Monday, July 25, 2011

WSJ - High Crop Prices are Doing What Politicians Can't Do: Reduce Farm Subsidies

Interesting story in the Wall Street Journal on the effect of surging crop prices on the federal restribution of wealth (remember, it's not called socialism if it goes to corporate farm interests) in the heartland.  [May 27, 2008: Farm Lobby Beats Back Assault on Subsidies]

  • Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, "This could be our best year ever," says chief executive Tom Sloan.
  • An exception to the boom is the local office of the U.S. Agriculture Department, the dispensary of federal payments to farmers from an array of arcane programs with names like "loan deficiency" and "milk income loss." On a recent afternoon, the parking lot in front of the squat brick building behind a Chinese restaurant was nearly empty.  The reason: Payments from America's primary farm-subsidy program, dating from the 1930s, have stopped here. Grain prices are far too high to trigger payouts under the program's "price support" formula. The market, in other words, has done what decades of political wrangling couldn't: slash farm subsidies.
  • There remain other types of subsidies, which continue to pay out because they aren't linked to market prices. But high prices are undermining political support for those programs, especially as Congress and the White House get serious about restraining federal spending, amid trillion-dollar deficits and a political brouhaha over the federal debt ceiling.

  • Government checks to farmers have shrunk to about $11 billion annually—half what they were six years ago—and they could shrink by roughly half again if Washington goes through with calls to eliminate a second major type of farm aid that costs the government about $5 billion annually.
  • Critics have long attacked farm subsidies as wasteful and obsolete. Some $760 billion in federal spending ago, they were created to tackle rural poverty during the Depression era, when a quarter of Americans lived on farms. Today, less than 1% of the population is in farming. The typical farmer works many more acres than in years past, thanks partly to ever-more-powerful tractors and harvesting combines, the newest of which steer themselves.
  • The bulk of the federal subsidy money flows to farmers who are wealthier than the typical U.S. taxpayer. The Environmental Working Group, a Washington activist organization that wants subsidy dollars shifted to conservation programs, maintains a database that shows 10% of farms getting 74% of the federal money. Small farmers receive smaller payments simply because they work fewer acres.
  • The programs long were protected by one of the few bipartisan coalitions left in Washington—politicians of both parties from major farming states.
  • Farmer groups, resigned to deep cuts, are pitching alternative subsidy programs that they say would cost taxpayers less.
  • That is a matter of concern to some. While the current crop prices mean subsidy checks aren't much missed by farmers, some agricultural economists worry about what will happen next time the historically volatile farm economy contracts.
  • For decades, while crop prices languished but operating costs rose, many growers counted on these subsidies to survive. For most of their careers, farmers in Shelby County, 200 miles south of Chicago, depended on government payments for roughly half of their income.
  • Today's target prices reflect the largely depressed crop markets that prevailed from the late 1970s until 2005—corn averaging roughly $2 a bushel year after year, and soybeans around $6. But corn now sells for about $7 a bushel in Shelby County, far above the subsidy program's target price of $2.63. Soybeans fetch about $13 a bushel here, versus a $6 target price. So no price-support checks are going out.

  • The USDA still ships billions of dollars annually to farmers for various other programs, such as payments for keeping highly erodible land in grass rather than row crops. It subsidizes crop insurance. Still, federal payments to farmers are expected to fall to about $10.6 billion this year, compared with $24.4 billion in 2005.
  • The other major subsidy program, unrelated to market prices, is a remnant of a failed 1996 experiment by a Republican-led Congress to wean farmers off federal aid. Farmers were supposed to receive fixed, but declining, checks for seven years and then be left to the whims of the market. But in the seventh year, instead of letting the payments expire, Congress turned them into a program of set payments, based on the amount and type of crops that particular farms had historically produced.

[May 16, 2011: U.S. Plains States Farmland Boom Continues, with 20% Year over Year Gains]
[Mar 11, 2011: [Video] Former FDIC Head Bill Isaac Talks about the Dud that is Dodd-Frank, and the Potential for a Farmland Bubble]
[Mar 7, 2011: NYT - In Prices of Farmland, Echoes of Another Boom]
[Feb 16, 2011: WSJ - Midwest Farmland Surges Double Digits in Q4 2010 Alone]
[Nov 15, 2010: Farm Economy Headed for Record]

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