Order Code RS21999
Updated May 22, 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 faces several issues regarding the farm commodity programs,
including budget reconciliation (P.L. 109-171), extending the 2002 farm bill (H.R. 4332,
H.R. 4775, and S. 2696), payment limits (S. 385 and H.R. 1590), dairy program
extension (H.R. 5384), 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

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Commodities Eligible for Support
This report summarizes the subsidies available for about 25 agricultural commodities
that represent about a of gross farm sales. Table 1 lists the support prices that Congress
has set by statute. Other CRS reports and USDA fact sheets provide details.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 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. See
CRS Report RL30924, Peanut Program: Evolution from Supply
Management to Market Orientation.
! “Loan commodities” include all of the “covered commodities” plus
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 prices are supported through 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 is indirect through import quotas and domestic marketing
allotments. No direct payments are made to growers and processors. 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
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).
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).

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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.
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

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(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. 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).
Farm Bill Extension. The ongoing Doha Round of multilateral trade negotiations
in the World Trade Organization (WTO) may converge in 2007 with the expiration of the
2002 farm bill and Trade Promotion Authority (TPA). The Administration and trade
proponents wish to conclude the Doha Round before the TPA expires to facilitate
consideration in Congress. Many policymakers also want the Doha Round completed
before writing the next farm bill so that it is consistent with WTO agreements. In the
event that the Doha Round is not complete before the 2002 farm bill expires, several bills
(H.R. 4332, H.R. 4775, and S. 2696) propose to extend the commodity support provisions
of the 2002 farm bill by one or more years. For more background, see CRS Report
RL33144, WTO Doha Round: The Agricultural Negotiations.
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
reductions of $2.7 billion over five years (FY2006-2010) for USDA mandatory programs,

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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, see CRS Report RS22086, Agriculture and FY2006 Budget Reconciliation.
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.
Further action on this proposal is uncertain given that Congress rejected similar
proposals during final consideration of the Deficit Reduction Act of 2005, and that the
House and Senate have not agreed on a joint FY2007 budget resolution. The House-
passed budget resolution (H.Con.Res. 376) instructs the Agriculture Committee to report
a small reconciliation package (a total of $55 million over FY2007-FY2011), while the
Senate version (S.Con.Res. 83) does not include any reconciliation instructions for
agriculture.
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
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.)

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(SA 2359 to S. 1932). For more information, see CRS Report RS21493, Payment Limits
for Farm Commodity Programs: Issues and Proposals.
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 is enforced, it could affect the United
States’ ability to meet WTO commitments during years when farm commodity payments
are particularly high. The bills above would remove some, but not all, of these planting
restrictions. For more information, see CRS Report RL33271, Farm Commodity
Programs: Direct Payments, Counter-Cyclical Payments, and Marketing Loans.
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 (P.L. 109-
171) extends the MILC program to August 2007.6 The House-reported version of the
FY2007 Agriculture appropriations bill (H.R. 5384) contains a provision by Senator Obey
to extend the MILC program an additional month, to September 2007. The $40 million
cost of the one-month extension in FY2007 also would preserve an estimated $3.8 billion
in baseline spending for future years. This legislative provision may be subject to further
debate during future consideration of the appropriations bill.
6 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).

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