INTEREST IN OPTIONS STIRRED BY U.S. FARM PLANS
In their search for ways to cut
spending on U.S. farm programs, policymakers and their advisers
here are citing trading in options contracts as an alternative
to federal income and price supports.
    Critics of costly federal farm programs maintain that the
government could get out of guaranteeing minimum support prices
if farmers systematically used options contracts to protect
themselves against vacillating market prices.
    "With agricultural options now available, there is less need
for government price support programs to provide price
stability for farmers," the Heritage Foundation, a conservative
think tank, said in a recent position paper.
    "Washington no longer needs to restrict the level and
variability of commodity market prices. Farmers and others in
agribusiness can now achieve the benefits of price stability by
trading in option markets," the paper, written by Clemson
University professor Kandice Kahl, said.
    Critics of farm programs contend that options offer the
benefits of price support programs without entailing the cost
to taxpayers.
    Kahl's paper urged farmers to buy "put" options in order to
obtain the right to sell at a particular price to the private
seller of the option contract.
    "This gives the farmer a guaranteed price, but still allows
him to profit from higher market prices, if they are available,
by foregoing his option," Kahl said.
    Interest in promoting understanding of options trading
among farmers also has been stirred in Congress by a proposed
change in agricultural policy that would have the effect of
exposing participants in federal farm programs to fluctuations
in income subsidies.
    The proposal -- supported by the Reagan administration and
a cross-section of lawmakers -- would allow farmers to receive
at least 92 pct of their income subsidies regardless of how
much they planted.
    Under current law, farmers enrolled in federal price
stabilization programs receive income subsidies, or deficiency
payments, equal to the difference between a set target price
and the higher of the support price or market price.
    The so-called decoupling plan, or "0/92", would aim to
curtail surplus production by eliminating the requirement that
farmers plant in order to receive deficiency payments.
    Critics of "0/92" plan contend that if the scheme succeeded
in curbing surplus output, market prices would rise and
deficiency payments fall -- leaving farmers who chose not to
plant with shrunken income subsidies and no crops to sell.
    Sen. Rudy Boschwitz (R-Minn.), who has been in the
forefront of efforts to decouple income support from acreage
plantings, advocates replacing the variable deficiency payment
with a fixed and gradually declining payment.
    But many farm state lawmakers are turned off by the idea of
offering fixed subsidies to farmers who plant nothing.
    Some congressional staff members said they are intrigued by
the notion of having the federal government subsidize the
purchase of "call" options to help farmers hedge their income
risk.
    By buying a call option, the farmer would obtain the right
to buy a commodity at a particular price. If the market price
rose above that option price, the farmer could exercise the
option and sell the commodity on the spot market, making up
most of the reduction in the deficiency payment.
    An aide to Boschwitz said the senator might offer
legislation linking options and decoupling, but that it might
have to await the results of a pilot project on futures and
options trading mandated by the 1985 farm bill.
    The bill required USDA, in association with the Commodity
Futures Trading Commission, to conduct a pilot program in at
least 40 counties which produce major program crops.
    The program, only recently launched, was designed to
encourage producers to participate in futures and options
markets and to ensure that producers' net returns would not
fall below the county loan level for the crops in question.
 Reuter
