Letter from Langdon: Bad Days Coming?

The new farm bill will do little to soften the economic blow that could be headed our way. With corn prices uncertain, farmers may get less for corn than it will cost to grow the crop. And the new reliance on crop insurance isn’t going to help.

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New crop corn futures are struggling at $4 per bushel while corn farmers this year will spend more than that just to grow it. At the legally mandated support price of $3.70, this year’s farm bill only guarantees farmers a loss.

As a result, confusion and uncertainty surround the implementation of the new farm bill. One indication of just how much confusion the new law creates is that the Environmental Protection Agency may have as much to do with the agricultural economy this year as the farming legislation.

You might think I’m referring to the EPA’s clean-water initiative, Waters of the U.S. (WOTUS), which had EPA administrator Gina McCarthy visiting farm states last year. But no, the big question for commercial farmers is whether the EPA is going to weaken the renewable fuel standards. Those are the rules that govern how much ethanol must be blended into the nation’s gasoline supply. The EPA has been postponing a decision on the standards for months, and it has corn country fit to be tied.

Ethanol comes mostly from corn. About 5 billion bushels of corn, in fact. That’s more than a third of the estimated 14 billion bushels American farmers produced in 2014. This year, in anticipation of that kind of demand for renewable fuels and other uses, farmers from North Dakota to Florida have expanded production.

If the demand isn’t there and prices drop, that’s when the nation has traditionally looked to price supports in the farm bill to stave off agricultural economic disaster. All that has changed. After spending close to two decades telling farmers that traditional Depression-era price supports are going to be replaced by self reliance and free markets, our new farm bill gives us something resembling the Powerball Lottery. That’s because values of the most basic farm-produced commodities are worth less than it costs farmers to grow them.  And the market-based revenue guarantees in the farm bill do nothing to head off a disaster.

The new grand plan for helping farmers deal with economic uncertainty resembles underwater CPR for drowning victims.

The new plan is based on crop insurance. Such insurance can be a good thing. It was supposed to be the basis of our self reliance, because growers of major crops in the U.S. could assume whatever level of risk suited them and insure the rest of their crop. But the problem with crop insurance is similar to what some people believe about health insurance. It’s too expensive.

Farmers in some states refuse to buy adequate levels of expensive crop insurance because they preferred annual outlays by Congress for disaster relief. The old system, a sort of “Medicaid for crops,” has been called “welfare” for agriculture.

Farm bills of the past have been trying to eliminate that for almost 20 years. The 2014 bill goes further in that direction. That leaves farmers vulnerable to swings in agriculture markets, which, for American farmers, are nearly all domestic; corn exports total less than 2 billion bushels per year. 

Feeding hungry Americans is still the biggest part of farm spending (nutrition programs account for 80% of farm bill expenditures), and that money doesn’t go directly to farmers. The legislation that deals directly with farmers – the part of the farm bill I’m addressing here – represents only about 15% of total farm-bill spending.

But it’s a big 15%, because it indirectly influences production of meat, eggs, poultry, fish, grains, oil seeds and fiber both here and around the world.

Other than the newly designed cotton price plan called STAX (which was designed with a lot of help from cotton growers), most of the “farm” part of the farm bill is too disconnected from economic reality to head off a potential farm recession.

(Keep in mind that the two-thirds of our cotton crop exported to foreign mills is a mirror image of what used to be domestic usage. Who benefits from cheap cotton?)

The big dog of U.S. farm programs and acreage is corn. Already, predictions of corn acres shifting to soybeans due to high costs of production prove that as corn goes, so goes the world. Corn markets and production even affect prices of beef, pork and chicken.

Government indecision on both the renewable fuel standards and other issues makes this an uncertain year for farmers. While the Obama Administration has supported corn based ethanol as a stepping stone to developing newer sources of renewable energy, not everyone supports that view. A bill currently in the U.S. Senate would gut the ethanol mandate.

As one crop declines in price, farmers look to other crops. Low prices for corn lead to overproduction of grains and oil seed crops like soybeans and sunflowers. One thing leads to another because the current farm bill does nothing to compensate for low prices of everything we grow. They’re like minimum wage jobs that won’t pay the rent.

And that’s why renewable energy policy in the hands of EPA is as important to farmers as the farm bill.

Richard Oswald, a fifth generation farmer, lives in Langdon, Missouri, and is president of the Missouri Farmers Union.

 

Topics: Ag and Trade
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