Cotton's Week: June 6, 2003

Cotton's Week: June 6, 2003


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Final Adjusted Gross Income Rule Published

USDA published the final rule implementing the provisions of the ’02 farm law that exclude individuals and entities from farm and conservation program payments if the 3-year average of their adjusted gross income (AGI) exceeds $2.5 million. An exemption is granted if 75% or more of the AGI is derived from farming, ranching or forestry operations.

A significant number of the recommendations made in detailed comments by the NCC on a proposed rule published in October ’02 were included in the final rule.

According to USDA, there were 129 comments filed in response to the preliminary notice, with 32 respondents expressing concern that the AGI will adversely affect participation in conservation and environmental programs. They suggested those programs be exempt from the AGI test because "the rule may preclude large landowners’ participation in these programs and thus defeats the purpose of environmental projects and initiatives." USDA noted the statute does not provide authority for such exemptions.

Another respondent suggested that the disqualification should include all payment methods, including marketing certificates. USDA responded that the rule would not include certificate transactions.

The income test covers crops, programs or fiscal years ’03-07 and is based on the 3 tax years immediately preceding the applicable crop, program or fiscal year. The final regulation provides these definitions of AGI:

  • Individuals – Income specified on the final income tax return for the applicable year. For joint returns, the AGI on the adjusted return will be used unless an accountant or attorney provides a statement delineating the distribution of income and expenses of the individual seeking payments had the individual filed a separate return.
  • Corporations, Including Subchapter S – The final taxable income plus charitable contributions.
  • Charitable or Non-Profit – With income not subject to federal income tax, the comparable measure of AGI is the unrelated business income taxable to the entity as reported to the Internal Revenue Service.
  • Limited Liability Corporations, Limited Liability Partnerships or Similar Organizations – Income from trade or business activities plus the guaranteed payments to the members as reported for the applicable tax year.
  • Estate or Trust – The sum of the adjusted total income plus the charitable deductions as reported.

NCC and others suggested a number of modifications to what income is considered farming, ranching and forestry. The final regulation makes the following clarifications of income that will be considered: (1) selling the landowner’s land, including easements used for farming, ranching or forestry operations; (2) sale of farm water rights; (3) sale of a farm’s agricultural equipment otherwise subject to depreciation expenses on IRS Form 4835 or Schedule F, but not income from sales by a retail dealership of implements; (4) income from rental of land regardless of whether cash or share; (5) income from agricultural and conservation programs; (6) income from commercial hunting operations on farmland; and (7) income from sales only if the commodity being sold is produced by the individual or entity or a joint operation in which an individual or entity had an interest. Income from sales as a commissioned broker or similar enterprise and undifferentiated income will not be considered as derived from farming, ranching or forestry.

As a modification to the proposed rule, the final rule allows years in which there was a loss or no income to be included in the 3-year average AGI, but for ongoing operations only. The final rule retains requirements that certifications of compliance with the average AGI limitation must be done only by accountants and attorneys; and retains provisions in the proposed rule specifying that commensurate reductions will be applied at 5 levels and that there will be no exemptions for corporations with more than 500 shareholders.

The regulation is available online from the NCC web site at

NCC: Leave Farm Law Funding Intact

The NCC joined 34 organizations on a letter ( urging the chairmen of the Senate and House Appropriations committees to reject provisions that would substantially alter the current farm law during development of the FY04 agriculture appropriations measure.

Delivered to the panels’ chairmen, Sen. Stevens (R-AK) and Rep. Young (R-FL), the letter was signed by key commodity and agriculture organizations and groups representing interests ranging from banking to conservation. The letter urged the chairmen and their committee members to reject any provisions which would "substantially alter the delicate balance and allocation of financial resources embodied in the Farm Security and Rural Investment Act of ’02."

The letter expressed the concern that any significant modification of the funding balance for production agriculture, conservation, risk management, nutrition and export promotion programs in the ’02 farm law will undermine its effectiveness. It reiterated that the farm law complies with budget and international trade obligations, addresses the stability of the US production base, protects the nation’s important natural resources and enhances nutrition and food assistance programs for US citizens.

"Our farmers and ranchers need a predictable, stable farm policy in order to make responsible planting and marketing decisions," the letter stated.

The letter also was submitted for the record by Marc Curtis, a Leland, MS, farmer, who presented testimony on behalf of the commodity groups at a House Subcommittee on Conservation, Credit, Rural Development and Research hearing. The subcommittee reviewed conservation technical assistance and the implementation of the conservation title of the farm law (see related article).

Disaster Assistance Sign-Up Underway

Sign-up for the Crop Disaster Program created under the Agricultural Assistance Act of ’03 began June 6, with eligible producers having the option of choosing to receive aid for losses in either ’01 or ’02. An end-date for the sign-up period has not been set, but USDA says producers will have ample time.

Provisions are similar to disaster programs authorized for ’98 through ’00 crops, and payment rates will be slightly less than for previous crop loss payments.

Having had crop revenue or Noninsured Crop Disaster Assistance Program coverage on the crop is not required, but producers who did not insure an eligible crop will receive a slightly lower payment rate and will be required to sign-up for insurance for the next 2 years. Producers failing to purchase coverage will be required to refund the disaster payment.

Payments will be issued to producers who suffered a drop in actual production of more than 35% of their expected production. Expected production will be calculated by multiplying planted acres by the expected yield. Prevented planting will be covered if a producer has a past history of planting the crop and adverse weather conditions prohibited timely planting.

Total payments are limited to $80,000 per producer. The total of insurance indemnity, cash sale of the crop and the disaster payment cannot exceed 95% of the expected crop revenue.

Hearing Reviews Conservation Technical Assistance

Rep. Lucas (R-OK), Chairman of the House Agriculture Subcommittee on Conservation, Credit, Rural Development and Research, convened his first hearing to review conservation technical assistance. Marc Curtis, a Leland, MS, producer, represented NCC and other commodity groups by testifying at the hearing.

The hearing was in response to an ongoing debate over how to implement funding for technical assistance for certain conservation programs. USDA announced earlier this year that it would go forward with sign-up for the Conservation Reserve (CRP) and Wetlands Reserve (WRP) programs. However, working lands programs such as the Environmental Quality Incentives Program, Farmland Protection Program, Grasslands Reserve Program and Wildlife Habitat Incentives Program would be forced to pay for the technical assistance to implement CRP and WRP.

Chairman Lucas has introduced a bill that will legislatively prevent the conservation funds from being spent on other projects.

NCC and other organizations continue to request that USDA resolve this issue administratively, and believe that each program should pay for its own technical assistance.

In his testimony Curtis emphasized to the subcommittee the NCC’s objection to any "attempt to amend, alter or divert funding away from farm bill programs as authorized by Congress and signed into law by the President."

Court Vacates EPA Directive on Human Testing of Pesticides

The US Court of Appeals on June 3 vacated the EPA’s directive halting the use of data generated from human testing of pesticides by 3rd party researchers. EPA announced it would no longer use the data in December ’01. CropLife America filed suit and NCC and other concerned groups filed an amicus brief in support of the action.

The Court ruled that the EPA did not provide the required comment period to the public concerning this issue, and as a result needed to publish notice of such an action in the Federal Register. The decision allows the EPA to use additional, more accurate data to refine risk assessments and may allow for additional uses of products. NCC will provide comments to EPA concerning the future of this issue.

EPA began reevaluating its practice of using data from human studies in the late ’90s but in October ’01 clarified that it was reviewing such studies on a case-by-case basis. Two months later, the agency announced it would no longer use the existing data. According to the EPA, no human data was used for the reevaluation of pesticides under the Food Quality Protection Act. However, without such data, it was predicted that the EPA’s "risk cup" for certain pesticides would overflow, resulting in some uses being lost. For example, this was indeed the case with an important cotton product, aldicarb, because the directive would have caused the agency to ignore several older studies. Use of aldicarb on cotton and citrus would have been cancelled or severely restricted.

’02-Crop Cottonseed Assistance Payments Begin

Agriculture Secretary Veneman announced that USDA began making payments for the ’02-crop cottonseed assistance program June 5. The $50 million program was authorized under the Agricultural Assistance Act of ’03.

The payment rate to cottonseed producers and first-handlers of the ’02 cottonseed crop averages $7.76/ton of cottonseed on 6.4 million tons or approximately $2.99 per average-weight bale. The payment rate is based on the quantity of cottonseed that USDA estimates to have been produced from the bales and lint weight certified on the applications received from ginners. The payments are subject to the terms and conditions contained in the ’02-crop cottonseed payment application that gins signed earlier this year.

Exports of 9.5 Million Bales Ahead of Last Year’s Pace

Net export sales for the week ending May 29 were 140,300 bales (480-lb.), resulting in total ’02-03 sales of almost 12.6 million bales. Total sales at the same point in the ’01-02 marketing year were approximately 12.3 million bales. Total new crop (’03-04) sales are 1.3 million bales.

Shipments for the week were 248,600 bales, bringing total exports to date to 9.5 million bales, slightly ahead of the 9.4 million bales at the comparable point in the ’01-02 marketing year. If the pace of recent weeks is maintained, exports for the marketing year would reach USDA’s projection of 11.0 million bales.

Prices Effective June 6-12, 2003

Adjusted World Price, SLM 1 1/16

47.02 cents


Coarse Count Adjustment

0.00 cents

Current Step 2 Certificate Value

2.94 cents

Marketing Loan Gain Value

4.98 cents

Import Quotas Open


Step 3 Quotas as of 4/24 (480-lb. bales)


*No Adjustment Made Under Step I
Five-Day Average
Current 3135 c.i.f. Northern Europe

56.71 cents

Forward 3135 c.i.f. Northern Europe

60.11 cents

Coarse Count c.i.f. Northern Europe

57.82 cents

Current US c.i.f. Northern Europe

59.65 cents

Forward US c.i.f. Northern Europe

60.50 cents

Weighted Marketing-Year Average Farm Price  
Year-to-Date (August-April)

42.62 cents


**August-July average price used in determination of counter-cyclical payment

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