of 2005 failed by a procedural vote of 46-53 on November 3, 2005
(SA 2359 to S. 1932). For more information, see CRS Report RS21493, Payment Limits
for Farm Commodity Programs: Issues and Proposals.
5 The Deficit Reduction Act of 2005 was enacted on February 8, 2006, after the advanced direct
payments for the 2006 crop year were paid in December 2005. Thus, the reduction originally
envisioned for the 2006 crop year (and the 2006 fiscal year) will not be achieved. However, the
same budgetary savings will accrue all in one year (FY2007) when the advance payment ratio
drops from 50% to 22% for the 2007 crop year. (Congressional Budget Office, Cost Estimate:
S. 1932, Deficit Reduction Act of 2005, January 27, 2006, p. 10.)

---

CRS-6
Planting Flexibility. Planting flexibility was created in the 1990 farm bill to allow
farmers to respond to market signals when choosing crops, but has restrictions to protect
fruit and vegetable growers who do not receive direct subsidies. It refers to the ability to
receive government payments for a base crop (such as corn), but to grow a different crop
on those base acres (such as soybeans).
Two policy issues have arisen regarding planting flexibility. First, some Midwestern
producers felt penalized because their history of growing fruits and vegetables reduced
their soybean bases under the 2002 farm bill. H.R. 2045 and S. 1038 would allow fruits
and vegetables for canning and freezing to be grown without penalizing any future
recalculation of base, while reducing a farm’s subsidy payments for one year. S. 194
would allow chicory to be grown on base acres. Second, in the U.S.-Brazil cotton dispute,
the WTO settlement panel found that the restriction on planting fruits and vegetables
made direct and counter-cyclical payments ineligible to be a nondistorting payment (green
box) for international trade purposes. If this finding becomes enforced, it could affect the
United States’ ability to meet its WTO commitments during years when farm commodity
payments are particularly high. Bills such as those above would remove some, but not all,
of these planting restrictions. For more information, see CRS Report RS21615, Farm
Commodity Programs: Base Acreage and Planting Flexibility.
International Trade and the U.S.-Brazil Cotton Dispute. Price support in
the United States has become a focus of developing country criticism in multilateral and
other trade negotiations. A World Trade Organization (WTO) dispute settlement panel
released findings in summer 2004 in a case brought by Brazil against the United States
cotton subsidies. The United States lost an appeal of the case in March 2005. Some
findings affect programs that the United States had considered WTO compliant, and thus
may influence the development of the next farm bill (see CRS Report RL32571,
U.S.-Brazil WTO Cotton Subsidy Dispute).
Dairy. The conference agreement on the Deficit Reduction Act of 2005 (S. 1932)
extends the MILC program to 2007. Four earlier bills in the 109th Congress had provisions
to extend MILC (H.R. 859, H.R. 1260, S. 273, and S. 307). Some of these bills also
would raise eligibility limits (H.R. 1260 and S. 273) and the target price (H.R. 1260).

---