FARM BILL PROJECT: Day 1, Old MacDonald gets a farming lesson
DAY 1 – Necessary sidebar
FARM BILL FOR DUMMIES AS TOLD THROUGH OLD MACDONALD
Note: Words are bolded intentionally because so many fall within quotes.
Old MacDonald bought a farm.
He thought he’d raise a chick-chick here and a chick-chick there. Here a beet, there a carrot and come fall harvest, he’d send it all to market.
Then he ran into a U.S. Department of Agriculture agent at the local grain mill.
Chick-chicks are chicken feed, the USDA agent told him. This is modern agriculture. You need an accountant.
With a dollar here and dollar there, Old MacDonald raised enough to hire an agribusiness expert named Poindexter.
“Nice spread you have here,” Poindexter told his new client. “What is it, 1,000 acres?”
“That’s right,” Old MacDonald answered. “Neighbors tell me it used to be one big cornfield.”
“Ka-ching!” cried Poindexter. “We need to hustle down to the USDA and file some forms.”
“Why?” Old MacDonald asked.
“Well, the government will give you a check each year, no matter what,” Poindexter said. “It’s called the direct payment program. All you have to do is show how much corn this land has produced before you came along. They’ll pay you 28 cents a bushel based on how much corn has been grown in the past, no matter whether you raise chick-chicks, quack-quacks or nothing at all.”
“That sounds like a sweet deal,” Old MacDonald said. “Old Fogey who sold me this land said he always got 200 bushels an acre. That works out to $56,000 in my pocket.”
“Uh, not so fast,” Poindexter cautioned. “The government won’t pay you more than $40,000 a year in direct payments. It’s called a payment limitation—the rulebook is filled with them. But don’t worry. Do you have a wife?”
“Yup,” the farmer said. “Old Missus MacDonald, she’s the best. She drives a tractor better than me, and she’s a whiz at getting the best price on fertilizer.”
“Perfect,” Poindexter said. “So long as she’s actively engaged in farming, your wife can collect $40,000 in direct payments in addition to what the government gives you.”
“But what about Young MacDonald?” Old MacDonald asked. “My son wants a farm like mine, but he’s not married.”
“Not to worry,” Poindexter answered. “All he has to do is set up some companies — call ‘em Young MacDonald Inc. or Acme or whatever. The government will pay out $40,000 to the first company and as much as $20,000 each to the next two, so it’s easy for anyone to double the $40,000 payment limit. It’s called the three-entity rule. The government has a bunch of subsidy programs besides direct payments, and most of them have payment limits. All told, no one is supposed to get more than $180,000 a year, but farmers who create corporations under the three-entity rule can easily, and legally, increase that limit to $360,000. If you’ve got kids, each one can set up companies to get around limits and increase the family’s take.”
“I could use the money, but I’m not keen on setting up a bunch of companies,” Old MacDonald said. “What else can I do?”
“That depends,” Poindexter answered. “What’s corn selling for?”
“Not much – $2 a bushel,” Old MacDonald said. “That’s why I’m going to plant cabbage and spinach.”
“I’d stick with corn,” Poindexter advised. “Vegetables are risky — the government won’t pay you anything for growing cabbage, spinach or tomatoes. But the target price of corn is $2.63 per bushel.”
“That’s the price at which Congress figures you can break even,” Poindexter explained. “At $2 a bushel, you collect 63 cents per bushel from the government, multiplied by the number of bushels your land has produced in the past. It’s called a counter-cyclical payment, and you collect whether you grow daisies or tomatoes or nothing at all.”
“So why not grow weeds if I’m going to get the money anyway?” Old MacDonald asked.
“Well, you can get even more if you grow corn,” Poindexter said. “What you’re hoping for is really low market prices at harvest.”
“It sounds weird, but the government has something called the loan rate, which is how much a farmer can borrow on a government loan using his crop as collateral,” Poindexter continued. “The loan rate on corn is about $2 per bushel. If you hand your crop over to the government, the loan is satisfied, no matter how much corn sells for on the open market. But storing grain costs a lot of money. So, Congress came up with something called loan deficiency payments.”
“That sounds ominous,” Old MacDonald said. “My combine won’t get repossessed, I hope.”
“Not a chance,” Poindexter said. “Loan deficiency payments are a farmer’s best friend. And you don’t have to borrow a dime to cash in. When the market price falls below the loan rate, the government pays you, so long as you’ve harvested your crop. Let’s say corn is selling for $1.50 a bushel. You’d get 50 cents for every bushel in the grain bin. Except you don’t have to sell it for $1.50 a bushel. After you get the government money, you can store the corn until prices rise.”
“So I get the subsidy and I get to keep the crop?” Old MacDonald asked.
“Exactly,” Poindexter said. “But wait — there’s more. The problem with loan deficiency payments is those payment limits I told you about. The limit on loan deficiency payments is $75,000. There are ways around it, but if you have a lot of corn to sell and the market price is low, you should consider commodity certificates.
“When market prices are less than the loan rate, you take out a government loan on your crop, then buy commodity certificates from the USDA, which then takes the certificates back to satisfy the loan,” the accountant continued. “The certificates cost less than what you borrowed, and you keep the difference. Everything is done at the same time in a single visit to the USDA office. Really, it’s just a paper shuffle. But, unlike other subsidy programs, there’s no limit to how much you can collect with commodity certificates. Some large farmers get more than $1 million a year.”
“That’s more than I paid for this place,” Old MacDonald said. “E-I-E-I-O!”
Bruce Rushton can be reached at 788-1542 or firstname.lastname@example.org.