How farm subsidies work: an overview

Money for farm subsidies makes up only about 10 percent of the farm bill (the version being debated in the Senate calls for $288 billion in funding). Other money goes to research, alternative fuels, school lunch and food stamp programs and other programs.

But subsidy money seems to attract the most scrutiny.

The system for paying subsidies is complex, with a variety of commodities and types of payments. Some payments are conservation-related, meaning farmers are paid not to farm land but to institute conservation practices to preserve habitat and stop erosion. But producers of several commodities -- barley, corn, grain sorghum, oats, a variety of oils, peanuts, rice, soybeans, upland cotton and wheat -- are given subsidies to grow their crops.

These subsidies come in three main types -- direct, countercyclical and marketing loans and loan deficiency payments. Direct payments go to producers based on the amount of acres they historically farm and what crops they farm on those acres.

Using a formula with a price per acre for each commodity, producers receive these payments every year, regardless of market prices.

Countercyclical payments are only paid out when producers can't get appropriate market value, as defined by Congress, for their crops. If the combined market prices and revenue from direct payments is below the target price, these payments kick in. Because of their nature, countercyclical payments aren't as high in years of good market prices.

The third type of payments are marketing loans and loan deficiency payments. Marketing loans provide producers with loans for which the collateral is their crops. When the loan is due, they can either repay it or give their crops to the USDA. Loan deficiency payments are taken by producers who can receive the loans, but choose not to, and make up for the difference between the loan rate and the market price of commodities. More commodities qualify for loans and deficiency payments than for other types of payments.

All payments are based on local markets and vary by county.

-- Matt Sanders