By Chris Clayton
DTN Ag Policy Editor
WASHINGTON (DTN) -- While members of the Senate Agriculture Committee held an intense debate over the impact of target prices on Tuesday, an amendment that restructured the target-price program was largely overlooked.
Under the original structure of the Senate bill, target prices for all commodities with the exception of rice and peanuts stayed the same as the current counter-cyclical program. But an amendment to the bill by Sen. Charles Grassley, R-Iowa, completely restructures the proposed Senate target-price plan, known as Adverse Market Payments. The amendment was included as part of a broad group of "en bloc" amendments added to the bill without committee debate.
The Grassley amendment would create a new formula for target prices for every commodity with the exception of rice and peanuts. The proposal creates a five-year rolling average for target prices that would exclude the high and low years, which is typically called the "Olympic average." That Olympic average for commodities would then be multiplied by 55%. That would create the target price for a particular crop.
For instance, the Olympic average for corn from 2008-2012 would be $5.15, factoring in the prices from 2008, 2010 and 2011 with prices dropped for the low, 2009, and the high, 2012. That $5.15 would be multiplied by 0.55, creating a target price of $2.83 per bushel. That's actually 20 cents higher than the current $2.63 counter-cyclical target price.
Still, the Congressional Budget Office projects the Senate formula for Adverse Market Payments, or AMP, would save $276 million over 10 years with the projection that overall crop prices for commodities will decline slightly over the next decade.
In a statement, Grassley said he believes target prices distort planting decisions and farmers in Iowa are largely opposed to target prices.
"So this is an effort to move toward a market orientation as much as possible. That way, if peanut and rice farmers want to protect a high price set by Congress, they can fight that battle, but other farmers won't have to defend high target prices," Grassley said.
The amendment helped pave the way for Grassley to vote for the overall farm bill. Sen. Pat Roberts, R-Kan.; Sen. John Thune, R-S.D.; and Sen. Mike Johanns, R-Neb., voted against the Senate bill in committee on Tuesday and all three criticized including any target prices in the farm bill. The Senate bill passed out of committee on a vote of 15-5.
Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., told DTN on Wednesday that the Grassley amendment was a compromise for senators who want a target price and those who want prices based on market conditions. Stabenow said the Olympic average formula is comparable to the one the Senate crafted for its shallow-loss program called the Agricultural Risk Coverage program, or ARC.
"The Senate will feel very strongly in maintaining that as a market-oriented system," she said. "In order to make it more reform-minded and market-oriented, the Grassley amendment says we will have a specific price for rice and peanuts, but we will use the same formula we use in the ARC program -- the five-year Olympic average -- we'll use that price instead of a fixed price for the rest of this program. It's expected to save money because of price."
The plan would keep the set target prices for rice producers at $13.30 per hundredweight, and peanuts would have a price of $523.77 per ton.
"The concern, I fear, is keeping this as market-based as possible rather than a fixed price," Stabenow said. "The reason I agreed to a fixed price for rice and peanuts is because they don't have the same crop-insurance options as other crops."
Under the Senate farm bill, farmers would make a one-time decision to enroll their farms into the ARC or AMP program for the life of the farm bill.
"We give them the ability to choose whichever program they feel is best for them, and we want that to be as market-oriented as possible," she said.
As soon as the Senate finishes the Water Resources Development Act, Senate Majority Leader Harry Reid, D-Nev., will file a cloture petition, and then the clock will start running. Actual debate would begin early next week.
Chris Clayton can be reached at firstname.lastname@example.org
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